Investing in Entrepreneurs

This is exactly the kind of thing we'd like to see a lot more of in Mongolia. I'll let Mercy Corps's press release speak for itself (italics mine):

MANDALGOVI, Mongolia -- Small-time cashmere trader Davaasuren suffered through Gobi Desert droughts and freezes while dreaming of starting a business. He wanted to supply his town with eggs, but he lacked money for chickens. Portland-based Mercy Corps aimed to help Mongolians out of poverty, but the humanitarian organization avoids handouts that foster dependency. So Mercy Corps introduced Davaasuren -- who like many Mongolians, goes by one name -- to XacBank, a commercial bank that the nonprofit launched four years ago.

Now a loan from XacBank, pronounced "hassbank," enables the 29-year-old entrepreneur to sell fresh eggs, replacing those trucked in from the capital under the former socialist system. More XacBank loans allow scores of Gobi Desert herders to survive by launching small shops, factories and gas stations.

The idea of a humanitarian organization establishing a for-profit bank might seem as far-fetched as the presence of a tree in the harshest region of Mongolia. But nonprofit development organizations have funded commercial enterprises in places ranging from Romania and Haiti to Aceh, the tsunami-battered area of Indonesia.

Humanitarians may be new to the profit ethic, but they like the idea of creating incentives and of founding banks and businesses that last far longer than one-time grants. They acknowledge the commercial approach bypasses the poorest of the poor, but they say other conventional programs already address those needs. "The reason you own the for-profit companies is because you want to make something sustainable and last forever," says Ed Epp, Mennonite Economic Development Associates vice president for resource development.

Instead of awarding grants in Nicaragua, for example, MEDA bought a bank and redirected it to make small loans. In Haiti, the group founded a credit union that's become the nation's largest.

Mercy Corps goes a step further. It trains Mongolian herders and others, helping them prepare business plans and apply for loans. Then Mercy Corps guarantees some of the collateral so that XacBank, or a competing bank, can assume less risk and charge lower interest.

In an added twist, Mercy Corps links some of its global beneficiaries -- including Davaasuren, the egg man -- to donors with business experience. Western entrepreneurs who donate $10,000 shares to Mercy Corps' Phoenix Fund can advise on business plans and visit projects financed by the fund....

Mercy Corps' objective is not to move nomads off the range. It aims to diversify incomes, stemming migration to Ulan Bator, the nation's swelling capital. "Herders realize they can't afford to be a single-product kind of business," says Steve Zimmerman, Mercy Corps Mongolia country director. "They can produce dairy goods, make furniture, run gas stations."

This is great, great news. Among other things, it addresses a number of problems in Mongolia. Namely,

1. It seeks to foster financial independence instead of dependency. In other words, it helps foster an ownership society, at least in a small way.
2. It has a long-term view: don't give them a fish--teach them how to fish.
3. It addresses the problem of exorbitant interest charges by lowering risk to local financial institutions. I've heard reports of people in Mongolia borrowing money to start businesses and paying well over 100% in yearly interest on it.
4. It links local entrepreneurs to experienced business people and has what looks to be something like a business mentoring program.
5. It seeks to preserve Mongolian culture intact and stemming the unsustainable tide of job-seeking migrants to UB from the countryside.
   

While large scale business investment in resources, etc. are great (see previous posts), small scale investment in ground-level business people is just as critical. I look forward to seeing where this takes us.