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27 June 2019

What could Microfinancing look like for the Armed Forces community?

Guest blog by Ren Kapur MBE, X-Forces Enterprise CEO & FSB Armed Forces Champion.

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The Birth of Microfinancing

The concept of microfinancing existed prior to the invention of money. The idea was simple: a small trade of something I need in exchange for something you need. For example, trading crops in exchange for livestock. As society developed its reliance upon money as the main form of currency, money soon became the most demanded commodity. Did this have an increasingly detrimental impact upon the poorest in society who were still trading their goods and services to survive? Were they therefore unable to obtain traditional bank credit without any assets to rely upon?

Muhammed Yunus, a Bengali social entrepreneur, banker and economist visited some of the poorer areas of Bangladesh and recognised the value of the entrepreneurial efforts of women in these villages. Despite these women having an established supply and demand chain, their inability to access finance meant the majority of their profits were being paid to loan-shark-esq lenders. Yunus decided to lend a group of women in the village a small amount from which they were able to make a profit.

In contrast to other lenders who believed that the most disadvantaged in society were higher risk borrowers, Yunus believed that because these women applied for the loans as a collective, this would ensure they supported each other to make the repayments, thus acting as a ‘co-guarantor’ for each other. From Yunus’ small trial grew the Grameen (village) Bank, established with the sole purpose of bolstering social development for women and the poorest in society. The idea of microfinancing serving the most basic needs of society remains at the core of the concept. Yunus and the Grameen Bank were jointly awarded the Nobel Peace Prize in 2006 and the model has since been replicated around the world.

Entrepreneurship comes naturally to all of us: we just need the right support 

As Yunus said: “For millions of years that we were on the planet, we never worked for anybody. We are go-getters. We are farmers. We are hunters. We lived in caves and we found our own food, we didn’t send job applications and do interviews. So this is our tradition”. Yunus believes that entrepreneurship comes naturally to us all and with the right support even the most disadvantaged communities can become successful entrepreneurs.

This basic concept is one which has resonated with me throughout my career and one which I have sought to include in my own entrepreneurial efforts. The foundations of Yunus’ microfinancing concept can be adapted to different community groups by understanding the particular challenges associated with that demographic and geographical landscape. For our Armed Forces community this includes mobility, commercial exclusion and mainstream credit eligibility challenges amongst others.

When I set up X-Forces Enterprise, we were never just going to be ‘just a loans company’. We built on Yunus’ concept of community lending and community support and decided we should be harnessing both entrepreneurs and intrapreneurs.  This was the stark difference or add on from Yunus’ method.

Good Social Entrepreneurship and what we stand for is about a leader who harnesses both elements (intrapreneurship and entrepreneurship) and encourages the spirt of both through enterprise. A rhetorical question but an important one: “Is it not the aim of society to be self-sufficient with the skills required to ebb and flow through both intrapreneurship and entrepreneurship as circumstances and situations change in life; be those successes or challenges, self-induced or natural economic movements, good or bad?”

Women and microfinancing

Whilst the majority of microfinancing under Grameen-inspired initiatives is lent predominately to women, Yunus was all too aware of the difficulties of entrepreneurship for women who still bore the brunt of the responsibilities of family life. This still remains a barrier to accessing traditional finance for many women around the world. However, these difficulties are intensified for women in the Armed Forces community who often face the added difficulty of constantly changing location. Having worked with a considerable number of women in the Armed Forces community, I do believe their circumstances can be both a challenge and an advantage.

Whilst there is still considerable room for improvement for mainstream social change for women in business and finance, change is occurring. An increasing amount of research is being conducted into barriers for women in business. For example, research conducted by the Federation of Small Businesses found that barriers to women include accessibility & lack of appropriate opportunities to develop their skills, less prior exposure to role-models in entrepreneurship from which to benefit from, and challenges in accessing start-up finance. With a greater understanding of the challenges women face in entrepreneurship, the more we will be able to aid women to break down those barriers and have the confidence to successfully start their own businesses.  In addition to this, and as demonstrated by the X-Forces Enterprise model, access to finance is only one part of the equation: it is important to ensure that the complete life-cycle of business ownership is supported to ensure that we give the best hand-up to the business’ potential to survive.

