By Barbara Magnoni
The golden way is to be friends with the world and to regard the whole human family as one. Mahatma Gandhi
Zafèn, a crowdfunding platform that supports Haitian entrepreneurs is celebrating 3 years of operations. I would like to celebrate along.
Since its inception, Zafèn has raised $1.6 million for 300 entrepreneurs and social projects in 33 cities around Haiti. The enthusiasm around the projects in this relatively new platform is especially impressive in a country where entrepreneurship is often stunted by a lack of infrastructure, government bureaucracy, and corruption. After all, Haiti is second to last in the World Bank’s Doing Business Ranking for starting a business worldwide (only Djibouti outranks Haiti worldwide with 185 vs. Haiti’s 183 days on average to start a business). I am sure that I am not alone in wondering, who would “bank” on small businesses in this environment?
The answer is primarily Haitians! Zafèn has worked hard to mobilize and inspire Haitians to bank on their own people, leveraging a trusted and professional platform that can help them identify projects with reliable leaders and sufficient oversight to ensure that lent money is repaid (83% of loans to Zafèn businesses are re-paid).
The mechanism is crowdfunding, which offers investors the opportunity to put small amounts of money into a common “pot” to invest in a project or business. Jennifer Powers and I wrote a paper in 2008 looking at some of the early crowdfunding models, particularly those that aimed to fund small businesses in developing countries. The paper: P2P Lending is Financial Democracy a Click Away, highlighted early on that these platforms leverage social goodwill and are able to pool small amounts of funds in an unprecedented way. We identified over USD200 million in crowdfunding investments back then. We could not have imagined the growth of this sector in only four years. In 2012, Crowdfunding websites raised a record USD 2.66 billion. What is terrific about crowdfunding is that to different degrees, it allows for investors with limited resources to participate. KIVA, the most widely known microfinance lending platform has already raised USD 427 million for its 191 microfinance institution partners and their borrowers, for example.
Where Zafèn has been truly innovative, however, is in marrying the crowdfunding concept with diaspora outreach. It has shown that diaspora crowdfunding is not only good for businesses seeking funding but that it offers the diaspora an opportunity to link into the social and economic development of their home countries and make their money count. Yet the promise of Zafèn faced some important obstacles:
· Lower education: 22% of Haitian immigrants (ages 25 to 65) in the US have not graduated from high school vs. 9% of native-born Americans.
· Greater poverty rates: 20% of Haitian immigrants and their young children (under 18) live in poverty vs. 11.6% of native-born Americans.
· Lower home ownership: 49% if Haitian immigrants own their own home vs. 69% of native-born Americans it is 69
· Distrust of Haitian institutions: Many Haitian entrepreneurs recall their own or family’s difficult experience of running businesses or developing social projects in Haiti and have a distrust for institutions in the country.
While these are certainly obstacles, first and second generation Haitians are rapidly joining the ranks of the middle classes in Canada and the US. Additionally, Haitians send a lot of money home – Haiti’s USD1.5-1.8 billion in annual remittance receipts place it 7th worldwide in terms of the ratio of remittances/GDP. The potential is enormous and crowdfunding overcomes some of obstacles, for example, low purchasing power, by reducing the threshold for entry (USD 25 investments are welcome). It also reduces “softer” obstacles such as lack of trust by offering the pre-screening and monitoring of projects by a reputable intermediary so as to reduce the “guessing” on the part of investors. What I find particularly inspiring about Zafèn, however is that it is more than an investment vehicle, it is a space to create a cross-border community where members understand that their futures are intricately inter-linked: a “whole human family” as Mahatma Gandhi said in the quote above.
Ms Barbara Magnoni is President of EA Consultants, a development consulting firm based in New York. She has over 18 years of international finance and development experience and has worked with organizations including Goldman Sachs, Chase and BBVA and has advised institutions such as the International Finance Corporation, the US Agency for International Development and the International Labour Organization. She may be reached at +1 212 734 6461 or firstname.lastname@example.org.