Tallberg, Sweden. Monday August 1, 7:10 pm

Your intrepid correspondent is pulling tough duty by a lake three hours northwest of Stockholm, attending a conference (badly) titled "How on earth can we live together?" The conference, organized by the Tallberg Forum (www.tallbergfoundation.org), is delivering much more than the title promised, which is what I expected, and why I took the time to come.

The Conference ended this afternoon, and I just returned from a gala concert held in an old quarry about 30 minutes bus ride from here.  Quite a spectacular setting.  The Bolshoi Ballet Orchestra, two large singers, with a finale of Handel's Water Music with fireworks.  Nice.

Being too tired at the moment to really report, I will simply provide the text of the remarks I delivered to the plenary today, having been chosen by the discussion group in which I participated to deliver the group's report. I will admit that I was chosen mostly because I offered up the basic idea around which the group coalesced.  The discussion groups were one of the strongest features of the event, allowing some significant relationship-building with a variety of quite accomplished folks. At least the remarks will give you some of the flavor of the event.  And you may guess that we found a way to justify the subject matter. So at the risk of terrible immodesty, here goes:

While discussing examples specific to GMOs and other agriculture technology, this paper addresses the broader question: are public-private partnerships (PPPs) simply a new development fad or a promising approach to achieving advances for the poor?

The article points out that while public-private partnerships are not essential to harnessing new technologies for the poor, private companies tend to have better equipment and facilities than the public sector, and the private sector controls some important intellectual property. The work will go much faster and the results will likely be more powerful if the private sector is involved.

Changemakers’ Solutions Mosaic provides us with a useful visual when it comes to business models that work in low-income markets. The mosaic (it probably ought to be called a matrix instead, but oh well) has both X and Y axes; they list distinguishing features of low-income markets and corresponding business principles that are emerging to address them. At the intersection of each row/column, Changemakers provides a link to an enterprise using the business model in question to address that column’s feature. CEMEX, Casas Bahia, and the Aravind Eye Hospital are among the stalwart enterprises listed; others may not have appeared on your radar quite yet. All in all, a very cool tool – check it out. As an aside, what rows or columns would you like to see added to the Mosaic?

(via WorldChanging - thanks, Alex!)

Innovations in microfinance have been ongoing since its inception in the mid-seventies. Recently, however, a group of microfinance institutions worked with Hewlett-Packard and developed an innovative technology, then piloted it using 3 unique microfinance business models. The technology - the Remote Transaction System - dramatically reduces transactions costs, fraud, and client/lender downtime using off-the-shelf handhelds and already-available GSM network capacity. This innovation, with its potential for broad-based application, could help microfinance leapfrog from small-scale, donor-funded operations into comprehensive financial systems serving developing communities around the world.

Aid organizations sometimes face a catch-22: donate much-needed medical or food supplies, addressing today’s need – but by doing so, aid poisons the market for future sales (people won’t pay for what they’ve received free in the past). The Washington Post recently published a controversial article on Niger’s free market policies in the context of an ongoing famine; the Center for Global Development released an excellent report on making markets for vaccines.

After reading these, I can’t help but think of A to Z, the Tanzanian company manufacturing long-lasting, insecticide-treated mosquito nets. Often, these kinds of nets are purchased by aid agencies and distributed free – tending to poison the market for them down the road.

I'm not saying that food and medical aid are bad, per se. By not sourcing locally, however, the aid community hurts local businesses. But what hurts them more is when consumers expect to receive these items free.

When it comes to vaccines, it’s more about creating research and development incentives. Food aid is an even trickier question. For mosquito nets, however, the technology exists – but consumers won’t buy them after receiving them for free. Who’s right, the aid agencies or the businesses? How do you balance short- and long-term needs? Are aid agencies unwittingly facilitating a cycle of poverty?

