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Even in the developed world, it is often difficult for entrepreneurs to find funding, so it should come as no surprise that entrepreneurs in developing countries struggle finding sources of funding.

Very often, we see advertisements for organizations that claim to be working in developing countries helping one group or another; we often find out that less then 50% of the funds actually make their way to the recipients. Even when the funds reach their destinations, how often are they really put to good use?

If ideas by themselves are not good enough, by that I mean, if every presumably good idea explored by entrepreneurs even in the United States was funded, how many will actually lead to viable businesses? As a consequence, funds tend to make their way to projects that have a significant statistical probability of succeeding. How exactly does the investor in the developed country determine the probability of success of a venture in a developing country?

I am not suggesting that various pre-existing organizations doing business in the developing countries should be shunned or abandoned. However, I believe in change occurring one person at a time; as the investor experiences a positive relationship with one individual, he/she will be more inclined to work with other entrepreneurs. Further, entrepreneurs in developing countries can benefit from the experience of the lenders in the developed world. Lenders in the developed world would be better served if they partnered with the entrepreneurs in the developing countries.

Other viable options for investors in the developed world are the formation of partnerships with local institutions in the developing country, or for that matter incorporation in the developing country. I am not an advocate of long distance relationships. If help is to be meaningful it has to be done in person with a comprehensive knowledge not only of the proposed business, but also the environment in which the business will be conducted. Most developing countries have unique laws and regulations on how business can be conducted in their respective countries.

If payments on loans made by developed countries to developing countries are difficult to collect, how much more difficult will it be for a lender to ensure that loans made to entrepreneurs in developing countries are paid? To mitigate this risk, the lender has to be fully conversant not only with the laws of the land, but also with the market and economics of the country.

My view is that the most effective way to lend money to entrepreneurs in developing countries is to: partner with the entrepreneur, form a partnership or corporation in the developing country and utilize the entity to fund the venture or partner with another entity in the developing country and utilize that entity as a conduit for funding entrepreneurs.

Learn more about this author, Kodjo Adadevoh.
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