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Edward Yee

Breaking down moneylenders’ loan rates

While we have started lending to social enterprises in the “missing middle”, we are by no means the first to provide capital to this group. Today, the largest group of capital providers to these social enterprises are money lenders. Their typical interest rates range from as “low” as 15% to 50% or above. Despite these absurdly high rates (especially to one from countries where the cost of capital is much lower), some of these money lenders call themselves social enterprises – and surprisingly, when you break down their numbers, it is not hard to see why.

In this article, we will breakdown the average cost structure and the 15-50% interest rate of such money lenders and examine it further:

% Cost/ Profit Centre Explanation
9-12% Cost of capital In many countries such as India, cost of capital is often very high. For example, just putting your money in the bank might yield you between 6-10% in interest rates. It is usual for these money lenders to be charged between 9-12% in interest when they borrow from banks.
2-5% Non-performing Loans (NPLs) In any lending operation, there will be credit risk and defaults which must be accounted for. A 2-5% default rate is by no means the exception and may be higher in some situations.
2-10% Operational Costs Operational costs here vary depending on the ticket size of the investment and the efficiency of the money lender in operating in the area, amongst other factors.
2-5% Profit Margin To be financially sustainable themselves, they would typically charge a margin for their own profits to keep sustainable.


While these are just rough estimates for such money lenders, the numbers are not far from the truth, and in some cases, might be much higher depending on location, sector, and risk profile of the social enterprises.

As you can see, this results in a range between 15-32% in interest rates, even for the money lenders with the best of hearts.

At Givfunds, we believe that there must be a fundamental shift in the business model for these money lenders to provide a lower cost of capital for such impact businesses. Our cost structure is simple and is as such:

% Cost/Profit Centre Explanation
0% Cost of capital Because we take donations and put it in a revolving fund, this lowers our cost of capital to 0%.
0% Non-performing Loans (NPLs) Typically, a spread is provisioned to absorb any losses due to NPLs. Instead, our spread is 0% because the revolving fund would be absorbing the credit risk and any defaults that might happen.
2%< Operational Costs Our leading due diligence model allows us to lower the operational cost to below 2%. Going forward, this rate will be further reduced using technology.
1%< Profit Margin As a charitable trust, we do not make profits to disburse. Instead, any profits are reinvested into the business for us to:

  1. Come up with new, innovative blended finance products
  2. Create greater efficiencies or serve our customers better via technology


Together, this allows us to charge interest rates at 0-4%, with an average of 2% interest, far below market rates.


Links: (links about microfinance due to lack of data/information in SE lending, see Pioneer Gap article for more information)

  1. https://thediplomat.com/2017/03/inside-the-world-of-indian-moneylenders/
  2. https://www.huffingtonpost.com/elisabeth-rhyne/why-are-microfinance-inte_b_593359.html
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Patient Capital: Why we believe in lending across multiple rounds of loans

In today’s world of high growth start-ups raising multi-million dollar venture rounds, it is tempting to think that all social enterprises should move fast, break things, and raise venture rounds. In this article, we argue why we believe otherwise – that the current venture round system is broken for most social enterprises.


Venture capital was possibly born with the creation of American Research and Development, whose successful investment in Digital Equipment Corporation (DEC) spawned an entire industry. The multi bagger returns obtained from that investment attracted many new players into the industry – organizations who focused on investing in small, early-stage start-ups that would (hopefully) result in returns multiple times their original investment. Fast forward to today, venture capital firms are everywhere with the largest today being SoftBank with their Vision Fund.


Current Impact funds

If we look at the impact funds in South Asia today, we see a similar model of fundraising. Many of them are Venture Capitalists or Private Equity firms who focus on investing in the social enterprise market. Like other Venture Capitalists/Private Equity firms, many of their mandates are to beat or match the market (finance-speak for them trying to earn a high return on their investment).  They expect their investees to follow the “proven” method for success – raise a venture round every 2 to 2.5 years, burn cash while growing fast, and finally selling the company off (in an acquisition, IPO etc.) to unlock their investment.


