C.K. Prahalad is at it again. The University of Michigan professor (and - full disclosure - member of WRI's Board of Directors) has published his 14th article in the Harvard Business Review, out today. Cocreating Business's New Social Compact, co-authored with consultant Jeb Brugmann, is the latest installment of bottom of the pyramid work from C.K., which he first introduced with Stu Hart back in 2002.

Unfortunately, the Harvard Business Review is off-limits to all but those who subscribe. I've given the article a once-over already and will post a full review and analysis later today. Even better, I'll collaborate with Al Hammond - the third point on the BOP triangle - on this review. So stay tuned. In the meantime, a brief excerpt:

As more companies conduct business experiments in bottom-of-the-pyramid markets and NGO's business acumen evolves, they are realizing each other's limitations and strengths. This has laid the foundation for long-term partnerships between the two sectors based on 'cocreation.' Cocreation involves the development of an integrated business model in which the company becomes a key part of the NGO's capacity to deliver value and vice versa.

More later. In the meantime, brush up by reading the original article, Fortune at the Bottom of the Pyramid.

This is the second post on CGD’s event – check out yesterday’s post to read more.

At the Eyes Beyond the Prize event yesterday several major themes emerged: how to keep the spirit of microfinance present as it grows and incorporates external forces like governments, investors, and development agencies; how to promote efficiency, improve distribution channels, offer more diverse services, and increase transparency and regulation; which business models should be built upon and which are outdated; how to promote growth rather than just improving quality of life.

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C.K. Prahalad has done it again. He’s come up with an idea as radical as his and Stuart Hart's suggestion 5 years ago that there was significant value to be found in business engagement at the base of the pyramid. [Full disclosure: C.K. is a friend, a partner, and a WRI Board member.]

With apologies to the musical Oklahoma, what he and co-author Jeb Brugmann suggest is that the farmer and the cowman should be friends—indeed, even business partners.  That farmer (development NGOs and grassroots community groups) and the rancher (multinational companies) should be friends and partners goes against our preconceived notion of both groups.  Moreover, C.K. suggests that in such partnerships and co-created value chains we find the elements of a new social compact that will benefit both the bottom line and the BOP.

If C.K. is correct, this is a transformative vision. His article suggests how to harness market forces and the power of civil society to bring tangible benefits and full citizenship in the global economy to 4 billion people.  He points to lots of examples that show beneficial co-existence (stage 1), cooperation (stage 2) as corporate CSR and NGO enterprise development efforts overlap, and a few examples of full engagement (stage 3), where companies and NGOs create businesses together. And he argues that full engagement is the future.

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We are happy to announce that we're hiring an intern to work on NextBillion.net and other research related to the intersection of business and development. The job posting is up on World Resources Institute's main site - check it out for the full details.

The basics: we're looking for someone to work in our Washington, DC office as a volunteer (to start). Depending on performance and availability of funds, this internship has the potential to transition into a paid position after a trial period.

If you're an excellent researcher and writer, and want to build your knowledge base about the BOP, this is the job for you. Students and graduates are welcome to apply; some work experience is preferred. If you have any questions, contact us directly. To apply, see the job posting.

And on a related note, today is Lauren's last day with us here at WRI. She's heading back to Oberlin, where classes start Monday (side note: if you are an Oberlin student, consider taking Lauren's social entrepreneurship ExCo this semester!) We're really thankful for her work here, and wish her the best.

In the interest of time and efficiency, I am going to do an all-purpose link drop today. Some of the topics mentioned below will be fleshed out as blog posts; others will be added to the Activity Database, Events Calendar, or Newsroom. Keep an eye on this space as I try to dig out from under a ever-growing pile of work (I'm sure you can all relate...)

News:

• NextBillion reader Masood Aziz points to an editorial in last week's Wall Street Journal (subscription required), where Bhide and Schramm compare the recent Nobel speeches delivered by Edmund Phelps (Economics) and Mohammad Yunus (Peace). The authors' main point: Mr. Yunus's ameliorative entrepreneurship however is very different from the transformative entrepreneurship that Mr. Phelps argues has been central to modern capitalism. Indeed, most of the ventures funded by microloans in Bangladesh are activities that were marginalized by modern entrepreneurs: They don't involve any economies of scale or scope or the use of new technologies capable of producing significant advances in overall productivity and incomes. It is a controversial piece that deserves a thorough read. Other bloggers are weighing in on this as well.
  
  
• The Overseas Private Investment Corporation has approved $100 million for a private equity investment fund that will support the growth of affordable housing in Latin America.
  
  
• A George Mason University professor has won $1 million for developing a low-cost filter that removes arsenic from drinking water. The filters are being produced in his native Bangladesh for just $40 each; more than 30,000 have already been distributed.

Reviews:

• I traveled to Boston this past weekend to attend the opening session of StartingBloc, a social innovation competition. My business plan team is working on an environmental innovation; I'll keep you posted as we progress. For more on StartingBloc, take a trip down memory lane with Sara Standish's posts.
  
