Table Of ContentEdited by
Darek Klonowski
Entrepreneurial
Finance in
Emerging Markets
Exploring Tools,
Techniques, and
Innovative Technologies
Entrepreneurial Finance in Emerging Markets
Darek Klonowski
Editor
Entrepreneurial
Finance in Emerging
Markets
Exploring Tools, Techniques, and Innovative
Technologies
Editor
Darek Klonowski
Brandon University
Brandon, MB, Canada
ISBN 978-3-030-46219-2 ISBN 978-3-030-46220-8 (eBook)
https://doi.org/10.1007/978-3-030-46220-8
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P
reface
Emerging markets are beginning to drive the global economy and are
expected to continue along this strong trajectory of economic develop-
ment in the future. For example, China is projected to overtake the United
States as the world’s economic superpower between 2025 and 2030, or
potentially even sooner. India, on the other hand, is expected to become
one of the largest private equity markets in the world within the next five
years. Other emerging market countries similarly enjoy economic progress
at growth rates much higher than those seen in developed countries. A
major force of this economic “miracle” for many emerging markets is
rooted in strong local entrepreneurship. Entrepreneurs in emerging mar-
kets have displayed fundamental strength through a robust manufacturing
and service orientation, while also proving adaptable to economic down-
turns and evolving export conditions, and simultaneously looking out-
ward for investment opportunities in the global marketplace. However,
flourishing entrepreneurship in these markets remains dependent on the
ability of the entrepreneurial firm to attract capital.
Many entrepreneurial firms struggle with access to finance, and this
issue is further exacerbated in emerging markets. These situations, which
may arise for a variety of reasons, are often the result of capital “supply-
side” challenges and capital “demand-side” problems. In terms of the sup-
ply of capital, capital limitations may come from actual shortages in the
marketplace due to financial institutions effectively “hoarding” capital
while being unwilling to extend it to entrepreneurial firms. This lack of
vii
viii PrEFACE
capital may also be due to the perceived high failure rate of entrepreneurial
firms, the lack of focus on the entrepreneurial sector as a strategic area for
capital providers, the general unfamiliarity with the entrepreneurial sector,
or the inability to properly evaluate risk in entrepreneurial firms. Poor
access to finance can similarly result from demand-side challenges, includ-
ing, for example, the inadequate preparation of business plans, unskilled
business development plans, or the lack of a management team.
This book presents a wide range of tools and techniques used in the
entrepreneurial finance of emerging markets. Among these, venture capi-
tal is perhaps the most well-known, understood, and researched mode of
entrepreneurial finance. However, a significant portion of this book is
dedicated to other modes of entrepreneurial finance, such as angel financ-
ing, bank financing, and other alternative means of financing, which could
include government assistance programs, “bootstrapping,” family-and-
friends financing, microfinance, or supplier financing, to name a few.
Additionally, this book highlights how new and innovative financial tech-
nologies (which comprise software and hardware, business processes, and
other modern technologies that are known collectively under the term
FinTech) support, enable, and enhance the provisions for entrepreneurial
finance to firms in emerging markets.
Book oBjectives and features
As noted above, access to finance is one of the greatest challenges facing
entrepreneurial firms in emerging markets, which is why addressing this
fundamental challenge is the predominant objective of this edited collec-
tion. However, this should by no means be taken as an assertion that suf-
ficient access to finance is the only challenge for these firms.
This book has a number of unique features, the first of which is the
predominant focus on diversity. The following chapters cover a variety of
different geographic regions and their forms of entrepreneurial finance. In
terms of geographic coverage, this book details the entrepreneurial finan-
cial ecosystem in various emerging market countries and regions, which is
not sufficiently explored by current academic literature. While the contrib-
uting authors of this book do cover major players such as China, India,
russia, and Brazil, this book also provides an in-depth analysis of key
PrEFACE ix
issues in entrepreneurial finance in relatively smaller but strongly develop-
ing markets countries such as Poland, Hungary, Nigeria, and Ghana. It is
important that the tools presented by this book work to enhance the
velocity of entrepreneurial development in these emerging markets. The
perceptual map highlighting the geographic perspective on emerging mar-
kets and their form of entrepreneurial finance is presented in the fig-
ure below.
