Do cash grants really make a difference in business expansion?

Last week, while training entrepreneurs on business expansion in Kibera, I had the chance to field questions on business financing. But one question made my day.

A business lady asked where she could get money that she doesn’t have to pay back, otherwise known as a grant. The interesting part is that everyone was thinking about it, but no one was bold enough to present it as she did.

Harvard-trained Zambian economist Dambisa Moyo is one of the few experts in the world who have authoritatively asserted that aid to Africa is making the continent poorer and should be stopped.

“Development aid simply doesn’t work,” she says. “It was supposed to lead to sustainable economic growth and a reduction of poverty. Name one African country where this has happened.”

Empirically speaking, the Zambian economist makes sense. African leaders have always taken advantage of the aid to steal from the poor knowing the West will take care of things. Should we export this macro-economic problem to the business micro-economics?

The basic element of a business is that you put your shilling into a business idea, risking it against all odds, give the business your best in terms of marketing and management and expect to make more in the process.

Due to the fact that you have invested your money in the business, as the manager, it is expected you would take care of your interest more keenly than a third party’s.

This is why many investors insist that the owner of the idea invests some money of their own in the business. It is also the reason banks will never give you 100 per cent financing for your business idea. However, a grant goes against this school of thought.

A donor agency identifies your business as prime, offers you financing in part or in whole, and expects you to run the business with utmost responsibility so that the grant is not wasted. Just how effective is the grant in business?

Let me use Dambisa’s question on grants, how many businesses do you know that have succeeded based purely on grants.

You may remember that some companies started competitions to fund artistes and offer the winners lucrative production deals. Well, I only know of one winner who has produced an album so far.

The rest have a way of getting too comfortable and given no discipline was formed before the success, fail to deliver. This demonstrates the nature of grant funding in business.

Mr Odhiambo is the managing consultant at Elim Consulting. www.elim-consult.com