Responsible finance and SME development
Responsible finance and SME development
Date: 12th November 2015
Venue: Chartered Insurance Institute offices, City of London
This ESRC seminar took place at the Great Hall of the Chartered insurance Institute in the Financial City of London. It could not have been a more apt venue to discuss the issues concerning Responsible Finance for micro and small and medium sized enterprises (MSMEs). The five invited speakers included Professor Trond Randoy from Agder Business School Norway, Arun Thamkom from University of Central Lancashire, Professor Georgios Mergos of the University of Athens, Dr. Sougand Golesorkhi from Manchester Metropolitan University and Jag Minhas from Being More Digital.
The discussions highlighted both tensions and successful co-operation models that existed between the providers and distributors of finance and the recipients of finance at the local level. The demand for responsible firms in the light of the failure of the formal financial sector’s efforts to reach the MSMEs has seen the emergence of microfinance institutions (MFIs) to serve the community excluded from the formal financial system. But the dual logic, as stated by Professor Arun Thankom in his talk, of commercial bottom line and social mission has raised some critical tensions.
What is becoming clear is that with the MFI momentum and investor collaborations there is a growing shift towards greater ownership and control of finance received at the local level enabling both MSME build and innovation. Case studies from Africa, Asia and the MENA region demonstrated how debt and equity financing, micro-finance initiatives and crowdfunding schemes have paved new ways to enable MSME development and have propelled even further momentum into new methodologies for finance provision and access at the local level.
The trend for co-operatives between foreign based investors and local level investors is also being driven by a long-term shift from institutional bottom line drives to MSME based mixed contribution schemes where contribution is more than finance and involves the build of social networks and intellectual property at the local level.
The studies also considered the impact of risk-based intermediation; financial incentives and positive leadership on both demand and supply side financing, choice preferences and local social capital. Furthermore the growth of hybrid firms has shown to be to be more responsive to the needs of consumers in providing finance.
Two further tangential but interesting perspectives emerged: the importance of language on the performance of microfinance institutions and the impact of fostering investment on agro-food value chain on food security. The study on language observed that microfinance institutions that are based in countries with a large linguistic distance to their partners had lower financial performance. While in the developing de-centralized agro-industry, chains directly connected with small producers has evidenced that these firms taking distance from short–term profit maximization and have embraced new concepts for investing in sustainable local enterprise networks.
Other contributions questioned the North-South (Developed country based models operating in emerging economies) models of financing and in this respect the extent to which South-South models may work more effectively.
It is noticeable that there is limited discussion in the Corporate Social Responsibility (CSR) literature on responsible finance. Most of literature in respect of responsible finance is on micro financing and to a greater extent on the applicability of the “Grameen bank” model. This begs the question for continuing the search for innovative models of financing but not only financing per se but managing MSME build and sustainability. The papers at the conference raised a diversity of thought in this area and the event demonstrated that there is still much work to be done in the area of responsible finance. Some of these new research directions will be reflected in our Research Handbook of Small Business Social Responsibility.
Chair (Responsible Finance Seminar)