DABROWSKI
nt Economic Economic development in EM
e QUINLAN
m Economics in EM
p
elo Institutional BLISS & FETTERS PInUsFtiFtEuRti o&n Ms incC CAERETHY GRUENHAGEN
v Education in EF in EM Institutions in China REID
De Entrepreneurial LINGELBACH CUOniUveSSrsI i&ty -FinAdCuCsItNry-goInvenronvmateionnt iinn BCrhaiznial
Political power, wealth & EF in EM MARJAŃSKI & SUŁKOWSKI
Family firms in Poland
e
c MINARDI & OTHERS
nPrivate equity & CALLINAN PE in Brazil
na venture capital PE in CEE CPEH EinN China SPME iInT HIn &di aDALMIA
fi
rial Business angels SBCAHs EinE LCAh i&na YANG
u
e
n EID-OAKDEN & OTHERS
e FinTech & LYNN & OTHERS FinTech in MENA IWANICZ-DROZDOWSKA & OTHERS
pr bank financing FinTech in EM BANERJEE Bank financing in Poland
e FinTech in Gulf Countries & MENA
tr Entrepreneurial MAJUMDAR
n EF in India
e finance AGYAPONG & MORDI
f EF in Ghana
o KARSAI MUSATOVA
s Other sources Gov’t & VC in Gov’t and EF in
m of finance Hungary DAGOGO Russia
or Gov’t and EF in Nigeria
F Global Regional Single country
Geographic perspectives on emerging markets
Figure The perceptual map of the key geographic areas and major themes in
entrepreneurial finance. (Abbreviations: BAs business angels, CEE Central and
Eastern Europe, EF entrepreneurial finance, EM emerging markets, FinTech finan-
cial technology, Gov’t government, MENA Middle East and North Africa, PE
private equity, VC venture capital)
x PrEFACE
The second emphasis in this book is on expertise; the contributing
authors address the inadequate and insufficient levels of expertise in rela-
tion to various types of entrepreneurial finance in emerging markets. This
book comprises collected works provided by both academic and non-
academic authors who are experts in their field and have participated in,
researched, written about, or otherwise covered emerging markets for a
long period of time in their professional and academic careers. Sourcing
contributors from different backgrounds was a deliberate choice for this
book project, and the table at the end of this preface includes a list of con-
tributors, the key themes they focus on, and the main observations devel-
oped in their chapters. These contributions are a well-balanced mix of
chapters describing different sources of entrepreneurial finance in the con-
text of economic and institutional development.
Third, this book focuses on uniqueness by providing analysis on topics
which have received poor coverage in mainstream academic literature.
These unique topics in relation to entrepreneurial finance in emerging
markets include, but are not limited to, FinTech, digital currencies, public
assistance programs, business incubators and accelerators, innovation, and
technoparks. However, this is not to say that more traditional modes of
entrepreneurial finance such as private equity, business angel financing, or
bank lending and credit will be neglected, as they will similarly be dis-
cussed. This book seeks to provide well-balanced coverage, and while the
authors predominantly focus on the positive developments of emerging
markets, they do not shy away from outlining “teething,” transitioning
issues, or alternative views, such as corruption.
Finally, and most importantly, a significant part of this book is dedi-
cated to institutional development, especially in the context of entrepre-
neurship. This is the first section of the book, which lays out the foundation
for understanding the dynamics of entrepreneurial finance in emerging
markets.
Book structure
This book comprises four major sections, in addition to this preface, and
consists of 24 chapters including the conclusion. The first two sections of
this book have a thematic orientation, focusing on both the economic and
PrEFACE xi
institutional development, and the interplay between institutional devel-
opment and entrepreneurship. The final two sections have a focus on geo-
graphic orientation, and therefore concentrate on different modes of
entrepreneurial finance with reference to both the BrIC (i.e., Brazil,
russia, India, and China) and non-BrIC countries.
The first major section of this book includes an overview of the eco-
nomic and institutional development of emerging markets. In terms of
economic development, the general macroeconomic storyline of emerg-
ing markets is attractive for a number of reasons. First, emerging markets
are developing rapidly; growth is driven by an expanding middle class,
significant investment in domestic infrastructure, high rural-to-urban
migration, and increased population growth. Second, emerging market
countries are making more prudent decisions regarding public finance.
And third, emerging market countries have diminished their reliance on
foreign exports in favor of domestic consumption through the previously
mentioned robust development of the middle class. On the other hand,
from the perspective of institutional development, there are numerous pil-
lars that affect the development of entrepreneurial finance in emerging
markets. One of the most important among them is the systemic and insti-
tutional infrastructure; research has confirmed that improvement to insti-
tutional infrastructure fuels entrepreneurial development and general
economic growth, which leads to the need for entrepreneurial finance.
Specifically, the focus is on general institutional infrastructure, such as laws
and regulations, intellectual property protections, and taxation, in addi-
tion to the corporate governance regimes and bureaucratic mechanisms
that are likely to impact the development of entrepreneurial finance.
Therefore, the symbiotic inter-relationship between institutional develop-
ment and economic growth is clear, particularly in emerging markets:
institutional development spurs economic growth, and strong economic
growth provides further incentives for more institutional development.
The three chapters in this section represent the foundational component
of the book.
The second major section further delves into this symbiotic relationship
between institutional development and entrepreneurship. Many govern-
ments in emerging markets have focused on creating strong legal (i.e.,
property rights, ownership laws, various corporate laws, arbitration
