More education and venture capital for developing countries

Translated from the original article in Swedish found here. A PDF version can be found here.

Microfinance funds are more popular today than ever. They attract billions from Swedish institutions and savers – even though researchers have not been able to confirm the benefits of microfinance. Swedish investors receive a high return on these investments, but the result for the poor entrepreneur ultimately becomes rather lean. Growth often fails. There are therefore reasons for politicians and decision-makers to consider whether other efforts and priorities are needed to create a more just world, where more people are given reasonable conditions to succeed.

Muhammad Yunus, founder of Grameen Bank and recipient of the 2006 Nobel Peace Prize, once compared people in poverty to a bonsai trees. He said that if a bonsai tree does not grow, the seed is not to blame – it is the soil that is insufficient. In a study that I have published with Alex McKelvie in the International Small Business Journal, we show how the soil, exemplified by poor financial literacy and lack of formal education, greatly affects microfinance’s chances of success. The often low level of education becomes the Achilles heel of microfinance itself.

Economic welfare in more developed countries is also not based on microfinance, but on the fact that talented small business owners and entrepreneurs are given better basic conditions to grow and become both nationally and internationally successful. Despite the obvious insight, efforts are often lacking in this group of companies in developing countries, although government development financiers want to focus on small and medium-sized companies.

New methods and processes are needed to enable and support private investments in smaller companies in developing countries. Today, this segment is mainly achieved through lending or grants. Loans are expensive for the small business, with interest rates exceeding 20 percent. And a loan that is not repaid can risk the company’s future. Grants require a great deal of knowledge about how applications are written. They are time-consuming, burdensome to report, associated with obligations – and difficult to obtain.

Instead, private equity is needed here, but since it is almost as demanding and costly to finance a company with a turnover of $ 100,000-200,000 as a company that has a turnover of $ 3-4 million, the investment often fails. The minimum level can be $ 3-5 million for a maximum ownership of 20-30%, which is impossible for a smaller company.

Despite the realization that education and financing of small businesses is the key to combating poverty, efforts remain modest and disproportionately distributed. The bonsai tree simply does not get the nutrition it requires.

In 2019 alone, Swedish government aid organization Sida’s aid budget is SEK 51 billion (USD 5.3 billion) for efforts to improve people’s living conditions. Of these, 5 percent go to education. To finance entrepreneurship, the sister organization Swedfund has invested a total of SEK 5 billion (USD 510 million) over 40 years, which has created 167,000 jobs. It is recommended that our politicians consider redistributing the contributions from Sida to Swedfund, and in the regulatory letter increase the investments in educational efforts.

About Pontus
Pontus Engström is an affiliated researcher at the House of Innovation, Stockholm School of Economics. He defended his PhD in 2016 and researches the informal sector and entrepreneurship in developing countries. Pontus is the co-founder of MTI Investment AS, which invests in smaller companies in East Africa. He can be reached at or

On the benefit of switching towards financing SMEs rather than micro businesses

Published in Faedrelandsvennen 12 july 2018

Strømme Foundation changes its strategy from a focus on microcredit to a focus on financing small and mediums sized companies, in line with what my own research and experience indicates to be a better path towards prosperous economic development. I concur with this move and look forward to seeing the results from this change, and encourage more organizations and investors to follow this path. This is not to say that microfinance is not helping poor people. Someone said to me: “These microloans do help a little especially when it comes to women who can send their kids to school. Put a metal roof with monies earned from the small businesses they setup.” I completely agree, but by focusing on small and medium sized companies, we can help create even more jobs through scaling businesses led by competent managers. It is simply difficult to scale a small microentrepreneur with very limited personal capacity to lead a larger business. I simply suggest that there are other means which we also need to explore. Financing of SME´s has until recently been a forgotten area of focus, and more and more investors are shifting towards this group as well for more impact.

For Norwegian version, see this link: 2018-07-12_Faedrelandsvennen

For English transaltion, see this link: Strømme Foundation puts microfinance on the shelf.

Tidningen entré skriver om min mikrofinansforskning samt MTI Investment — investerar i växande små och medelstora företag i Östra Afrika

I senaste numret av entré skriver journalisten Maria Linde om min avhandling samt om vårt jobb med MTI Investment AS – det nordiska investmentbolaget som investerar i växande små och medelstora företag i Östra Afrika.

