Topic B: Alternative Finance for Small Businesses in Conflict Zones
Alternative finance refers to forms of finance that differ from the traditional system, particularly regulated banks and capital markets. While there are many different forms of alternative finance, when considering issues of conflict zones, I would like to focus on microfinance.
Microfinance, according to Google, is another term for "microcredit" which in turn is defined as "the lending of small amounts of money at low interest to new businesses in the developing world". While assuredly it can be used to introduce technology and vice-versa (Topic A), there is the question of whether or not such forms of financial support can be used to help develop small businesses and grow jobs in conflict affected areas of the world (Topic B).
The World Bank (see "Helpful Links" below) is a strong believer that "solid financial infrastructure for small-scale lending can help people weather a crisis or, in other words, support their economic resilience." The benefit to microfinance especially is that crowdfunded capital can be used in ways that commercial capital can't or isn't willing to. For example, the security situations in places like Palestine or the Democratic Republic of the Congo can discourage traditional investors from helping to grow industries and businesses that would provide jobs for the people.
Questions to Consider:
- Does your country benefit from alternative finance solutions? Does your country support any existing finance programs?
- What are common roadblocks that prevent financing small businesses in developing countries?
- How do geopolitical issues, particularly in conflict zones, influence economic growth and workforce development?
Madeleine Valdez
mvaldez@bmun.org
Helpful Links:
https://www.nytimes.com/topic/subject/microfinance
https://blog.kiva.org/tags/conflict-zones
http://blogs.worldbank.org/arabvoices/microfinance-needed-iraq-more-urgently-now-ever
(Please remember to write detailed solutions addressing funding and necessities.)
Country: Czech Republic/Czechia
ReplyDelete1. In the past, the Czech Republic has benefited from alternative finance programs, specifically micorfinance. After Czechoslovakia split up and a free market economy in the new Czech Republic was established, multiple smaller-scale businesses were financed using this microfunding. However, this has largely changed in present day, as the Czech Republic is home to mostly larger businesses that are not in need of these loans. Hyundai and Toyota are two main companies that have large plants in the country, and as these are wealthy corporations, alternative funding is not necessarily needed. However, microcredit did help to “jumpstart” the Czech Republic’s economy after its indpendence, and has helped to place it in a strong economical position in the 21st century.
2. In most modern-day developing countries, nearly all small businesses are incredibly new, as it has only been recently where businesses and other countries have really began to invest a lot in international business. Because there is a large variety of businesses in these countries and it’s hard to determine which could succeed, it could make certain investors wary or less generous when it comes to investing. Plus, as countries develop at different rates, those that are developing faster are more likely to receive funding, as the investors would be getting more out of it in a fast-growing economy.
3. One of the main geopolitical problems that affects business development is “under-the-table” economies, which involve illegal trade and other unlawful business. Several countries do have a somewhat large reliance on this, and it hinders their own ability to communicate with and form partnerships with their own private sector. Additionally, certain industries are often more exploited than others. The most common industry exploited in conflict zones is mining by far. Specifically, gold, tin, tungsten, and tantalum are most commonly mined without employee rights in mind. Because this exploitation often occurs lower in the supply chain and in more rural areas, it is often overlooked or flat-out ignored by the government. It’s important that these issues be addressed in any solution proposed.
France greatly benefits from alternative finance solutions which is demonstrated in the 550,000 new businesses and tech startups created in 2012. France is the third largest microcreditor in Europe and supports the entrepreneurship of citizens of all socio-economic status. Over 60% of the 550,000 businesses needed financing of less than 16,000 Euros at startup. Professional micro crediting of loans up to 25,000 Euros has had a lasting impact on the French workforce since new college graduates are increasingly choosing to work for startups rather than large corporations.
ReplyDeleteMicrocredit in developing countries presents many different challenges than in developed countries such as France. Only about 25% of households in the developing countries of sub-saharan Africa have access to banking services which severely limits the capabilities of many possible entrepreneurs in the region. Possible solutions to this issue would have to address the problem of extending microfinance programs to rural areas and increasing outreach to remote villages where there is very little infrastructure for transportation. Another major concern for potential investors is the safety of the region. Investors will not invest in a business that could possibly be in conflict zones where militia groups harass locals and loot vulnerable transports of goods. Assuring investors of the stability of a region is the only way to ensure they will continue to support the development of a region.
Geopolitical issues, especially in conflict zones, hinder economic growth when the young members of the workforce cannot find formal employment and are susceptible to joining militia groups and participating in illegal activities. Corruption in conflict zones allows powerful individuals to exploit the natural resources of a country but steal the profits instead of investing in the local economy. Powerful individuals with the backing of armed militia groups along with desperation of workers to provide any sort of income create conditions ripe for exploitment. When workers are stuck in regions with extremely high demand for unfavorable jobs, the workforce cannot develop and neither will the economy.
United Nations, International Labor Office, et al. “MICROCREDIT IN FRANCE: What Impact Does It Have on Employment?” , Innovative Finance for Social Justice, 2015.
Country: Venezuela
ReplyDeleteVenezuela does not benefit from alternative finance as it has not yet thoroughly been introduced at a national level. In 2008 and 2009, the UNHCR launched a micro-funding program in Venezuela to promote small businesses and attract asylum-seekers. The UNHCR report stated that the system helped residents kickstart their small businesses. After this study ended in 2009, not much alternative finance was introduced to the nation as a recession occurred alongside hyperinflation and the country's government became unstable. In theory, Venezuela would likely benefit from an alternative funding program. The government is currently financially incapable of funding such systems as there is hyperinflation which makes the currency near worthless. If supported by other groups, alternative finance could be beneficial as Venezuelan money is of low value. Bringing in money from external sources would be helpful as capital with worth could be produced. Most businesses in Venezuela have struggles being profitable as there are not many options to obtain sufficient startup resources including capital and utilizing them.
Many of the times, accessibility tends to be a roadblock which prevents small businesses from being financed in developing countries, as it is in Venezuela. Many nations don’t have funding available, and this is developing countries especially. Most of the time, there is no funding which can be allocated towards the promotion of small businesses even though they greatly help support the economy. This is also why developing countries need support from external sources such as NGOs on alternative finance such as Kiva. These organizations could help make aware how small businesses help support the economy and alongside this provide alternative investment such as microloans. Unfortunately, Venezuela’s government is far too unstable and corrupt to prioritize small businesses, and the nation prioritizes the petroleum industry as it has the highest oil reserves in the world.
Geopolitical issues influence economic growth and workforce development in many ways. Specifically in conflict zones, corruption tends to be prevalent, and this is evident when looking at the workforce of Venezuela. Unfortunately, in Venezuela, few people hold most of the power, and these people do not have the best interests for the working class. Nearly 90% of Venezuelans are impoverished, and the government is doing not much. The majority of the impoverished population is made up of the working class. Corruption in Venezuela is an example of how powerful government officials and influential people influence the market and leave a particular part of the population from getting fair wages and therefore hurting the economy. Any solution pertaining to unstable countries and conflict zones must be sure to address corruption as it is an influential factor which significantly affects the economy of many third-world countries.
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Thanks and look forward to your prompt reply.
Regards,
Muqse