This method of fundraising is incredibly useful for social enterprises with scalable business models. In these cases, such funds and expertise provided could help the social enterprise grow quickly and hence increase their impact quickly. While there are social enterprises whose fund-raising needs might suite this style of raising capital, we believe it is not suitable for majority of social enterprises. The reason is because most (70-90%) social enterprises do not have scalable business models and are better known as businesses rather than start-ups. They are unable to grow as quickly and often rely on more “traditional” business models such as cross subsidized clinics, slum schools, or training restaurants. These social enterprises are unlikely to have an “exit” for an investor and as a result are not funded. In fact, in the impact investment circles we are in, we often hear that there are not enough “investable” social enterprises – a clear sign that few social enterprises are suited for such a mode of investment.


Patient Capital

Instead, we believe what such social enterprises require are capital injections that correspond with the growth in their cashflows, profits and, balance sheets. If we look at the more “traditional” cash-flow generating businesses globally (like the Coca Colas and Nikes of the world), they had reached their size through taking loans as and when required as they grow. Similarly, these social enterprises are usually businesses that are financially sustainable (not loss-making) and impactful. Today though, it is a pity that they are largely unable to gain access to impact capital.


Here is where building long term relationships with such social enterprises and lending them across multiple rounds of low-cost loans is extremely beneficial for society. Such access to capital allows social entrepreneurs to plan far ahead in their businesses. This spares them the worry of having to constantly raise a new round or pay extremely high interest rates, thereby fostering long-term mindset to creating impact. These loans start off as working capital loans – small with short durations. They gradually increase with every round lent to them corresponding to their growth as a social enterprise. Here is a rough guide as to our ticket size and loan length:

Loan 1st Loan 2nd Loan 3rd Loan 4th Loan +
Ticket Size US$1,000-$5,000 US$3,000-$12,000 US$3,000-$25,000 US$3,000-$50,000
Length 3 – 6 months 3 – 9 months 3 – 18 months 3 – 36 months
Type Working Capital Working Capital Working Capital

Growth Capital

Working Capital

Growth Capital


This model of lending also de-risks us and would be elaborated on in a subsequent article.


A lingering question that many have is whether this means we fund less impactful social enterprises this way, and if our capital could be better deployed to more effective social enterprises. A later article on how we think about impact will address this. Essentially, we still believe in providing capital to the more impactful social enterprises. However, because we look to fund thousands of social enterprises, we do not see our model as one to cherry pick the most effective social enterprises to provide capital to. Instead, we hope to raise the general “bar” in terms of how effective social enterprises are. This is done by raising our requirements for impact in subsequent loans to help the social enterprise gain sophistication in how they think about impact further down the line. This is elaborated on in this article.



  1. https://en.wikipedia.org/wiki/American_Research_and_Development_Corporation
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Why we believe in lending below risk-free rates to social enterprises

We lend at interest rates between 0-4%. In many of the countries in South Asia, these rates are so low that social enterprises could borrow from us, put the money in the bank, and earn money (obviously we don’t allow them to do so). However, we believe that this form of capital is crucial in enabling social enterprises.


While donations have always been associated as the funding mechanism for NGOs and debt/equity investments for normal businesses, there has been little innovation on funding mechanisms for social enterprises operating on the ground in Asia – especially for the smaller social enterprises. Instead, much of the funding for social enterprises today are carried on from either the business or NGO world. Concepts such as market-beating impact investments (little different from a normal venture investment), debt from microfinance or banks, and donations/grants are often what is seen today.


The unfortunate fact is that most social enterprises are unable to compete in profitability with their more traditional business counterparts due to their social mandate (they have been amazing exceptions to this, but it’s largely the case for most small social enterprises). With social enterprises being somewhere in between NGOs and normal businesses, we believe there needs to be a funding mechanism which is similarly in between equity/debt and donations.


Our loans at Givfunds was largely inspired by the social business investments present in Bangladesh. An idea started by the Nobel Peace Laureate Professor Yunus, these are interest-free loans given to social businesses that contains a processing fee, resulting in an effect per annum rate of about 6%. These loans have been around for more than a decade in Bangladesh and loaned through various organisations affiliated with Professor Yunus to hundreds of social enterprises. They have worked incredible well in helping social enterprises to scale, all while maintaining a high repayment rate!


