Learning From Nature about Fair Finance
Being a new-born thing in this world is tough. The world is tough. It’s very hard to stay alive. It’s a miracle so many beautiful and diverse creatures manage to do it. Some of the most intelligent animals on the planet have a great model for how they succeed. It’s called milk (this seems a bit random, but hold on). Milk is jam-packed with the exact nutrients a little cub needs to grow, and its composition changes depending on the cub’s stage of growth and environment. When you read about investment and finance, you may see that historians trace its first evidence back to around 3000 BC. That’s boring. I think mothers have been investing successfully for 200 million years. And that’s why I think finance is extremely natural – or, at least, it can be.
To demonstrate the point – I’d like to talk about how small businesses (sometimes called SMEs - Small and Medium Enterprises) grow. Why is that important? Because 99% of businesses are small businesses, because more people are employed by small businesses than big businesses, and once a country reaches high-income status, more than 50% of its GDP is contributed by SMEs. So when I think about creating prosperity, I think about SMEs.
When people think about growing businesses, they have a pretty simple model in mind. You’ll start your small business, let’s say a bakery, by cooking cupcakes at home and selling them to friends and neighbours. Over time, by using the money you make from the cupcakes, you’re able to afford a stall at the local market and get a big mixer to make even more cupcakes. After a bit of time working hard at the market – and because of the growing popularity of your incredible cupcakes – you’re able to rent out a local shop where you have the equipment and space needed to make your cupcake dreams come true. Maybe that’s big enough - the cupcakes sell well, you’re able to make a good living, and even hire a bit of help around the shop. That’s a beautiful story. And for some types of businesses the “bootstrapping” journey (from the phrase pulling yourself up by your bootstraps) is a path to prosperity.
But what if even more people want these cupcakes? [well done!] Or what if you didn’t have an oven at home and the greatest cupcake recipe in the world is trapped in the mind of someone who doesn’t have the means to bake it? [A tragedy!]. While the bootstrapping journey might seem simple and natural, I propose that it’s not a natural premise at all and can be improved upon.
Finance works because the future promises growth. You invest money because you believe your resources, combined with talent, hard work, and opportunity can unlock a bigger amount of value in the long-run.
It creates an answer to the question, “What if you don’t have an oven?” “Well...get someone with the money to buy it for you and pay them back (debt), or share your profits with them (equity)”. In the age of information technology, an initial investment of time and money can create systems which are able to scale to serve billions of users. You can imagine how finance has enabled massive amounts of value to be created, because it allows the people with the ideas, talent, and hard work to be different to the people with the money. You can also imagine how that might correlate with greater economic mobility ; people with less means could be enabled to create wealth, without having to come from wealth. Well, at least that’s the idea.
Like all resources on this planet, finance has a distribution problem. People would much rather give money to people who they know (who probably already have some money or at least, by definition, are connected to people with money). Also, like all invisible, conceptual things, finance has a trust problem. There is no shortage of snake-oil salesmen on either side of the equation waiting to take advantage of others by making false promises. The combination of problems in distribution and trust means that it’s really tough to get strong financing systems flowing in geographies and sectors where they haven’t been before. It also means that the models that we have for what innovation and scalable success looks like come from a limited set of geographies and cultures. Solving that problem for the African continent is what we’re trying to do at Vula. It’s a hard problem, but it’s super important.
In 2021, Africa received less than 1% of global Venture Capital investment. Two-thirds of the founders who did receive investment were foreign founders working in Africa. The World Bank estimates a $245 Billion SME financing gap in Sub-Saharan Africa. If we imagine humanity as a single body where each part plays an important role and is connected [if you don’t agree with bodily interconnection, think about your immediate and body-wide reaction to stubbing your pinky toe], then a major part of what motivates me is thinking about what the world might look like when blood flows to those organs that have been deprived.
As in the modern financial age, arteries for the flow for funds have been blocked by both real risks and illusory prejudices. How will the body of humanity function differently when we see what real prosperity looks like in an African context? I’ve heard from so many people, and seen with my own eyes, the famous phrase “African entrepreneurs need to be 10x better”. What happens when that 10x is no longer hampered by having only 1% of the opportunity?
Developing local capacity to execute projects at scale is vital if we are to avoid problematic patterns associated with economic development in the past. The cycle of developing nations taking international loans, only to spend that money on service-providers who are based in the very places from which the loan was deployed does not get us closer to a future of global prosperity. New technologies which enable trust and transparency at scale, combined with new attitudes to financing which give precedence to balance and patience have the potential to break some of these cycles. Breaking cycles is fun. We’re excited to be part of the process. What a time to be alive.
“Let your vision be world-embracing, rather than confined to your own selves. Do not busy yourselves in your own concerns; let your thoughts be fixed upon that which will rehabilitate the fortunes of mankind”
“Learning from Nature about Fair Finance” written by Nicholas Nabil Tebogo Rawhani, Co-Founder and CEO at Vula