One of my responsibilities for the summer is to write a report on several commitments made at the Clinton Global Initiative last year. There are three, one of which is the creation of a $30M fund to support small and medium enterprises (SMEs) by offering entrepreneurs loans to start their businesses. Recognizing the capacity constraints that run alongside credit constraints in a place like Liberia, the Liberia Enterprise Development Fund (LEDF) also provides training and other support for its clients.
In the two years since inception, LEDF has not made many loans, and many of those it has made are not performing. The impression I got when first talking to people here in the government is that they just fell short of their commitment due to mismanagement. After a few more conversations, I’m not so sure that’s the case.
There were clearly management issues, and big ones. But my hunch is that even if LEDF had been executed well, it still would have fallen short of expectations. I think this actually might be a classic case of targeting the wrong constraint. For all my raising issues about the idea of a binding constraint, I think I’ve encountered a real world illustration of what happens when you target the wrong problem.
Surely credit is an issue. But it’s not the only one, and the LEDF’s experience may be evidence it is not the biggest one. I suspect the bigger problem is actually that there are few people with the entrepreneurial ability and skill set to formulate and execute a business plan. They recognized this by pairing the loans the training and other support, but I have a feeling whatever was offered fell far short of what would have been needed to fill the gap between current capacity and successful new businesses.
We’ll see if my intuition is right. Thanks Harvard for giving me the tools to have it in the first place.
In the two years since inception, LEDF has not made many loans, and many of those it has made are not performing. The impression I got when first talking to people here in the government is that they just fell short of their commitment due to mismanagement. After a few more conversations, I’m not so sure that’s the case.
There were clearly management issues, and big ones. But my hunch is that even if LEDF had been executed well, it still would have fallen short of expectations. I think this actually might be a classic case of targeting the wrong constraint. For all my raising issues about the idea of a binding constraint, I think I’ve encountered a real world illustration of what happens when you target the wrong problem.
Surely credit is an issue. But it’s not the only one, and the LEDF’s experience may be evidence it is not the biggest one. I suspect the bigger problem is actually that there are few people with the entrepreneurial ability and skill set to formulate and execute a business plan. They recognized this by pairing the loans the training and other support, but I have a feeling whatever was offered fell far short of what would have been needed to fill the gap between current capacity and successful new businesses.
We’ll see if my intuition is right. Thanks Harvard for giving me the tools to have it in the first place.
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