Demanding Capital

Kudos to the New Yorker for its well-timed piece, “Millions for Millions,” that suggests how success has sown dissension in the field of microfinance. The piece arrived shortly after Muhammad Yunus, founder of the Grameen Bank, was named next recipient of the Nobel Peace Prize for his role in using tiny loans to help people lift themselves out of poverty. But it is the article’s anti-hero who interests me today: eBay founder Pierre Omidyar, emerges as a believer in microfinance, but with a difference.

As I read the piece, Omidyar wants to make microfinance more than a poverty-fighting tool. Does he want to create microfinance for the middle class, or for the working poor? That is not explicitly clear but it would make sense given how eBay has spawned hundreds of thousands of full-time businesses.

As long as I’m thinking wishfully, microfinance for mini media would offer great world-changing bang-for-the-buck, because new media, small media, are more likely to raise ideas or voices not now heard. And I know from personal experience that small businesses need capital — and banks are dead ass useless at providing it.

In 1980 I started a tyesetting business with my wife. She had $10,000 tucked away. Virtually all of that money vanished within months as we acquired the machines to create and design printed materials. We were quickly able to load up that first machine with work and so we sought, as I remember about $3,000 for an additional piece of equipment to give us two keyboards and double our potential thruput.

Bankers laughed at us. Only one would actually visit out business and invest the time to learn what we planned to do with this money. Martha something was her name. She was polite and informative but she had no “financial instrument” our size. We found money from a consortium of family members whom we repaid ahead of schedule — but without interest. We never, in 10 years of running that typesetting business, had any business with a bank other than maintaining a checking and savings account.

Of course that was a long time ago. In recent years I would imagine that finance has been easy for homeowners willing to skim a little capital off the housing bubble. But I think that easy financing venue has run its course, and in any event I feel for young people, especially, who have no house to re-mortgage and no prospect of obtaining a house given today’s inflated prices. So I think a microfinance-means-business initiative would be cool.

But enough about me. What about Omidyar?

The New Yorker says he and his wife not long ago gave $100 million to their alma mater, Tufts University; that they earmarked this money “to promote microfinance’s commercialization”; that the Omidyar-Tufts Microfinance Fund must earn a return of nine percent; and that the new fund’s investment director, former U.S.A.I..D. official Tryfan Evans believes that microfinance must go through a cycle of “creative destruction.”

So this seems like tough-love meets microfinance. Omidyar tells the magazine at one point:

“I would love investors and donors to really think about this,” Omidyar said, earnestly. “There is a difference between undemanding capital” –contributed by donors, who expect nothing in return–“and demanding capital,” which requires transparency of financial reporting and an appropriate reward for risk.

Okay, so what does this capital demand? And at what projects, peoples, geographies or interests is aimed? Those are my questions. I am not, you see, one of the poor. So when the article describes a gathering of SIlicon Valley notables who hold a tea party to raise $35 million for the poor, I say, “Good for the rich and good for the poor.” But I am dead smack in the middle. ANd I want money for productive things but the banking system seems to know only revolving charge cards and jumbo home loans. So microfinance for the middle class would be a cool invention. I’ll look into this more, later.