Having travelled to and visited over a hundred social enterprises and meeting hundreds more, I saw similar social enterprises to those in Bangladesh. They are financially sustainable (though not insanely profitable) and were changing lives but were not able to gain access to capital. Social Business Investments’ success in Bangladesh convinced us that a similar solution could be implemented in the rest of South Asia.


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Building our pipeline: reaching hundreds of good quality social enterprises

A big part of our solution to solving the pioneer gap is to lend at scale to thousands of social enterprises. However, reaching out and doing that many deals while ensuring a minimum standard (both in impact and in finances) is a huge challenge. In this article, we outline how we do so.


We first began lending by reaching out and calling for applications from social entrepreneurs directly, hanging around the grapevine, and heading down for demo days with accelerators – not much different approach from most investors. We quickly learnt that this was not a scalable approach. Meeting individual entrepreneurs and doing due diligence without prior contact with them requires time and effort which are in short supply. While we learnt a lot through this experiment, there was only so many people we could meet or work with. We decided to take a different approach.


In the process of conducting our initial loans, we spoke with a few social enterprise accelerators who groused that they recognised many social enterprises who were financially sustainable and were changing lives in a meaningful way but were unable to attract external funding. This resulted in our current approach of working with social enterprise aggregators to source for and support such social enterprises.


Today, we partner with two main types of social enterprise aggregators. We structure deals and work with these aggregators at the ecosystem level to fund as many as 20-40% of the social enterprises within their network. By incorporating information and feedback from these partners, we gain a more accurate picture of the social enterprises at a lower cost. More importantly, we are able to fund social enterprises who are doing amazing work but would have otherwise gone unfunded. We have since predominantly partnered with two types of aggregators.

Type 1: Social Enterprise Accelerators:

These are social enterprise accelerators or incubators. They are organisations that support and work with social enterprises for periods ranging from 3 to 36 months in the growth. 

Type 2: Market Access Providers

These are organisations that typically work with individual cooperatives, Self Help Groups (SHGs), and Farmer Producer Organisations (FPOs). They help these organisations to obtain a higher price for their products and often provide value-adding services such as processing. Unfortunately, we realised that many of these organisations who had started out borrowing from Microfinance Institutions (MFIs), had outgrown them and had no access to capital to purchase equipment, training etc.

Through these partners, we are able to potentially reach out and support thousands of social enterprises.


Partnerships with our social enterprise aggregators is a win-win. The “Bridging the Pioneer Gap” report by Village Capital and ANDE reported that accelerators that form formal partnerships with “domestic commercial investors” such as ourselves have significantly higher success and survival rates. In their sample, those accelerators that had such a partnership had social enterprises with a 41% success rate and 85% survival rate compared to a success rate of 26% and 72% survival rate.


A side benefit of working with our partners is us using the pre-existing information these aggregators already have to improve our due diligence process. We believe strongly that the person who knows how and what to spend on their business is the social entrepreneur themselves. Many social entrepreneurs did not start their organisations to raise funds or talk to funders. They start their businesses because they saw a problem in their community that they cared deeply about and, often, know how to solve and grow their business it better than anyone else. Hence, it is deeply unfortunate when we see many social entrepreneurs bang their heads against the wall trying to understand how to raise funds while neglecting operations. Incorporating information from our partner social enterprise aggregators into our process means that we minimise disruption to a social entrepreneurs’ time. This frees up the time most social entrepreneurs would otherwise spend raising funds (taking between 3-6 months) to focus on operations and grow their business.


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Plugging the Pioneer Gap: Lending to Thousands of Social Enterprises

In the previous article, we explored the pioneer gap and why many of the current funding options are not suitable for most social entrepreneurs stuck in the pioneer gap. This constitutes a whopping 70-90% of social entrepreneurs! In this article, we will explore some of the parties that we are aware of who are providing capital in this gap, and why we believe our solution is something that is missing. (hint: it is because none solves the problem at scale)


There are numerous organisations providing a variety of grants, convertible debt, equity, and other forms of investments within this gap as well. Some of those organisations include:

  1. Money lenders

Some of such lenders consider themselves social enterprises, and for good reason. In a later article, we will breakdown the rates of these money lenders so you can see that for them, they have already cut costs and their profits to help these social enterprises.