För att ladda ner delen som har med min forskning att göra klicka här:

Pontus Engström_entre-nr-4-2016

För att ladda ner hela tidningen, klicka här:

MTI Investment, investing in the growth of Eastern Africa

We are launching our website now for MTI Investment.

“Mti” is Swahili for tree – symbolizing MTI’s focus on growing companies, with the potential to bear fruit from our long-term efforts of investing, coaching, mentoring and monitoring our portfolio companies.

 MTI Investment is a Tanzanian/Nordic investment company founded by Professor Trond Randøy, PhD candidate/MSc. Pontus Engström, Dr Neema Mori and Dr Gibson Munisi. Since 2012 the team has been seeking investment opportunities in Tanzania, and built the relational infrastructure with key stakeholders such as universities, legal advisers and local firms. In early 2014 the company was formally incorporated and the first initial investments were performed.

 What makes MTI Investment unique is our university-based approach to investing. We seek businesses that are run by highly competent university-educated managers and owners, and we capitalize on our university-based networks to help these businesses further excel. By being university-based we are able to be at the forefront of knowledge creation and entrepreneurship in East Africa.

Jambo (hello)! A field trip to Tanzania

Just ended an interesting two-week field trip to Tanzania. Me and the one eyed professor Trond, named so after a lost battle with his contact lens in the flight over, have been travelling around the Tanzanian country side, together with our Tanzanian colleague Dr. Neema Moori.

Bumpy road
Bumpy road

Like three explorers we have travelled on bumpy “roads” in a 4wd jeep meeting many small businesses around Tanzania and also presented and discussed research at the University of Dar Business School, the leading business school in Tanzania, on micro entrepreneurship and microfinance.

University of Dar es Salam Business School
University of Dar es Salaam Business School

Driving on the left hand side was an experience. When we changed from driving on the left hand side to the right during a weekend in the 1960s, the Swedes allegedly first started with busses and trucks on day one, and on day two allowed cars to switch side (a Norwegian joke..…)..  In Dar es Salam we experienced some of this when driving in the “mixed lane” in the middle…

Stockholm 1967 or Dar es Salaam mixed lane 2014?
Stockholm 1967 or Dar es Salaam mixed lane 2014?

We have met many innovative entrepreneurs, discussing gold mining operations and suggested alternative methods instead of their dangerous usage of mercury and cyanide, seen farming, visited a dairy production, a security business, a honey business, a power plant in Burundi, solar-power companies, coffee and fruit juice operations, construction companies and much more.

Young men seeking gold in the small Tanzanian mines.
Young men seeking gold in the small Tanzanian mines.

500 chicken
500 chicken

We also met Statoil and learnt about the current status and plans for the country. They have found gas 100 km out in the sea outside the Tanzania coastline. Drilling for gas in depths of 2000 meters is new to Statoil and the transportation of the gas once recovered is not the easiest thing. One of the biggest obstacles to Statoil is getting the bureaucratic permits and reaping any revenues from the drilling lies years ahead, but the government of Tanzania is already busy setting up a “welfare fund”.

In terms of the small businesses, there is no shortage of ideas and opportunities and the future of Tanzania is promising, although some major challenges and risks are ahead, such as road infrastructure, schooling, health and housing, and of course access to finance and an efficient government. A day at a pig and poultry farm was encouraging with environmentally friendly production methods, and good treatment of the animals, but we smelled like pigs back at the hotel afterwards….

Small baby pigs at a farm start-up
Small baby pigs at a farm start-up

Over the weekend we took a small, Indiana Jones inspired, plane to Stone Town, Zanzibar, see blog. When sitting just behind the pilots we noticed how the co-pilot fell asleep and awoke when we landed…. The other pilot was a short fellow who had to stand up while landing the plane, quite the scene, but we landed safely. Tanzania and not the least Zanzibar is blessed with some amazing shorelines and beautiful scenery. Islam is the dominant religion at Zanzibar, whereas Tanzania is more mixed between Islam and Christianity.