Furthermore, Armed Forces Community women in business, whether they have served or are military spouses, have the ingredients when unlocked and supported in the enterprise space, to make even more impact. Think of it as an athlete training in their discipline for years and then transitioning into another profession. All that training in self-control and understanding the consequences to their actions is a mindset dedicated to performance: wrap that around a viable business and you have something fairly incredible!  That is the same psychology behind the attributes, skills, beliefs and behaviours of the armed forces – applied to enterprise you have a phenomenal economic society and the ripple effect of this could be transferred into other communities.

Collaborating to achieve the common goal

As our awareness of the barriers to success grows, so do our opportunities to address these. We now understand the core social need we want to address; but in order to effect true large-scale change, collaboration will be vital to achieve that common goal.

Equipped with the raw ingredients (entrepreneurs with positive behaviours and attitudes), coupled with enterprise learning and enabling, we need to collectively create a model of community engagement that harnesses knowledge exchange, mentoring and peer to peer learning, creating role-models for others. This creates a virtuous circle of success and creates a mentor network from within for the future with some incredible behaviours and attitudes as the ripple effect continues.

For Yunus, one way to achieve this was through involving bigger businesses to provide support through more than just microfinancing. For example, Danone the yoghurt corporation have collaborated with the Grameen Bank to support street traders who sell their yoghurts. Yunus suggested that the ‘feel-good’ factor from supporting social businesses is something which shareholders of larger companies also benefit from.

An increasing number of businesses are buying into this concept of ‘corporate social responsibility’ something we coined in our early days CSR2. With X-Forces Enterprise I was keen to ensure the theme of ‘Big Business supporting Small Business’ was prominent throughout so our startups had access to vital support to help them flourish. I am delighted that our Armed Forces entrepreneurs have the support of our partners and members and such as: the Federation of Small Businesses, London Stock Exchange Group, Rolls Royce, NatWest, Cisco, Landmarc, Kilfrost, The Military Mutual, Sage, Curzon & Company, and Liverpool City Council. By having the support of such renowned ‘Big Businesses'  and ‘Smaller Business networks’ such FSB and The Military Mutual are integral to our startups’ access to a wealth of knowledge and advancement, be this through increasing supply chain opportunities, knowledge exchange or mentoring opportunities. ‘The Magic 20’ big business partners and their employees are helping us make radical change for small businesses and the opportunities they can access.

Building on the idea of microfinancing to support startups

According to the Office of National Statistics, individuals are likely to have 10 careers before they are 40. Given the ever-extending retirement age, the ‘no job is for life’ economic climate and pensions not being what they used to be, even with the post-service Armed Forces benefits, enterprise skills are more important than ever. This is likely to continue into the future as people ebb and flow between being an intrapreneur and an entrepreneur and living longer.

I have often been asked when my entrepreneurial career started and it takes me back to a thoughtful place because I think it was as soon as I was able to communicate. My mom gave us pocket money every Friday night – from the days when wages were paid weekly and in cash.  She used to sit by the fire and we would get our pennies for the coming week.  I used to buy sweets then sell them for a profit. It wasn’t much and it wasn’t intended to make me rich but it meant I could make someone else feel happy with sweets and still did not run out of pennies or sweets for myself! I think that was my thinking back in the day rather than building pennies for the sake of building pennies – hey, I was only about 7 years old!

This is where my thinking differs most from Yunus; I don’t necessarily think everyone should be self-employed as I think this would be impractical as we need individuals to help produce and deliver, but I do think enterprise skills are present in everyone and these can be harnessed either for your own business or that of another, especially small businesses as these make up most of the gross domestic product (GDP).

In conclusion, what we can learn and adapt most from Yunus’ model is that it isn’t just about having the most profitable business but about effecting positive social change in a sustainable financial way; however, this is just the beginning and not the end. We have already made ample positive strides towards achieving this since 2012 and are now the largest organisation supporting the military community into business and creating many jobs along the way. I can proudly say X-Forces Enterprise is the leading specialist microfinancing lender for the Armed Forces community. We have supported over 1350 start-up businesses and lent over £13.5million in responsible finance. 30% of those we have supported are women. We take into account the unique barriers to credit faced by the Armed Forces community and we help people address these. There are no early repayment penalties and the Start Up Loans funding is not secured against any personal assets thereby ensuring the family home and construct is not at risk. We help you understand your personal motivations for business startup and help you strategize and plan to make the business a success: your success is our success. I could not agree more with Yunus that by fostering entrepreneurship through social lending we can cause not only economic but also social growth.