2. Impact investors

Some impact investors average ticket sizes go down to $50,000. Examples include ANGIN, ARUN, Kinara Indonesia, Mercy Corps. Others who go as low as $100,000 are Accion Venture Lab, Anthem Asia, East Ventures, Omidyar Network and Phitrust Asia.

3. Foundations

Certain foundations in Asia focus on providing capital to the missing middle. However, many of these foundations often do not have the capacity to support many social enterprises.

4. Accelerator/Incubator Programs

In a study done by Village Capital and ANDE, 54% of accelerators and incubators provide some form of capital to their social enterprises. In such cases, these funds fall within the pioneer gap. Unfortunately, they are usually one-off and don’t provide subsequent rounds of capital to grow the business. Additionally, the majority of social enterprises do not have the privilege of working with such programs.


These organisations are doing incredible work and go a long way in developing the ecosystem and supporting social entrepreneurs at these levels – both in terms of knowledge and capital. However, if we look at the industry from a macro perspective, what this leaves is the top 5-20% of social enterprises within the pioneer gap gaining some form of support, with 5-10% of them gaining monetary support.


We recognised that a gap exists to provide capital for the majority of social enterprises within this gap, most of whom have impactful and financially sustainable operations. Our solution to this is our attempt to provide capital to thousands of social enterprises. This way, we hope to be able to move the needle in supporting social enterprises within the pioneer gap.


Who’s Bridging the “Missing Middle” in Social Investment in Southeast Asia?

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The Pioneer Gap: Where 70-90% of social enterprises are unable to raise capital

“Access to finance is a well-recognised constraint to social enterprise development… there is a missing middle where working capital can be tight, grants insufficient and commercial finance yet unviable” – British Council


This quote from the British Council perfectly summarises a problem faced by most social enterprises today. It is echoed in  various other reports from organisations such as the World Bank, AVPN, Village Capital, and ANDE, and is usually identified     as the funding gap between $10,000 to $200,000. There are many names for this, the missing middle, the valley of death,    and the pioneer gap. In this article, we address what the pioneer gap is and how it came to be.

Today, there are various sources of funds for social entrepreneurs to tap into. Below is a figure from AVPN’s report “Towards Inclusive and Sustainable Growth in the ASEAN economic community”. It shows the various funders available in the market (while it was a report on ASEAN, this problem is faced globally).

A clearer visualisation of this gap could be seen in the graph below:

Here, we’ll breakdown how the individual actions and choices of each of the players within this ecosystem resulted in this gap that we estimate anywhere between 70-90% of social enterprises are stuck in.



While some microfinance organisations do service this gap, most usually cap out in terms of their lending between $1,000 to $5,000. This is partially due to legal limits on how much they can lend and because their processes are designed mainly to evaluate individuals rather than scaling businesses, let along social enterprises! What might be noteworthy is that Kiva had launched efforts to lend low-cost loans to social enterprises.  Unfortunately, for the past 2 years+, these efforts seem to stall       at 1-2 social enterprise campaigns at any point of time (versus the thousands of active microfinance campaigns they have on   any day).



With the prevalence of crowdfunding, personal grants, giving circles, and donations, individuals today form a large part of giving. Unfortunately, using this method to raise working or growth capital is often unpredictable and insufficient for social enterprises’ growth. A casual look at most donation crowdfunding platforms for social enterprises indicate each campaign caps out after a couple of thousand dollars.


For other HNIs who might give individual donations, their giving might play within the pioneer gap, but they typically do a couple of deals a year – far from the thousands required.


Foundations, Government, and CSR:

Today, most foundations, family offices, and CSR initiatives by companies tend to focus on the most impactful social enterprises, and for good reason. Logic dictates that with scarce resources, you would try to get the most from those resources. In this case,  it means giving what money they have available to give to the most effective impact organisations – be it social enterprises or non-profits. However, because the world of impact is unlike that of start-ups where there is a limited amount of equity participation or debt to be raised, there is no limit to how much donations an impact organisation can receive. Hence, what happens is that the best connected and most impactful organisations get funded.


