Does Size Matter in the Finance World?
Following the introduction of the Bretton Woods system, a monetary management system which sees large amounts of funds transferred to developing countries, money has become the most well-known model for international development.
This system was implemented just after the Second World War, when huge flows of money were used to rebuild the war-ravaged economies of Europe. Large sums of investments, most commonly referred to as developmental aid continue to flow today. Recent decades have seen a huge rise in microfinance, a concept which sees small, collateral free loans extended to individuals or groups to help kick start a small business, expand an existing micro business or to enable investment in key items to improve livelihood.
These two approaches are both aimed at solving the issue of accessibility and aim to remove barriers for individuals and communities to access financial markets. Going forward, a question for developmental aid practice is finding the balance between macro and micro initiatives: go big, with a few large investments or go small, with a high number of micro-loans?
The investment of large monetary sums into areas such infrastructure, health and education aims to improve the productive capacity of a country or region. In his TED talk ‘In Praise of Macro’, Sangu Delle proposes that investing in the development of big business in Africa is what has the potential to provide jobs and economic growth across the continent. The example Delle provides this: is it more beneficial to invest in Stawi Foods and Fruits or engage in micro-investments to all banana farmers in the region? Delle envisions that it is pan-African business ‘titans’ such as Stawi Foods that will foster economic growth for the African region, and as such investment would result in the greatest impact through this medium.
Microfinance has taken the world by storm as the new model for economic development, with the initiative even advocated by celebrities such as Bono who said, “Give a man a fish, [and] he’ll eat for a day. Give a woman microcredit, [and] she, her husband, her children, and her extended family will eat for a lifetime”. Through microloans, individuals are able to invest in goods such as sewing machines or bicycles which can be utilised in income generation. Microfinance has been especially effective in improving the economic opportunities extended to women. Muhammad Yunus, the founder of the Grameen bank and supporter of social business explains how he created this system in this video.