By
Prof. Waswa Balunywa, PhD
Ms. Diana Ntamu Nandagire
Ms. Shakilah Nagujja
What is Capital?
Capital is a common word which usually means finance. From the business perceptive, capital is the amount of money that a person has or requires to undertake a business activity. Capital takes various dimensions or fora or simply money including fixed or working capital. Among the challenges organizations have, is the ability to raise capital at times to undertake a business, at times to expand the business and at times just to run current operations.
Sources of Capital
To be able to secure this money, there are two major sources and these are owner capital and borrowed capital. Owner capital is ordinarily the saving of an individual, money somebody has put aside over a period of time. To be able to save, one must earn. In developing countries where people do not have jobs and are generally poor savings are difficult to come by. Indeed one of the major problems of businesses worldwide is lack of capital. a person may have an idea but may not have the money to do it. It is also possible that you may raise capital from friends who may have their own savings. They may give it to you rather than lend you. If you cannot raise your own money, then you borrow. In the business language this is called debt. When you borrow, usually you have to pay money on the money you have borrowed. The challenge with borrowing is that it doesn’t matter whether you are making a profit or not, you have to pay interest to the person who has lent you the money. This of course can be a big challenge especially if you are not operating well or simply not making a profit. Many businesses fail because they are unable to service the loans they borrow from other people. And if one doesn’t have his own money, it means a person cannot undertake a business comfortably.
A Case Study of a Family Business
A research in family that has existed over generation in Iganga town revealed very interesting findings about developing a business without money. The founder of the business way back in the 1940s, became friends with Indians who had settled in Iganga town. Through this friendship, he was given goods to sell on credit. He did not have startup capital. In return, he also got a market among the Indian community to sell several goods. He was able to accumulate resources without borrowing any money and without owner capital. He passed on the business to his son along with the contacts that he had. The son would also get goods on credit from the Indian community and when the Indian community left in 19o72, the business declined because the network of people who had money or who he was selling to had left. However this business emerged as one of the largest businesses in Iganga town and this individual helped his brothers develop businesses by extending credit to them. His brothers business were also among the most successful.
The 3rd generation of the business owner, took over the business in the late 1970s and he too became a very successful business man, taking the family business to a higher level. It was because of this business success that the 3rd generation owner became a chairman of a Local Council (LC). As Chairman of the LC, he was able to use this position to secure more contacts and ultimately businesses, not only for himself but for his brothers. Being the Chairman of the Council gave the person access to other people which enabled them to have more contacts. A key factor in this family was honesty.
Networks and Social Capital
These contacts of people one knows constitute a network networks of people that develop when people relate have advantages and disadvantages that they create. When people relate to one another, they determine ways of relating. This is called social norm. This network is built on trust and respect among the different members. People are able to do things for others because they relate to them and because they trust them. Others are also able to do the same. This is social capital. Social capital is the benefit that arises as a result of interaction by people who trust one another and who have formed a basis of relating to one another. Social capital therefore is a resource that can be used to achieve benefits that otherwise an individual acting on his own may not be able to achieve. This resource is now used to explain various successful undertakings not only in organizations but among people. The fact that somebody gives you credit and you pay later means you do not need
Benefits of Social Capital
Social capital therefore helps in reducing the cost of production, improving profitability, improving managerial performance and reducing costs that are normally found in the process of doing business. The fact people know one another and relate to one another creates advantages of supportive relationships, cooperation not only among individuals but organizations and indeed in nations. Social capital is a resource, actual potential that emerges from networks of people, even in networks of organizations and indeed networks of nations. It is anything that is based on trust and reciprocity and the social norms that people build among themselves overtime. Social capital is that capital that can give an individual or organization an advantage without involving costs that ordinarily an individual or an organization would want to undertake.
Types of Social Capital
Social capital takes two forms bonding and bridging capital. Bonding capital is that capital that emerges as a result of a relationship between individuals or even organizations. The fact that people relate and trust bonds them together. Bridging capital on the other hand is when social capital arises as a result of an individual linking to another individual who ordinarily they do not relate with. Introducing a person to a bank manager is a bridge. This bridge enables people to access resources from other who they do not ordinarily relate with.
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