With many foundations legally mandated to give away a certain portion of their funds every year, they rarely have the bandwidth of evaluate so many deals. While they might be able to write-off grants given that are below $10,000 without much justification, higher quantum grants would probably need some form of due diligence and tracking to ensure accountability. It is easy to see why they would choose to concentrate their donations in the case of these larger grants. For example, a foundation who has to give away $5,000,000 would much rather give away $500,000 to 10 impact organisations (evaluating anywhere between 20-40 organisations) rather than $50,000 to 100 impact organisations (evaluating anywhere between 150-300 organisations).


Hence their due diligence process was designed to give large amounts of money (few hundred thousand dollars). This makes the pioneer gap an especially awkward phase where small grants that could be written off are insufficient, while larger grants with their DD processes are too cumbersome.


Money lenders:

Many money lenders play within this gap, lending to social enterprises at interest rates (at least in India) between 15-120% per annum. In a later article we address why such high rates are being charged to social enterprises. However, it is easy to see how many social enterprises would be unable to or find it difficult to pay such high interest.


Impact Investors:

When fund raising from impact investors, today’s social enterprises often go through the same cycle when fund raising from impact investors or grant makers. They run around to various funders, building relationships with each of them over 3-6 months, before raising a round. 2 to 2.5 years out, they repeat this cycle again, with a different set of funders.


These rounds usually begin in the hundreds of thousands, thereby helping these lucky social enterprises to bypass or jump past the pioneer gap all together. (Impact investors often want to disburse hundreds of thousands of dollars because even a 1,000% on a $10,000 investment does not make much sense to them if their fund size is $5,000,000) Empirical evidence supports this.  In an industry survey conducted in 2012 by Village Capital, of over 300 self-described “impact investment” funds, fewer than 10 invested at less than $250,000/company. Additionally, a Monitor-Deloitte study of African impact investors found only 6 of 84 invested at the early stage.


Unfortunately for most social enterprises, this form of funding is wholly unsuitable for them. There are two main reasons and problems for this style of fundraising:

a. Most social enterprises are unable to deliver exits or market matching/beating returns

Because of their social mandates, most social enterprises (90%+) today are often unable to compete on equal terms in profitability as their for-profit counterparts (I know there are exceptions to this, but the general rule for a small social enterprise   on the ground is this). These social enterprises are often unable to deliver an “exit” for their impact investors – let alone the market beating or market matching returns often required by them. Instead, these social enterprises are usually financially sustainable (aka not loss making) businesses creating huge impact but only earn low to mid single digit returns on investments – out of the mandate of most impact investors.

b. Detracts from their core mission

Many social entrepreneurs did not sign up to be a social entrepreneur so that they can experience the “joy” of spending 3-6 months of their time worrying about capital. They started their organisations to make a difference to their communities in a financially sustainable way. Requiring many of them to waste this much time just to raise capital means less time impacting    their beneficiaries.


In the same survey performed by Village Capital earlier, impact investors cite “lack of appropriate capital across the spectrum” and “lack of investable enterprises” as the top two barriers to deploying more impact investment. These are clear signs that many of the social enterprises currently in the market are not a good fit for most impact investors’ market beating or market matching mandates.


Traditional Finance:

This last group consists of a mix bag of Private Equity, Bank Debt, Capital Markets, and other sources of commercial funding typically available to businesses. Unfortunately, unless they proceed to charge interest rates like money lenders, they are simply unable to earn enough per loan from social enterprises within the pioneer gap to bother.



In summary, we see that current funders in the market do not offer capital at the ticket sizes within the pioneer gap for various reasons. Because most funders either give small grants or impose minimum capital sizes, this results in a missing middle that thousands are stuck in. In the next article, we share our approach to tackling this problem – by lending to thousands of social enterprises in the pioneer gap.



