Bridging the financing gap for pro-poor innovation: Towards a framework
Lina Sonne
#2010-049
In many developing countries, pro-poor entrepreneurship and innovation
is facing a financing gap. Such innovation suffers from a lack of
finance especially from the mainstream (or core) of the financial
system. Instead, the little support that exists comes from alternative
sources at the periphery of the financial system. This substantial gap
in finance for rural PEBI, which remains unexplored, is the focus of
this paper. To start, a number of barriers to access to finance are
considered, from which a conceptual framework is constructed. The
framework considers the financial system as made up of a core (the
banks) and a periphery, where the way knowledge flows within the system,
the type of knowledge that can be accessed and accumulated, and the kind
of relationships that exists matter. It is suggested that at the core,
path dependence and institutional lock-in together with a closed
network of similar knowledge types and a dependence on collateral rather
than relationships, result in a rigid and a closed system. The periphery
organisations are better able to obtain and act on new knowledge (and
provide finance) for a number of reasons which form the basis for a set
of insufficient but necessary (INUS) condition. Accordingly, the
organisations may posit the following characteristics: a dynamic and
flexible approach to finance; a wide network of actors with varied
knowledge; relationship focused; an emphasis on tacit knowledge,
feedback loops and learning; ability to innovate close to users; and a
systemic and integrated approach to finance.
Keywords: Pro-poor innovation, entrepreneurship, rural innovation,
financing innovation, financing entrepreneurship
JEL: O16, O18, O31, R51 I
UNU-MERIT Working Papers
ISSN 1871-9872