Entrepreneurial Finance for Vulnerable Communities: The Case of an Associative Initiative in Colombia

Entrepreneurial Finance for Vulnerable Communities: The Case of an Associative Initiative in Colombia

Luis Javier Sanchez-Barrios (Universidad del Norte, Colombia) and Liyis Gómez-Núñez (Universidad del Norte, Colombia)
DOI: 10.4018/978-1-5225-2860-9.ch004
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Abstract

This study presents the financial progression of an associative initiative of a vulnerable community in Colombia, from early stages to growth. Initially, basic financial concepts are presented, together with the phases traditionally defined by previous literature. The case is then presented in terms of funding alternatives for entrepreneurs in Colombia, stages followed by the association and funding throughout such stages. Results show that even though the case under analysis presents similar features to those of new ventures started by non-vulnerable individuals, its specificities make it unique; concepts anticipated by existing literature were not fully applicable in this case. A set of issues and solutions are presented regarding entrepreneurial finance for vulnerable communities and in particular, for the case under analysis. Finally, further avenues of research and conclusions are presented.
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Introduction

In terms of entrepreneurship funding, Colombia is below the world average, above the Latin American average and in the same position to Eastern Europe (GEM, 2014). However, exclusion from formal financial institutions and lack of knowledge related with financial services are common features that affect access and use of formal sources of funding by entrepreneurs.

Those that have access to services of formal financial institutions use personal loans and credit cards; these entrepreneurships are usually opportunity-driven. This is not the case for necessity-driven entrepreneurships from vulnerable individuals that live in remote rural areas; at most they have a savings account activated through branches or through mobile platforms.

Informal investors continue to be an important source of funds for entrepreneurs. They usually provide funds to relatives and friends instead of strangers (GEM, 2014).

Another common source is to fund new ventures with personal savings; once the business generates income, they might obtain loans for growth funding (Carrillo, 2016). Moreover, informal lenders have become a usual alternative for vulnerable communities that lack access to formal lending institutions and acquaintances that might be willing to but cannot afford to invest in a new venture.

A concept that is closely related with funding new ventures is the lifecycle of companies. Existing frameworks base their definitions on a variety of variables that include age, size, information opacity and financial features (Berger & Udell, 2011; Cumming & Johan, 2013; GEM, 2016a). Yet there is no single definition for business stages for entrepreneurial finance analysis purposes. Informality, a distinctive feature of vulnerable communities, is an additional element that needs to be considered.

The facts mentioned above justify the study of the evolution of an initiative of a vulnerable community in Colombia, from an entrepreneurial finance perspective. This chapter is organized as follows: First, basic business finance and entrepreneurial concepts are presented. Second, funding alternatives in Colombia are presented together with the case under analysis. Third, a set of issues and solutions identified from the study are presented. Finally, a set of conclusions is presented in response to the research questions that motivated this study.

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