  1. https://ssir.org/articles/entry/closing_the_pioneer_gap
  2. https://assets.aspeninstitute.org/content/uploads/files/content/docs/ande/Bridging%20the%20Pioneer%20Gap%20The%20Role%20of%20Accelerators%20in%20Launching%20High%20Impact%20Enterprises%20.pdf
  3. http://blogs.worldbank.org/dmblog/the-missing-middle-and-the-growth-of-social-enterprises
  4. https://avpn.asia/blog/whos-bridging-missing-middle-social-investment-southeast-asia/
  5. https://hbr.org/2012/01/a-new-approach-to-funding-social-enterprises
  6. https://www.britishcouncil.org/sites/default/files/bc-report-ch4-india-digital_0.pdf
  7. https://www.britishcouncil.org/sites/default/files/thailand_-_social_enterprise_in_a_global_context_-_final_report.pdf
  8. http://blog.kiva.org/2013/12/27/bridging-the-missing-middle-the-impact-of-larger-loans-on-kiva
  9. https://creationinvestments.com/impact-investing/smes-missing-middle/


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How the founders of Givfunds met in the oddest of places: A third class Indian sleeper train



Few co-founders can boast of a more unlikely place to meet. In a rumbling train cabin somewhere on the Eastern part of India, I was sardined next to a complete stranger exchanging pleasantries – just like I had done for the past 14 days. Little would I have known that this conversation would lead me back to India to start Givfunds. In fact, Irwan happened to be one of the scruffier people I’ve met that day. (To be fair, I probably looked worse, having not showered in almost a week!)



We were on Jagriti Yatra, a yearly train journey across India that packed over 400 changemakers from all over India… And then there was me, part of a ragtag band of 29 international participants who somehow slipped through the door. The Yatra brought us to travel together for 16 days on an Indian train to visit Indian social enterprises, non-profits, and businesses who have changed millions of lives. During the journey, we visited renown impact organisations such as Aravind Eye Care, Goonj, and Akshaya Patra Foundation.


Irwan and I jumped into the conversation, sharing about our experiences and talking about the problems we saw facing social entrepreneurs. But to be honest, it didn’t seem very different from any of the previous conversations either of us had in the preceding 2 weeks. Coupled with social exhaustion creeping in, neither of us were the best conversationalists.


It was therefore strange that, 2 weeks after the Yatra, I somehow decided to try striking up a conversation with him. Fast forward almost 2 years later, Irwan and I have since started Givfunds and are trying to solve some of the problems we spoke about on that day on the train!






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Inspired by Prof Muhammad Yunus: How Givfunds began

Reading Time: 2 minutes

It all started from a visit I took to a slum school in Bangladesh. Studying in a classroom barely 10 square meters in size, 20 lively children were abuzz with the foreign visitors who popped in for a class. Despite the cramped conditions, the children in that classroom were more enthusiastic then any I have encountered – and I’ve met children playing with new technology in my previous life as an education-technology entrepreneur.


My subsequent conversation with the school’s Managing Director, told me that they ran on a cross-subsidization model where schools in the city would subsidize those in the slums and rural areas. However, it was not until I heard the number that I my jaw dropped. All it took to subsidize the education of child was $2 a year. However, at that time, they could not scale their model because of the lack of capital to expand – something that was immensely ridiculous to me.


My future travels from the slums of Bangladesh to the villages of India to the pagodas of Myanmar allowed me to visit over a hundred social enterprises and speak with hundreds more who run incredibly impactful and financially sustainable businesses. It hurt that, like the school, most could not grow their organisations due to the lack of capital. These social enterprises solved problems ranging from poverty and hunger to education and lack of sustainable energy.



This, I found out later, was a huge problem which many do not see or understand – something called the “pioneer gap”. Many people assume that there are enough funds in the social sector, with donations growing Year-on-Year and the rise of impact investing. But what many do not realise is that the vast majority of small-to-medium social enterprises often do not have access to these funds.


However, it was not until my time in Bangladesh on a program with Yunus Centre that I had a glimpse of a solution. Largely inspired by a conversation I had with the Nobel Peace Laureate, Professor Muhammad Yunus, the idea of Givfunds in lending low-cost loans to social enterprises was by no means unique. In Bangladesh, various offshoots of the Grameen Family have loaned low-cost loans to hundreds of social enterprises for over a decade with an extremely high repayment rate. These loans helped these social enterprises scale to create much greater impact.


The birth of Givfunds came when I met Irwan on a third-class sleeper train in India. We thought that, if such a solution is scaled up to lend to thousands of social enterprises or more, we would have a decent shot at solving the “pioneer gap”.



  1. https://www.muhammadyunus.org/index.php/visitors/immersion-program
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