Equity Finance of Economic Development: Feasibility and Ethical Desirability

In the literature on development finance, there is a growing interest in the subject of equity participation as a means of promoting development. The limitations of debt finance are increasingly evident at both the micro and macro level, especially given the growth of bad debt as far as business is concerned, and the problem of national indebtedness involving many Third World countries. Borrowing has its uses of course, but inevitably leads to problems if it is used as a means of financing risky ventures or projects which are of a long term nature. In contrast, equity finance means that it is the provider of capital who takes on the risk. The fact that there is flexibility in the pay‐off, which is related to the project being backed, actually serves to reduce risk and enhance the likelihood of successful outcomes.