From Micro-Financing and Base of the Pyramid Concept to Private Social Business by CROWDINVESTING/CROWDFINANCING as a Modern Phenomenon and Chance for Economy

Scientific Essay, 2013

13 Pages


1. Abstract

The micro-credit movement has the noble goal - it is supposedly the largest - to resolve a lack: The lack of credit in developing countries. Is this the key to combat all other emergency? There are other requirements to avoid poverty and to let this capital crow into increasing welfare by creating employment and converting individual ideas into commercial chances. Besides the availability of capital, it is important to create clear property rights of individuals and set the focus on a sustainable education system. Additionally industrialized countries should strengthen their CSR policy towards developing and emerging countries.

But actually there is a big problem in the “rich” countries in the way of capital. To supply the economy with capital becomes more difficult as a result of the global finance crisis and the lasting Euro debt crisis. The capital markets fail more and more and the crisis in Europe could infect also other parts of the world. From necessity, since 2011 arose the CROWDINVESTING movement with its roots in the USA and there development in Western Europe and especially in Germany. By using the power of social networks and the wisdom of the CROWD of Internet user it is possible to finance enterprises by private placements of capital. For this purpose, each small amounts of money from the so called Crowdinvestors are accumulated via special online Crowdinvesting platforms to a considerable sum to finance enterprises by creating participations between these Crowdinvestors and each of the enterprises.

Team of experts at the Slovak University of Agriculture in Nitra is developing an ideal model of Crowdinvesting as a sustainable instrument of financing not only startups but also small and medium enterprises. A result of research work, it could be, that Crowdinvesting is also possible to use it as a kind of PSB[1] (Private Social Business) in for example developing or emerging countries. “Wealth is created through enterprise and entrepreneurship requires loans” (Joseph A. Schumpeter). Globalization was enforced by ICT[2] and Crowdinvesting is also possible by ICT. The Crowdinvesting movement is predicted for a dynamic movement in Europe. If Crowd Investing works sustainably, it can also be used internationally.

Keywords: Crowdinvesting, Micro Financing, developing countries, microcredit, Base of the Pyramid Concept, Private Social Business.

2. Introduction

In this essay, we discuss the situation of the Poor people in developing bust also emerging countries and approaches for solutions to eradicate poverty and to enable affluence in these countries. One must be aware, that also in emerging countries for example like India, South Africa or China most of the people of these countries are classified as poor, although the economies of these countries increased significant.

For about five decades governments and special worldwide acting organizations tried to eradicate poverty in the world, but without significant success. Today, about 4 Billions of people are poor and this is a part of more than 50 percent of world population. Often there was a failure in the efforts of reducing poverty because of a bad political environment in poor countries, of corruption and lack of poverty rights. Many economists designed concepts and models of reducing poverty in the world. One important concept is the Bottom of Pyramid (BOP)[3].

We think that the basic idea of this concept is very good and gives the potential to modify the BoP and to combine it with special financial tools, to raise the effectiveness and to produce sustainability. In this essay we discuss the BoP but also the system of Microfinancing as a possible tool for combination. If Microfinancing in the present application is not useful, may be that the new phenomenon Crowdfunding or Crowdfinancing[4] is a substitute for Microfinancing. Considering all these thoughts after the following three chapters, we made conclusions and a recommendation.

3. The meaning of “Base of Pyramid”

In economics, the so called Base of the pyramid (BoP) is surely the largest, but also poorest socio-economic group. In the world there are about 4 billion people who live on less than US$2.50 per day. The world population is comprised of the year 2012/13 of around 7.1 billion people[5]. The BoP Phenomenon generally considers the developing an emerging countries (for example Africa, South America, India). The 4 billion people at the BOP, all those with incomes below $3,000 in local purchasing power, are living in relative poverty. Their incomes in current U.S. dollars are less than $3.35 a day in Brazil, $2.11 in China, $1.89 in Ghana, and $1.56 in India. Yet together they have substantial purchasing power: the BOP constitutes a $5 trillion global consumer market.[6]

Figure 1: The economic pyramid

illustration not visible in this excerpt

Source: (3/31/2013 8:36:45 AM)

So, more than 50 percent of the world population concern to the bottom of the pyramid. The term “bottom of the pyramid” or “BoP” is used in particular by people developing new models of doing business that deliberately targets that demographic, often using new technology. Although different organizations and several national governments have been busy to solve the problem of poverty for more than 50 years, all the movements had no sweeping effect. Realizing this, C.K. Prahalad[7] pursued a new approach to eradicate poverty in the world[8]. His approach is that he sees the world's poor not as victims or global and social burden, but as potential value-producing consumers and entrepreneurs with multiplier effects.

The world's poor offer the opportunity of a new and far more open world economy than in the past. Prahalad believes that by the use of this part of the world population a new global growth trend in the world economy could erase. The poor are actually the engine of an unprecedented possible boom in the global economy. This is really obvious when you consider that more than half the world's population for the world economy is laying fallow. On the one hand it deals with huge potential of additional trade and secondly also with huge additional potential of sources of innovation-power.


[1] Private Social Business is a neologism from Rainer Schenk

[2] Information and Communication Technique

[3] Also called Base of Pyramid

[4] Sometimes it is also called Crowdinvesting

[5] See; called up by Internet on 29/03/2013.

[6] See “The Next Four Billion, Market Size and Business Strategy at the Base of the Pyramid”, Executive Summary, IFC and World Recources Institute, Washington, 2007, P.3, p. 3.

[7] Coimbatore Krishnarao Prahalad; * 8th August 1941 in Coimbatore, Inda; † 16th April 2010 in San Diego, USA) was an Indian-American economist. Most recently he worked as a professor of business strategy at the University of Michigan in Ann Arbor, Michigan, and a world-renowned management consultant and author. His scientific focus was set in the field of developing new management practices, corporate strategy and the role of management in multinational companies. Recently among others he worked together with Stuart Hart among concept of "Base of the Pyramid" (also called "Bottom of the Pyramid") with emerging markets and innovative business models for the elimination of global poverty.

[8] See Prahalad, C. K. (2005): The Fortune at the Bottom of the Pyramid, Upper Saddle River/NJ: Pearson International.

Excerpt out of 13 pages


From Micro-Financing and Base of the Pyramid Concept to Private Social Business by CROWDINVESTING/CROWDFINANCING as a Modern Phenomenon and Chance for Economy
Slovak University of Agriculture in Nitra  (Faculty of management and marketing )
ICABR2013 Congress South Africa April 2013
Catalog Number
ISBN (eBook)
ISBN (Book)
File size
518 KB
Corporate Finance, Crowdinvesting, Crowdfunding, Microfinancing
from, micro-financing, base, pyramid, concept, private, social, business, crowdinvesting/crowdfinancing, modern, phenomenon, chance, economy
Quote paper
Rainer Schenk (Author)Peter Bielik (Author)Elena Horska (Author), 2013, From Micro-Financing and Base of the Pyramid Concept to Private Social Business by CROWDINVESTING/CROWDFINANCING as a Modern Phenomenon and Chance for Economy, Munich, GRIN Verlag,


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