“If you want to go fast, go alone. If you want to go far, go together” – African proverb
If you can convince ten people to raise one million each then you will have ten million shillings. If you can convince 100 people then you will have 100 million. If you raise the number to 1,000 you will raise one billion shillings. If you can convince a million people you will have one trillion shillings. With this kind of cash you can transform our economy.
The developed world has figured out to do this properly. It is called the capital markets. Millions of people pour billions of cash into the capital markets everyday without really knowing each other. They bet on winning projects everyday. Because of this, businesses can raise the needed cash to expand and perform research and development. It’s this research which creates new products, technologies and services.
The challenge with our economy is that it’s not so easy to mobilize capital. It is much easier to get a wedding contribution than to get seed capital for your project from family and friends. This is partly because of the low trust environment we live in. People don’t trust each other and for good reason. Many have had their fingers burned for blindly trusting people with their money.
A vibrant capital market depends on many things. One is policy. The governments have to be deliberate about creating an enabling environment for people to collect and mobilize capital. Second is the cost of capital. Our cost of capital is relatively too high. For instance banks are charging 20% on loans! Imagine banks get free deposits from us and then lend back the money to us at a 20% margin. The 20% is the cost we are paying for not being able to mobilise capital ourselves. The third aspect is of course income levels. A rich nation will have more cash to allocate to the capital markets. The fourth aspect is culture. An entrepreneurial and creative culture will tend to attract and mobilise capital more easily.
Capital is typically mobilized through the treasury, banking system, the stock market, venture capital, private equity, and communal groups like investment clubs and SACCOs. Governments can mobilise capital from the public by issuing treasury bonds and using the capital to provide public infrastructure. The banks are able to mobilise deposits which they can then lend out to potential projects. Companies can raise capital from the public through the stock markets. Venture capitalists can invest in new ideas and projects. Private individuals can also mobilise capital for specific projects. Lastly small groups of individuals can collect funds to raise capital for specific projects.
Communities which work together tend to prosper. Why should everyone grow tomatoes on small plots. Why can’t we instead pool capital and build a tomato processing factory. Why should we all build tiny rentals? Can’t we pool resources and build a hotel instead? It’s this kind of thinking and collaboration which we need to transform our society.
So we need to collaborate more at all levels to be able to transform our society. At the household level the husband and wife should work together on common projects. At a family level siblings should pool resources and build enterprising projects. Friends should start investment clubs and do bigger projects. Communities should mobilise capital through SACCOs and other groups. At work places and worship places people should start SACCOs. At a national level banks should mobilise deposits and reduce interest rates. The banking system should play a bigger role in helping people to organize themselves. Some banks like DFCU have been instrumental in promoting investment clubs. Governments should work with all players to encourage a vibrant capital market and entrepreneurial ecosystem.