Premium
Micro‐credit and Micro‐equity: The David and the Goliath of Micro‐enterprise Financing
Author(s) -
Ayayi Ayi Gavriel
Publication year - 2012
Publication title -
economic papers: a journal of applied economics and policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.245
H-Index - 19
eISSN - 1759-3441
pISSN - 0812-0439
DOI - 10.1111/j.1759-3441.2011.00144.x
Subject(s) - equity (law) , finance , business , nature versus nurture , shareholder , micro enterprise , economics , corporate governance , economic growth , genetics , political science , law , biology
I argue that micro‐equity may be used to complement or substitute micro‐credit programmes, which involve lending rather than risk sharing. By becoming a stockholder in the micro‐enterprise rather than a lender, the micro‐equity provider is in a more tightly coupled relationship, providing knowledge and guidance necessary for ensuring success of the venture. Moreover, I show that while micro‐credit financing places a heavy cash drain on micro‐enterprises and leads to sub‐optimal growth during the course of the evolution of the micro‐enterprise, the mix of micro‐equity with micro‐credit may prove to be more valuable to nurture the sustainable growth of micro‐enterprises.