There are few applications of social finance as widespread and well known as microfinance has been in the last few years. Microfinance institutions (MFIs) have attracted significant investor interest by demonstrating that lending to the poor can be not only sustainable, but also lucrative. Since then, capital has moved swiftly into a rapidly growing sector with one-third of the world’s population as the target market.

The commercialization of microfinance hit a key milestone this past August, when SKS Microfinance (SKS) in India, successfully raised an unprecedented $350 million through a public share offering - a tremendous step forward in bridging the gap between capital markets and poverty alleviation.

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Meet Jean-Guy, a middle-aged man of African descent, who has lived in France for the past six years. He relocated from his hometown in Senegal in search of a well-paying job that would allow him to save the equivalent of 6,000 Euros. Once obtained, Jean-Guy intends to use his savings to start a water distribution service that will allow him to support his large extended family and secure himself a sustainable retirement in his beloved village.

Jean-Guy's story is not uncommon to many immigrants from the bottom billion, indeed it points to persisting failures in contemporary approaches to poverty alleviation in the developing world. International aid discussions give little thought to the likes of Jean-Guy, who are fundamental drivers of African economies, and how they can be engaged in sustainable wealth creation opportunities. It is no wonder, then, that the latter vote with their feet and simply relocate to most of the G8 countries for better economic opportunities.

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Last Friday, the G-20 Summit being held in Seoul, Korea was brought to a close. Just a short 5 months ago, Toronto played host to our global leaders, where amongst other decisions, Canadian Prime Minister Stephen Harper committed $20M to an Ashoka’s Changemakers Challenge to advance available funding mechanisms for SMEs in emerging markets.

In my previous post, I discussed the significance of SME’s in stimulating innovation and job creation, and yet often being the bearer of the “missing middle” financing gap found between microfinance and commercial financing in emerging and developing economies.

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Like many people who are inspired by the microfinance movement, I was introduced to it against images of sari draped women beaming with pride at their stock of woven baskets, or perhaps it was the sun-dyed farmer and his flock of chickens that really got me hooked. I understood it in the context of extreme poverty in the world’s poorest countries. Most importantly, I understood it as a model that created big change from small investments.

Over the years, however, there have been similar models introduced in the developed world with the same idea: Provide access to capital for the marginalized poor as a stimulus to break out of poverty through entrepreneurship. However, for anyone interested in seeing the “add credit and stir” theory applied here at home, there exist three fundamental challenges that must be recognized:

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I've been thinking about this for the last few days, and I'd love your contributions to this thought experiment. It seems to me, I've only come across 3 types of business models for serving low-income/impoverished people.

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