Why entrepreneurs in the developing world need new funding models – Fiona Murray

MIT Sloan Associate Dean for Innovation Fiona Murray

MIT Sloan Associate Dean for Innovation Fiona Murray

From City A.M.

Increasingly, it is innovation-driven entrepreneurs who are providing effective and scalable solutions rather than aid agencies or governments.

Traditionally, the focus of entrepreneurship in the developing world has been on creating small- and medium-sized enterprises serving local markets. However, that emphasis must shift from small firms to what MIT calls innovation-driven enterprises: start-ups that can scale for significant impact.

Building an innovation-driven enterprise is full of challenges for any entrepreneurial team. They must find an appropriate beachhead market, prototype and pilot, and recruit and retain top talent. They also require specialised entrepreneurial finance at each stage.

For development entrepreneurs, access to appropriate types of capital is a significant constraint.

Their challenges are not just about the limited availability of institutionalised venture capital, but to the full range of “risk capital” options, from initial financing by friends and family and angel investors to VCs, private equity and commercial banking. The creation of a pipeline of financial instruments is a critical bottleneck.

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M-PESA: Kenya’s fast-growing mobile payment system

MIT Sloan Asst. Prof. Tavneet Suri

I grew up in Nairobi, Kenya, and so my research on M-PESA, the cell phone-based payment system that has spread like wildfire across the country, strikes a deeply personal chord. Most of my research on this has been in collaboration with William (Billy) Jack at Georgetown who lived in Kenya himself for a few years. We both experienced the frustrations of what in the US would be the simplest of money transactions, and felt that M-PESA could fulfill a need of many Kenyans.

In practice, the adoption of M-PESA has been faster than we, and most other observers, had anticipated. In four short years it has been widely embraced by Kenyans, and has already had a big impact on the lives of people I’ve known for years. I did my dissertation on the adoption of farming technologies in Africa, and it’s still a subject that interests me a great deal. I’ve looked at the implementation of seed technologies in Kenya, and the diffusion of improved coffee farming practices in Rwanda. It often takes decades for these kinds of technologies to fully penetrate a population.

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