Economists and humanitarians alike have been debating the best use of funds to help those in need both at home and abroad for decades. Some have vied for a pouring of donated dollars into the hands of those in need in the form of vaccines and improved infrastructure. Others, though, believe that there is far greater power in entrepreneurship to foster socioeconomic development in poor countries, catapulting their people into sustainable prosperity in the process. Development Capitalism is the practice of harnessing market forces and the profit motive to ignite socioeconomic development in underdeveloped parts of the world, eradicating poverty by maximizing generalized prosperity profitably.
One of the many ways to practice Development Capitalism is through Empowerment Funding, wherein capital is invested into entrepreneurs in developing nations as they launch and grow high-impact business that increase well-being throughout their community. Capital invested is repaid through a revenue-sharing agreement applicable only to incremental revenues and for a fixed period of time - investors share in the risk and upside potential of success. Whereas donations put a short-lived bandaid on problems, Development Capitalism offers a ramp up and out of poverty and into sustainable prosperity through programs such as Empowerment Funding.
Take, for example, what the Institute for Excellence (I4E) is doing in Roatan - a beautiful though underdeveloped island in the Western Caribbean. The I4E is lead by my good friend and business partner Tristan Monterroso; a community leader who is deeply knowledgeable about the needs and the potential of his fellow Roatanians. Instead of asking for donations to later hand out free money or assistance, we have partnered to organize the I4E following the Development Capitalism model: first, the I4E identifies opportunities for sustainable economic development within the communities it partners with. Then it crafts investment opportunities that leverage the potential that it sees, connecting capital and expertise with those most willing to work hard and create a better future for themselves and their community. The Empowerment Funding the I4E provides aligns incentives and promotes a sustaining and collaborative working dynamic.
One of the recent recipients of Empowerment Funds by the I4E is Virginia, a Roatan native who started a small food business near her village with the ambition to run a beachfront full-service hospitality enterprise - restaurant, tourism center, souvenir retail, and basic entertainment. In so doing, Virginia will bring visitors, particularly adventurous millennials, into her community for an authentic experience they’d never find at a traditional resort. Virginia's entrepreneurial enterprise will benefit not only herself and her family, but also her whole community through the increased tourism and influx of money for food, souvenirs, and other commerce emanating from these activities.
Virginia lacked the financial resources she needed to execute this vision, as well as the business education to best guide her decisions and strategy for her business. The Institute for Excellence partners with leaders like Virginia, providing them with investments to augment their business acumen, expand their capital base necessary to scale, and with the working capital with which to operate a growing business. If Virginia fails, investors lose their capital; however, the more Virginia succeeds, the higher return on capital investors get and thus the higher capacity to recycle capital back into the community for more Empowerment Funding opportunities.
Development Capitalism isn’t about providing bandaids -- it’s about building ladders of opportunities to boost people up and out of poverty for good, creating and participating in generalized prosperity and sustainable human flourishing!