Muhammad Yunus, the Bangladeshi economist, won the world over by his simple act of empowering women and youth in his country through microfinance and training. He did this through the much acclaimed Grameen Bank that lent to small business owners. His model has been replicated the world over as the ultimate in eliminating poverty. But does this model of entrepreneurship eliminate poverty?
In 2007, Jonathan Morduch studied over 250 cases in India, Bangladesh and South Africa to verify the narrative that this small scale entrepreneurship does eliminate poverty. He concludes that the celebrated microcredit only acts as a transfer payment to help the recipients cope with the ups and downs of poverty.
David Roodman rightly puts it that “the best estimate of the average impact of microcredit on the poverty of clients is zero”. In South Africa, research indicates that 94 per cent of the money was used for basic consumption. The businesses helped the women to meet their needs, but did not give them enough to save, invest and create wealth.
Why didn’t this model work? A limelight on some of the world’s successful entrepreneurs will give us a glimpse into what works.
Bill Gates came from a modestly rich family. He was not trying to alleviate poverty; he was doing something he loved. He didn’t have bread-and-butter problems, hence was able to spend years learning coding and developing the right codes without being distracted by his basic needs.
The Rockefellers were Jewish merchants. They were in the middle class by the time they were starting the process of wealth creation.
The patriarch strategically positioned his sons in all the major towns of Europe where he had business interests. The result was a free flow of information and goods from trusted family members.
Warren Buffet is the son of a US congressman and Steve Jobs did not come from the ghetto.
Locally, James Mwangi did not start from scratch; he took over a building society with some resources. Manu Chandaria came from a family that could afford some capital.
In essence, one needs access to some tangible opportunities before they can succeed as an entrepreneur. Coming from a wealthy family enables one to access capital and create helpful networks. Patronage and nepotism in business, politics and social access is a reality all over the world.