Business Weekly

Potential at bottom of pyramid
Posted: Aug 10 2008

Thirty dollar cell phones, $30 cataract surgery, less than a cent for a minute of cell phone time and a one cent sachet of shampoo may not be great technological innovations.
But they are definitely new business innovations that have been transforming most of Asia and a lot of Africa.

In Africa Celtel and MTN are two of the fastest-growing local companies and people are finding a way to buy cell phones and use them because they improve their lives.

In India, once upon a time, the poor were seen as a burden. Converting the poor into micro-consumers and micro-producers - recognising the fortune at the bottom of the pyramid - has changed the character of the economy, notes management guru Dr C K Prahalad, author of The Fortune at the Bottom of the Pyramid.

Yes, there are still 200 million Indians who live in abject poverty. But the cell phone revolution, two-wheelers, consumer finance, and consumer goods of all kinds are fuelling the economy and changing people_s lives.

Amul, ITC eChoupal, Jaipur rugs, EID Parry and Reliance Fresh are showing us that we can creatively connect subsistence farmers to regional and national markets. Micro-producers thus can get a chance to improve their livelihoods.

Why offer charity to the poor when we can make them good and profitable customers, quips Dr Prahalad. Making customers out of the poor is not as crazy an idea as it seems.

There are many successful business cases that we can borrow and adapt from like Grameen Danone Foods Ltd, which is a 50:50 joint venture between the Grameen Bank of Bangladesh pioneered by Nobel laureate Muhammad Yunus and the French multinational, Groupe Danone. They have partnered to produce low-cost, high-nutrient yoghurt products for the poor in Bangladesh!

Therefore, this unique sub-continent laboratory where the poor are empowered with micro-finance and made good and profitable customers, has caught the imagination of the world.

No wonder Bahrain is seeking India_s help in setting up micro-finance schemes. ""India has a vast experience in the area of micro-financing, which has contributed to the development of families belonging to low income groups,"" Bahrain_s Minister for Social Development Fatima Al Balooshi says.

The minister headed a seven-member delegation to India, which included officials who had earlier interacted with Bangladeshi micro-financing pioneer Yunus. Bahrain has been in the forefront of poverty eradication right from 1998 with its MicroStart initiative, which has been able to help more than 2,000 low-income entrepreneurs. The programme, which was funded with $1 million from the Government of Bahrain and $500,000 from UNDP (United Nations Development Programme), has been working with the Alexandria Business Association, an international microfinance service provider.

Before the programme started, the only way small-scale entrepreneurs in Bahrain could get access to credit was to approach relatives or bargain with shopkeepers to get supplies on credit.

That changed and people began feeling more in control of their business and proud that they could support themselves and their family.
Around the world micro-finance is booming.

According to Deutsche Bank, the volume of micro-finance loans hit $25 billion in 2007, up from $4 billion in 2001, with another $250 billion still needed. The bank expects private investors, drawn by the sector_s social mission, stable returns, low default rates and potential as a diversification play, will be pouring $20 billion into micro-finance institutions in 2015 - ten times more than they did in 2006.

Many groups that started as non-profits have become for-profit enterprises and a plethora of micro-finance investment funds, targeted at institutions and individuals, have opened in the last few years.

Citibank, Credit Suisse, Deutsche Bank, Morgan Stanley and India_s ICICI have all entered the micro-finance market, either providing direct funding, backing investment funds or securitising debt. Private equity investors including Sequoia, Blackstone Group, Carlyle Group and Dubai_s Legatum, have also piled in, according to the World Bank_s CGAP, a micro-finance research group.

Meanwhile, in an effort to head off a potential crisis in the fast-expanding micro-finance industry, its leaders are adopting global truth-in-lending standards and creating a system for comparing loan terms offered by competing lenders.

To manage the effort, a new self-monitoring organisation, Micro-finance Transparency, is being set up as the industry_s policeman. The goal is to prevent companies from taking advantage of poor people with high interest rates and misleading credit offers. The initiative was announced at a micro-credit conference in Bali by Chuck Waterfield, a professor at Columbia University who spearheaded the initiative and Yunus, who launched the micro-credit revolution in Bangladesh 30 years ago with his Grameen Bank.

""Micro-finance emerged as a struggle against loan sharks, so we don_t want to see new loan sharks created in the name of micro-credit,"" Yunus said.
 

 
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