Beach at Zanzibar
Beach at Zanzibar

While travelling we were pulled over 4 times by different cops for various reasons, such as crossing the double-lines in the middle of the road, which of course we had not done. All this was part of the daily revenue generation strategy by the police force. The revenues from the first 150 pulled over go to the government, while the rest go to the police force… If they stopped you, it was better to pay the 20 dollars than to spend 30 minutes discussing with them, which they knew. But they were very nice, typically dressed in white.

Victoria lake, stone structures, near Mwanza
Victoria lake, stone structures, near Mwanza

Today, coming home to celebrate my “insanely great” first born and oldest daughter Ella, turning 13 years old. <3<3<3<3

Asante sana (thank you)!

The world´s unsettled debt to Africa?

(English follows)

Relaterat till min PhD har jag nu befunnit mig en tid i Tanzania. Kanske låter det lyxigt, men det har inneburit ett ganska hårt arbete och många långa och dryga resor på dåliga vägar. Så efter en tuff vecka, har jag tagit mig ut till Stone Town på Zanzibar, ett persiskt uttryck för “The black coast”. Lite kuriosa är att Freddie Mercury bodde här under sina första 12 år, innan hans familj fick fly pga revolutionen i Zanzibar, då över 20.000 indier och araber dödades. Ett stort folkmord i sig, men vid ett besök på platsen där den tidigare slavmarknaden i Zanzibar var blir man efter ett tag varskodd om en av världens troligen största mänskliga övergrepp.


Många är säkert välbekanta med den mycket omfattande slavhandel som gick från västra Afrika vidare till Brasilien till USA och tillbaka till Afrika (se bild nedan.Triangular_trade 

Till skillnad från den västra slavhandeln, där många människor dog men där det trots allt finns spår kvar, finns det få liknande spår kvar av de uppskattningsvis cirka 12 miljoner människor som förts bort österut från centrala och östra afrika via Zanzibar (se bild nedan).


Den exakta siffran tvistas det om – mellan 8 miljoner och 25 miljoner människor. Men under cirka 200 års tid berättas det för oss på plats så fördes årligen 60.000 människor via östra Afrika vidare ut till Saudiarabien och mellanöstern. Den lokala Sultanen var i högsta grad involverad i detta.  Handeln började på 600-talet och räknar man från den tiden är siffran högre. Lägg därtill den effekt på framtida generationer som ett sådant bortfall innebär. Många av dessa slaver (män, kvinnor och barn) dog. Det betyder att detta kan vara en av historiens största folkmord. Inom det engelska riket avskaffades slavhandel 1833 formellt, mycket tack vare William Wilberforce enträgna arbete i det engelska parlamentet (se filmen Amazing Grace). Men handeln fortsatte i Zanzibar och dess Sultan var inte intresserad av att avsluta detta. Att slavhandeln i Zanzibar avskaffades kan till viss del tillskrivas Dr. David Livingstones krav på detta i det engelska parlamentet 1857, som “några år” senare följdes av att Sultanen av Zanzibar avskaffade detta totalt 1873 efter starka engelska påtryckningar. Zanzibar blev 1890 ett brittiskt protektorat och senare sammanslaget med det som idag heter Tanzania, men man är fortsatt till viss del självstyrande.Detta är så pass nyligen att många av de sköldpaddor som lever i vattnen utanför Zanzibar och som kan bli över 200 år gamla, levde vid den här tidpunkten.


På den plats där man tidigare hade en slavmarknad finns idag en stor katedral och den plats som användes för att piska slavarna består av ett altare. I marken finns dock den sk slavpålen markerad. Slavpålen var i själva verket ett stort träd. De slavar som piskades och inte grät, ansågs vara starka och såldes till ett högt pris, medan de som grät såldes till ett lägre pris. Kvinnor och barn gavs som bonus till de som köpte många slavar. Kvinnorna separerades från sina män, och barnen från deras mödrar.Utanför finns ett monument gjort av den svenska konstnären Clara Sörnäs.


