Microfinance is not innovative. Many will be understandably aghast at such a statement. The origins of microfinance is of a hapless yet determined economist, Muhammad Yunus, attempting to sell the novel idea that the poor can be creditworthy, a notion that was shunned by virtually all the banks existent in the late 1970s. Banks could not imagine loaning to those without collateral. It was simply too big a risk. This is precisely what is not innovative about microfinance. It was just another example of a loan to a customer. It is not like a bond, which is also a loan, as bonds are transferable securities; nor is it like a derivative, whose value depends on another financial asset.
Instead, what makes microfinance unique, though not innovative, is its success depends on monitoring and mentoring. Without observation or the support required to set up small enterprises, the likelihood is that the poor, in general, would fail to pay back their loans. This is not an indictment on the poor, far from it. Rather it is to say that the presence of an overseer and an enabler can lead to ideal outcomes.Hardly a novel insight, it is not only a characteristic of microfinance; we see the importance of mentors in other industries, particularly venture capital and private equity industries.
Silicon Valley is a far cry away from the impecunious environment of a Bangladeshi village. Since the inception of Hewlett Packard in Palo Alto, California, in 1939, the area has been associated with some of the largest and most influential tech companies in the world. It is an area where insight, ideology, ingenuity, innovation and investment work together to create billion dollar companies that can and have changed the way humans live and the way humans think. Rarely do we give consideration to the philosophical and cultural impact of the products that we use. The power of the Apple is not in its sleek iproducts, but its capability to meet our intellectual, spiritual and leisurely desires. Facebook’s grasp of our social psyche is unparalleled, and the success of Twitter – a product that intuitively should have failed before it received any kind of funding – shows how people crave to have their opinions heard, albeit briefly, whereas others crave to hear.
Mark Zuckerberg was born in New York; he went to Harvard; he moved to Silicon Valley where a number of investors were waiting with their pockets full and their visions vast. Venture capitalists like Andreessen Horowitz, Sequoia Capital and Khosla Ventures call Silicon Valley home, and these are only three of the biggest amongst the hundred that have settled there with billions in their purse. Along with the finance, there was the talent. Indeed, this is a place in which Google and Yahoo were bringing the world’s population onto the internet with a box in which you could search for naked pictures of Pamela Anderson and explanations of relativity in quick succession. Sean Parker stood in the wings illegally downloading music and convincing the world it was actually legal, while building a reputation as a man with the Midas touch. The Paypal mafia became bona fide Godfathers of the region with several of its founders investing into new enterprises. Members have contributed –financially or creatively or both – to the development of companies such as Tesla, Youtube, Yelp, and Kiva. Peter Thiel and Reid Hoffman were the first investors into Facebook along with Sean Parker. Finance and networking went hand in hand with creativity and ingenuity. Universities such as Stanford and Caltech were the final pieces of the puzzle; universities in which talented individuals could develop their ideas, create and test their products.
Overall Silicon Valley has created its own ecosystem. Talent could find the space to develop their ideas in universities and build a network with experienced individuals who had the money and the experience to guide them.Y Combinator (YC), a seed accelerator, has mentored a number of startups through creating programmes that are a combination of Dragon’s Den (or Shark Tank if you are in the US), X-Factor and the Apprentice. Budding entrepreneurs apply to be mentored,form a network and harvest investment to develop their ideas and take their products into fruition. Some of YC’s successes since its inception in 2005 include Airbnb (now worth $25bn) and Drop Box ($10bn). YC represents well Silicon Valley: it is not capitalism at its competitive worst; rather it is capitalism at its collaborative best.
All this is not to say that Silicon Valley is a utopian ideal. The coldness of capitalism prevails in a company’s pursuit of profits and the vanquishing of the meek. The hippie culture of San Francisco remains in clothes – symbolized by Zuckerberg’s flip flops – and conviviality of the café culture, but the hopes of young, yuppie upstarts are found in bank accounts and business pages and not in the smoke rising from hash pipes or the melodic sounds of well-placed guitar chords. Nevertheless, the philosophy of the Silicon Valley model is to create of an ecosystem where members collaborate,and build ideas and institutions. The bricks and mortar of the model are ambition, talent, creativity, finance, motivation, mentorship, networking, and profit combined in a harmonious whole.
To create this model is not easy, and replication has not been quite successful in other regions of the world. There may be one of these building blocks in abundance but too little of the other. However, Silicon Valley was not created in a day: the goal should not be for artificial acceleration. Instead the vision of emerging countries, like Bangladesh, seeking to develop their economy, should be to create the environment where these facets can be refined and embedded. In Bangladesh, microfinance is a start in that it shows the potential of observation and mentoring. The next step is to build a stronger ecosystem in which institutions such as universities, banks, businesses, and HNWIs collaborating to bring out the best of those individuals seeking to define their talents. With a dysfunctional and corrupt political system that unfortunately impacts each aspect of Bangladeshi society, it is arguably impossible to create a thriving ecosystem. However, Silicon Valley was created on the backs of inspirational individuals often fighting against the odds. Bangladesh needs to create theirs to inspire and to create the institutions that can endure, just as Yunus did. To quote a notable Silicon Valley alum with little technical competence, a certain Steve Jobs, “Be a yardstick of quality. Some people aren’t used to an environment where excellence is expected”.