  
• This morning, I attended a fascinating talk at the World Bank, where CGAP Technology Program staff gave a presentation entitled, "The Cellphone and the Mattress." Gautam Ivatury, who heads up CGAP's technology program, narrated a PowerPoint which bowled over the audience. It is very clear that mobile phone banking (m-banking) is the next big thing, but that there are significant regulatory, financial, and cultural barriers to overcome. I especially like that CGAP remains very realistic and measured about the potential of m-banking - it's easy to go over the top, and they resist the temptation. An online video of the talk will soon be available - well worth your time.

Events:

• Tuesday (tomorrow): How to End Poverty in Africa-- Microenterprise: The Road to Women's Empowerment in the Developing World.
  
  
• Monday, February 19: Columbia University's School of International and Public Affairs' Microfinance Working Group is organizing a Microfinance Career Conference entitled "Beyond Credit."

By NextBillion reader Lance Durham

-Borrowers don't have much collateral.
-Little collateral means that they can only get small loans.
-Moneylenders make these small loans at very high interest rates.
-Very high interest rates mean that borrowers won't make much profit.
-After the loan is repaid, borrowers do not have much more collateral than they did before (because they did not make much profit).
...and the cycle continues!

-Little collateral means that they can only get small loans.
-Moneylenders make these small loans at very high interest rates.
-Very high interest rates mean that borrowers won't make much profit.
-After the loan is repaid, borrowers do not have much more collateral than they did before (because they did not make much profit).

Now, what piece of that cycle can change?
--can the moneylender lend a larger sum?
--can the moneylender lend at a lower rate?
--can the borrower take a smaller loan?
--can the borrowers do something more profitable with the loan?

The answer to all of these is 'YES'...at least in theory. But, the moneylender lends based on the condition that he gets paid back more. And, since he is a monopolist, he sets the terms.

The moneylender will look at the borrower and decide how much to lend based upon the borrower's resources and what the borrower plans to do with the loan. Since he is a monopolist, he can really decide how large a loan the borrower will take and how high the interest will be on it. He estimates how much the borrower will make and sets the interest so high that the borrower will make just enough to live off of and will be forced to return to the monopolist for another loan next time.

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Every entrepreneur has a story. Anyone with the wherewithal and acumen to start a business had to have something click at some point - a moment when they saw an unrecognized market opportunity and the perfect product or service to fill that gap. For Tommy Matthew, this moment came from watching villagers in India tie their cows up with rope made from coir.

Tommy went on to found Natura Fibretech in his hometown of Bangalore - a company essentially based around taking a material commonplace to India's BoP and popularizing it in the national construction and housing sectors. Indians have for generations used coir (a fiber made from coconuts) in practical items such as doormats, rope and even mattresses.


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Remittances are a big deal – from an economic standpoint, a development standpoint, and a business standpoint. A lot has been written about the magnitude and impact of cross-border financial flows, both on NextBillion and elsewhere. The concept of productizing remittances – sending goods instead of cash – has not, on the other hand, been discussed very much outside of a few excellent posts here on NextBillion. Despite the lack of mainstream coverage, I believe that Bal Joshi, AnnaLee Saxenian, and Bill Kramer are right when they describe productized remittances as economically and socially more powerful than traditional cash flows.

I think Nils Johnson would agree. Nils (left) is the founder of Gorilla Mobile, and CEO of Gorilla’s new subsidiary, Aryty (as in "All righty" in text-message lingo.) His is an interesting story; he founded Gorilla, an international telecom firm, at the height of the tech boom. Soon after starting the company, the market crashed, and Nils was forced to find his niche: US mobile subscribers’ international calls.

A few years later, Gorilla Mobile had developed a big customer base, including many Filipino expatriates who used the service to keep in touch with family and friends back home in the Philippines. When Nils visited the Philippines for work, he couldn’t help but notice that the country truly was "the text message capital of the world." Filipinos send, on average, seven texts per day, and the big domestic carriers (Smart and Globe) were eager to grow their market share, including a reach downmarket to the BOP. So they developed a way for people to transfer tiny increments of pre-paid airtime between each other, creating the capacity to consume. (WRI produced a business case study of the Smart Communications BOP business model in 2004.)

Nils quickly realized that a highly valuable market was right in front of his eyes. If his Gorilla Mobile customers want to call the Philippines, wouldn’t they want to receive calls or text messages too? And wouldn’t they want to send prepaid airtime? So Nils looked at Thamel Dot Com as a model – productizing the remittance – and went from there. Instead of creating a remittance platform centered on locally-produced and delivered gifts, as Thamel did, Gorilla created Aryty to serve as a platform to send and request prepaid airtime.

Aryty allows expats to remit pre-paid airtime, or "load" as the industry refers to it, to friends and relatives back home. Aryty users are not sending money; they simply send pre-paid airtime to the recipient's phone in the Philippines.

Sending load is a meaningful gift from the US to the Philippines. With communications, there’s an urgent need – families back home are constantly running on empty when it comes to the phone, just topping up only what they need. So $10 worth of airtime per month is a significant gift, and very meaningful. Furthermore, there's no transaction cost because Aryty buys airtime at wholesale prices and then re-sells at retail; the difference is their profit.