Kvar finns två stycken slavkammare– en för män och en för kvinnor och barn. Tidigare fanns 15 stycken sådana kamrar. I dessa kamrar förvarades slavarna i två dagar innan man hade en auktion.

slavechamber 2slavechamber

Många dog under denna tid. Kamrarna låg nära vattnet och när det var högvatten kom vattnet in i kammaren och förde då med sig bort avfall (man gjorde sina behov i mitten av kamrarna), men samtidigt dog många i den förfärliga miljön.   Stora befolkningsgrupper är med andra ord helt utplånade och detta märks fortsatt än idag i Tanzania och flera andra afrikanska länder. Övergreppet är så stort så att idag, cirka 150 år efter det att slavhandeln formellt avskaffades är följderna fortsatt märkbara. Idag fortsätter slavhandeln under andra former, och det är inte bara i andra länder, såsom arabländerna, utan även i Sverige har vi slavarbete inom t.ex. bärplockningen.  Årligen görs en rapport av US Department of State kring Human Trafficking. I den rapporten rankas länder kring om man följer internationella konventioner eller visar steg på att göra det. Bland de 19 länder som inte följer dessa konventioner eller gör tillräckligt för att göra det finner vi länder som t.ex. Eritrea, Congo (DRC), Iran, Nordkorea, Kuwait, Ryssland och Saudi Arabien.

En fråga man ställer sig: Hur och när ska den här skulden regleras?

In English

During my studies I have spent some time in Tanzania. This could be seen as luxurious, but it is quite hard work and many long trips on rough roads. So after a tough week , I am spending a couple of days in Stone Town on Zanzibar. This is where Freddie Mercury lived during his first 12 years, before his family had to flee because of the revolution in Zanzibar, where over 20,000 Indians and Arabs were killed. A genocide in itself, but Zanzibar is known to have been the site of one of the largest slave markets in the world and during a visit to the site of the former slave market in Zanzibar, one  become aware of one of the world ‘s worst human abuse.

(see photo above)

Many in Sweden and West are probably familiar with the massive slave trade between West Africa,  Brazil, the US and back to Africa.

(see image above)

But unlike the Western slave trade, where some people today can trace their family’s history back to the slave trade, there are few similar traces remaining of the estimated 12 million people who were brutally “removed” from central and eastern Africa via Zanzibar. For 200 years, there were, I am told here, annually 60,000 people abducted via Zanzibar to Saudi Arabia and the Middle East.

(see image above)

Trading began in the 7th century  and counting from this time the figure is higher. Unlike the slave trade that took place from West Africa there are few traces or relatives of these populations today. Many of these slaves (men , women and children) hence died. It means that this may be one of the largest forms of genocide, especially when including the westward trade. Within the British Empire, slavery was formally abolished in 1833, to a great degree thanks to William Wilberforce persistent work in the English Parliament ( see the movie Amazing Grace). But the trade continued in Zanzibar and the Sultan was not interested to put an end to this. The final end to slave trade in Zanzibar can however be partially attributed to Dr . David Livingstone’s requirements on this in the English Parliament in 1857. After “a few years”, after strong pressure from the British, the  Sultan of Zanzibar later stopped this practice and was richly compensated for this. This is so recent that many of the turtles that live in the waters around the coast of Zanzibar and can be over 200 years old , lived at this time.

(see image above)

At the place where there previously was a slave market there is currently a great cathedral and the place that was used to whip the slaves is replaced with an altar. In the ground , there is a mark where the slave pole was. The slave pool was in fact a large tree. The slaves were whipped and those who did not cry were considered to be strong and therefore sold at a high price , while those who wept were sold at a lower price. Women and children were given as a bonus to those who bought many slaves. The women were separated from their men, and children from their mothers. Just outside is a monument made ​​by Swedish artist Clara Sörnäs.

(see photo above)

Two slave chambers of an original 15 still remain – one for men and one for women and children. In these chambers slaves were kept for two days before an auction was held. Many died during this time. The chambers were close to the water and when there was high tide the water came into the chamber and then “cleaned” the chambers which had the toilet as the floor in the middle.

Large populations are in other words completely wiped out. Still today, some 150 years after the slave trade was formally abolished, the effects can be seen .

Today, the slave trade continues in new forms, and it is not only in other countries, including Arab countries, but also Sweden is effect, such as in the areas of berry picking. Every year, a report is issued by the U.S. Department of State, on Human Trafficking. The report ranks other nations to what degree they follow international conventions or show step to do so. Among the 19 countries that do not follow these conventions or doing enough we find countries such as Eritrea, Congo (DRC), Iran, North Korea, Kuwait, Russia and Saudi Arabia.

One question one need to ask: How and when should this debt with Africa be settled?