“Whoever is generous to the poor lends to the Lord, and he will repay them for their deeds.” – Proverbs 19:17
In a simple economic model there are producers of goods or services (businesses) and there are consumers of goods and services (households). We speak of the circular flow of money as the businesses pay workers’ salaries and wages and the workers (as household consumers) use that money to buy goods and services from the businesses.
As we attempt to grow an economy, one successful business at a time, the system becomes a bit more complex and we have to introduce more sophisticated concepts to embark on the journey from start-up to sustainable success. Start-up businesses are often “poor” in financial investment resources and experience, but “rich” in innovation, passion and drive.
Established businesses have evolved into a zone of relative comfort where they can usually solve their own financial investment problems. How can we extend generosity to the “poor” so that they may exploit their “rich” assets and so rise to the level of a high economic comfort zone?
Start-up businesses start small and have to overcome a number of constraints as they emerge in the world of business. They must lay a good foundation by practising good corporate governance; understand how to mobilize sales activities to bring life into the business; know how to achieve operational efficiency to make profits and to get their businesses to grow; and garner well trained, motivated and trusted people to ensure the sustainability of their enterprises. In order to achieve all this, they must access the “triple flame” of finance.
The first flame is developmental finance which can range from grants to long term low interest loans for the purpose of structural adjustment, creating an enabling environment and buffering the business against the deleterious impact of mistakes which might be made in the embryonic stages. This may be accessed through aid agencies, philanthropists, foundations, corporate social responsibility contributions, public and private sector development banks and governments.
The second flame, working capital finance, recognizes that the existing loan instrument offered by traditional financial institutions does not meet the needs of fledgling businesses because of the requirement for hard collateral and a steady cash in-flow to effect amortized monthly loan repayments. In many cases cash in-flow has an effective period longer than one month. Retail financial institutions such as credit unions and micro finance institutions, coupled with effective risk mitigation measures like shepherding, have to be innovative in designing profitable financial instruments. Working capital finance injects security and life into the business.
The third flame, profits, is the most secure form of investment and hence the businesses would want to achieve profits as fast as possible and then sustain growth from year to year. Profits create growth and sustainability.
These three flames constitute the “Triple Flame” of finance.
The third flame creates an opportunity to become one of those sources of developmental or working capital finance and triggers growth in the economy through the circular flow of money.
Let us share our resources with the “poor” and witness a magnanimous growth in abundance.
(Dr. Basil Springer GCM is Change-Engine Consultant, Caribbean Business Enterprise Trust Inc. – CBET. His email address is firstname.lastname@example.org and his columns may be found at www.cbetmodel.org and www.nothingbeatsbusiness.com.)