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Bridging the Financing Gap for Pro-Poor Innovation: Towards a Framework


  • Sonne, Lina

    () (UNU-MERIT)


In many developing countries, pro-poor entrepreneurship and innovation is facing a financing gap. Such innovation suffers from a lack of finance especially from the mainstream (or core) of the financial system. Instead, the little support that exists comes from alternative sources at the periphery of the financial system. This substantial gap in finance for rural PEBI, which remains unexplored, is the focus of this paper. To start, a number of barriers to access to finance are considered, from which a conceptual framework is constructed. The framework considers the financial system as made up of a core (the banks) and a periphery, where the way knowledge flows within the system, the type of knowledge that can be accessed and accumulated, and the kind of relationships that exists matter. It is suggested that at the core, path dependence and institutional lock-in together with a closed network of similar knowledge types and a dependence on collateral rather than relationships, result in a rigid and a closed system. The periphery organisations are better able to obtain and act on new knowledge (and provide finance) for a number of reasons which form the basis for a set of insufficient but necessary (INUS) condition. Accordingly, the organisations may posit the following characteristics: a dynamic and flexible approach to finance; a wide network of actors with varied knowledge; relationship focused; an emphasis on tacit knowledge, feedback loops and learning; ability to innovate close to users; and a systemic and integrated approach to finance.

Suggested Citation

  • Sonne, Lina, 2010. "Bridging the Financing Gap for Pro-Poor Innovation: Towards a Framework," MERIT Working Papers 049, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  • Handle: RePEc:unm:unumer:2010049

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    References listed on IDEAS

    1. Simeon Djankov & Peter Murrell, 2002. "Enterprise Restructuring in Transition: A Quantitative Survey," Journal of Economic Literature, American Economic Association, vol. 40(3), pages 739-792, September.
    2. Cohen, Wesley M & Levinthal, Daniel A, 1989. "Innovation and Learning: The Two Faces of R&D," Economic Journal, Royal Economic Society, vol. 99(397), pages 569-596, September.
    3. Benito, Gabriel & Narula, Rajneesh, 2007. "States and Firms on the Periphery: The Challenges of a Globalising World," MERIT Working Papers 004, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    4. Agrawal, Ajay & Cockburn, Iain, 2003. "The anchor tenant hypothesis: exploring the role of large, local, R&D-intensive firms in regional innovation systems," International Journal of Industrial Organization, Elsevier, vol. 21(9), pages 1227-1253, November.
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    More about this item


    Pro-poor innovation; entrepreneurship; rural innovation; financing innovation; financing entrepreneurship;

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty


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