Micro-Equity for Microenterprises
Many microenterprises in developing countries have high returns to capital, but also face risky revenue streams. In principle, equity offers several advantages over debt when financing investments of this nature, but the use of equity in practice h...
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| Format: | Working Paper |
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World Bank, Washington, DC
2019
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| Online Access: | http://documents.worldbank.org/curated/en/647381554128100263/Micro-Equity-for-Microenterprises http://hdl.handle.net/10986/31494 |
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okr-10986-314942022-09-20T00:15:05Z Micro-Equity for Microenterprises De Mel, Suresh McKenzie, David Woodruff, Christopher MICROENTERPRISES MICROFINANCE ENTREPRENEURS INVESTMENT ENTERPRISE EQUITY FINANCE CONTRACT LAW ALTERNATIVE FINANCING Many microenterprises in developing countries have high returns to capital, but also face risky revenue streams. In principle, equity offers several advantages over debt when financing investments of this nature, but the use of equity in practice has been largely limited to investments in much larger firms. The authors develop a model contract to make self-liquidating, quasi-equity investments in microenterprises. This contract has three key parameters that can be used to shift risk between the entrepreneur and the investor, resulting in a continuum of contracts ranging from a debt-like contract that shifts little risk from the entrepreneur to a pure revenue-sharing contract in which the investor absorbs much more of the risk. The paper discusses implementation choices, and then provides lessons from a proof-of-concept carried out by an investment partner, KGC Equity, which made nine investments averaging $3,800 in Sri Lankan microenterprises. This pilot demonstrates that this new contract structure can work in practice, but also highlights the difficulties of micro-equity investments in an environment with weak contract enforcement. 2019-04-03T19:50:58Z 2019-04-03T19:50:58Z 2019-04 Working Paper http://documents.worldbank.org/curated/en/647381554128100263/Micro-Equity-for-Microenterprises http://hdl.handle.net/10986/31494 English Policy Research Working Paper;No. 8799 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper South Asia Sri Lanka |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
MICROENTERPRISES MICROFINANCE ENTREPRENEURS INVESTMENT ENTERPRISE EQUITY FINANCE CONTRACT LAW ALTERNATIVE FINANCING |
| spellingShingle |
MICROENTERPRISES MICROFINANCE ENTREPRENEURS INVESTMENT ENTERPRISE EQUITY FINANCE CONTRACT LAW ALTERNATIVE FINANCING De Mel, Suresh McKenzie, David Woodruff, Christopher Micro-Equity for Microenterprises |
| geographic_facet |
South Asia Sri Lanka |
| relation |
Policy Research Working Paper;No. 8799 |
| description |
Many microenterprises in developing
countries have high returns to capital, but also face risky
revenue streams. In principle, equity offers several
advantages over debt when financing investments of this
nature, but the use of equity in practice has been largely
limited to investments in much larger firms. The authors
develop a model contract to make self-liquidating,
quasi-equity investments in microenterprises. This contract
has three key parameters that can be used to shift risk
between the entrepreneur and the investor, resulting in a
continuum of contracts ranging from a debt-like contract
that shifts little risk from the entrepreneur to a pure
revenue-sharing contract in which the investor absorbs much
more of the risk. The paper discusses implementation
choices, and then provides lessons from a proof-of-concept
carried out by an investment partner, KGC Equity, which made
nine investments averaging $3,800 in Sri Lankan
microenterprises. This pilot demonstrates that this new
contract structure can work in practice, but also highlights
the difficulties of micro-equity investments in an
environment with weak contract enforcement. |
| format |
Working Paper |
| author |
De Mel, Suresh McKenzie, David Woodruff, Christopher |
| author_facet |
De Mel, Suresh McKenzie, David Woodruff, Christopher |
| author_sort |
De Mel, Suresh |
| title |
Micro-Equity for Microenterprises |
| title_short |
Micro-Equity for Microenterprises |
| title_full |
Micro-Equity for Microenterprises |
| title_fullStr |
Micro-Equity for Microenterprises |
| title_full_unstemmed |
Micro-Equity for Microenterprises |
| title_sort |
micro-equity for microenterprises |
| publisher |
World Bank, Washington, DC |
| publishDate |
2019 |
| url |
http://documents.worldbank.org/curated/en/647381554128100263/Micro-Equity-for-Microenterprises http://hdl.handle.net/10986/31494 |
| _version_ |
1764474452882489344 |