Entrepreneurship and Alternative Finance in Emerging Economies

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Economic and financial development are inextricably intertwined. Unless companies have sufficient access to financial resources, they are unable to grow, become more productive and create new jobs. Entrepreneurial startups face particularly important challenges. In the early phases of their life cycle, few, if any, young firms have enough tangible assets that they can pledge as collateral. As a result, these companies usually find it difficult to borrow from banks. While this is true in advanced economies, this challenge is often unsurmountable in emerging economies. At the same time, however, startups tend to be particularly innovative. Without transformational entrepreneurs who have access to sufficient funding, it is difficult for emerging economies to foster technological change and productivity growth through a process of creative destruction. As a result, underdeveloped financial systems are generally seen as a major impediment to economic growth.Policy measures aiming at improving companies' access to entrepreneurial finance have frequently focused on reforming traditional banking systems. As we will discuss in this course, however, several new funding sources have emerged. In several emerging economies, angel networks have proliferated, whose investments in entrepreneurial startups have often been a stepping stone for gaining access to venture capital. China's venture capital market is already challenging Silicon Valley. India is not far behind, and several other emerging economies around the globe have made considerable progress in attracting venture capital from abroad and creating their own indigenous venture capital industries. At the same time, rapid advances in financial technology (fintech) are revolutionizing the way startups are able to borrow and attract equity capital. Increasingly, data-driven fintech lending is led by large tech firms, such as…