For more, you might check out the World Bank's Private Sector Development blog

For-profit equity funds supporting SME development seem to be in the news lately. The GroFin East Africa Fund provides $22M in SME financing, supported by business mentoring programs. From the GroFin web site:

"As in other developing regions, many East African SMEs are unable to enter the market largely because of a lack of business skills, absence of collateral and high level of perceived risk by financial institutions. The GroFin East Africa SME finance facility was established to service these needs by offering financial and business support services to SMEs within the target regions countries of Uganda, Kenya and Tanzania."

In Uganda, incumbent telecom MTN has now registered its 2000th entrepreneur in the Village Phone project. MTN's partnership with the Grameen Foundation and local microfinance institutions gives entrepreneurs access to start-up capital ($230) which includes a car battery or solar power panel, a wireless handset, a user manual and a fixed line dedicated simcard that can be loaded with the prepaid airtime.

BusinessWeek dedicates this week's issue to China and India, and, not surprisingly, did an excellent feature on some Indian BOP success stories - namely Bharti (telecom), Tata (autos), ITC (agriculture), and ICICI (finance).  Those of us following BOP trends over the past months and years will have heard those names before.

"Asking the Right Questions" highlights companies' profits at the BOP - for instance, how Bharti can charge 2 cents per minute and still yield 1 cent profit - and the social benefit.  It reports that farmers affiliated with ITC e-choupal have increased incomes of upwards of 30 percent.  While this figure is substantially higher than what was reported in a What Works case study in 2003, the expansion of e-choupal - and other successful BOP models - may have increased margins as well.

According to Business Day, South Africa's plastic revolution is putting credit card firms in the pink. Cheeky title, but the subject matter is serious business - signaling that the formal economy is growing rapidly in southern Africa. Visa and Mastercard, the industry leaders, report annual growth of its credit and debit card user base anywhere from 9 to 42 percent (depending on the product).

Small and Medium-Size enterprises (SMEs) create most of the jobs in any economy, and they also play a critical role in providing goods and services to low-income communities. But there are very few sources of financing to help SMEs scale. Interest in SME funds is growing, however, so finding successful models is critical. Shell Foundation has piloted and is now scaling just such a successful model. In this and succeeding posts, we ask Shell Foundation’s Kurt Hoffman to explain the model, its impacts, and the potential for scaling. We’d welcome comments from others about the Shell Foundation model, their experience with other models, and other suggestions about catalyzing SME development in BOP markets.

This post is part 2 of a 5 part series.

A.H.: After the initial success of the Uganda Fund, what were the next steps?

K.H.: Following our success in Uganda, we set up the Empowerment through Energy Fund in South Africa with ABSA Bank and development finance bank IDC. ABSA committed $5 million, and the Shell Foundation contributed $2.5 million, as well as some soft money to get it started and make it work.

We're pleased to announce that a new Calendar feature was launched today on Nextbillion.net. The Calendar will highlight upcoming BOP-related events, such as WRI's two regional conferences on private sector-led development, to be held in Brazil and Mexico later this month.

As much as possible, we will post feedback from each of the events listed. We welcome contributions from Nextbillion.net readers who attend these events, and would like to highlight their experiences.

If you know of a relevent event that should be listed, please tell us about it.

In his broad analysis of business and the BOP, The Fortune at the Bottom of the Pyramid, C.K Prahalad points out that being poor is expensive. With a lack of products and services tailored to fit their needs and incomes, they languish in exploitative informal markets that often prevent them from escaping the cycle of poverty.

According to an article in Progress magazine, poor people in developed countries have the same problem:

This post is part 3 in a 5 part series.

A.H.: What’s next, and is there a way to pay for technical assistance as part of the investment process, so that an SME fund could be fully self-financing and sustainable?

K.H.: Once we had shown the model worked, and that it could generate a competitive rate of return, we found significant appetite to scale these funds among regional banks and national development funds who did due diligence on our track record. The East Africa Fund was coming together with $20-$25 million, but we found there was still additional interest. So we enlarged the effort to a $100 million fund that will invest in SMEs, including those working outside of the energy sector—that’s what we announced last month in connection with the G-8 meeting. The fund will be structured regionally, initially set up in East Africa, and then scaled to both West and South Africa.