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Today has been a very interesting day in terms of BOP news and notes. First, I heard from Professor Aneel Karnani at the University of Michigan. Many remember his paper, "Mirage at the Bottom of the Pyramid," and C.K. Prahalad's subsequent response. Professor Karnani sent me a link to his latest working paper, a case study on Fair & Lovely Whitening Cream that continues his pointed criticism of the BOP hypothesis. We will have full coverage of the new paper here on NextBillion in the coming days; those interested are encouraged to download and read the paper in full before weighing in. A brief excerpt:

This paper shows that Fair & Lovely is indeed doing well; it is one of the more profitable brands in Unilever and HLL's portfolios. It is, however, debatable whether it is doing good. We...demonstrate Fair & Lovely's negative implications for public welfare. We conclude with thoughts on how to reconcile this divergence between private profits and public welfare.

Next, I was pointed to a new blog, Changing The Pyramid, which, according to the inaugural post, "was founded on the belief that there is not enough critical discussion of what 'the experts' claim are the latest and greatest of policies, paradigms, and panaceas; and that only through a critical lens can the most effective solutions come to light." So far, topics covered at Changing the Pyramid closely resemble the news and blog content here at NextBillion, but with a fresh, critical angle. Welcome to the small community of bloggers in this space, CtP; I look forward to hearing your views in the coming days and months. A more complete list of other BOP blogs and web sites can be found in our Blogroll.

Finally, there's some big BOP news out there - NextBillion alum Ethan Arpi pointed me to a story in The Atlantic (subscription required), The Ten-Cent Solution, which highlights the efficacy and pervasiveness of low-cost private schools for BOP pupils. That a low-income household would allocate scarce resources towards tuition instead of settling for a lower-quality public school does not surprise me, but James Tooley's empirical research (discussed before at NextBillion) puts it in perspective.

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This is the second post in a series of successful - even if offbeat - models in the Indian subcontinent. The first is here.

In a number of initiatives aimed at the bottom of the pyramid, women – in groups – have been at the forefront.

• SKS Microfinance chooses to only target women because "they are the most marginalized and because they tend to use resources more productively than men".
• Unilever in India - HLL – partners with women entrepreneurs ("Shakti Ammas") to cater to a vast and untapped rural market.

Another striking example in this theme, for over 4 decades, has been the story of Sri Mahila Griha Udyog Lijjat Papad or simply Lijjat.

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Doing business became easier in India and Pakistan in 2005-2006, according to a new regional report released yesterday by the World Bank and its private sector arm, IFC, entitled Doing Business in South Asia 2007.

Doing Business in South Asia 2007 is the third report in a series of South Asia regional reports based on the methodology of the annual global Doing Business report.

In end August 2006, the Doing Business 2007: How to Reform report was released.

The South Asia report covers 8 countries. The top ranked countries in the region are the Maldives (53) and Pakistan (74), followed by Bangladesh (88), Sri Lanka (89), Nepal (100), India (134), Bhutan (138), and Afghanistan (162). As a region, South Asia performs comparatively well in business start-up and protecting investors. It lags far behind, however, on the ease of employing workers, enforcing contracts, and trading across borders.

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IFC, the private-sector arm of the World Bank Group and international consultancy and think-tank SustainAbility are launching a major project to find out how companies in emerging-markets have attained investment-grade ratings, driven innovation and created new forms of value through good environmental, social and governance (ESG) policies.

The study aims to provide practical guidance to business professionals in emerging markets. The study will also enable the best cases of innovation in emerging markets to get the global recognition that they deserve. The project is kicking off with a call for examples of business success in emerging markets where ESG performance has been a significant factor.

Indeed, members of communities such as NextBillion have analyzed stories across emerging markets and are familiar with success stories. If you know of a particularly strong success story, or would like to propose a case for consideration, you could contribute to excellence@sustainability.com

In 2002, IFC, SustainAbility and Brazil’s Ethos Institute published a report titled "Developing Value: The Business Case for Sustainability in Emerging Markets”. According to the survey, covering over 240 businesses in Africa, Asia, Latin America and Central & Eastern Europe, companies that practiced social responsibility gained cost savings, increased revenues, reduced business risk, enhanced market reputation, strengthened employee relations and improved access to capital, particularly foreign capital. The new initiative promises to build on the findings of the 2002 report.

IFC clearly spells out Sustainability to be at the heart of their business model. It consistently assesses this through metrics identified in its Annual Sustainability Report.

The debate between C.K. Prahalad and Aneel Karnani regarding the BOP proposition continues. As we reported earlier this week, Professor Karnani has published a new case study critical of Hindustan Lever Limited's Fair & Lovely Whitening Cream, a product identified by Prahalad and NextBillion.net's Allen Hammond as "formulated for [BOP] needs" in a 2004 Foreign Policy article.

Karnani’s criticism of the BOP proposition first surfaced in August, when he posted another working paper, The Mirage at the Bottom of the Pyramid, and blogged about it on this site. In response, C.K. Prahalad drafted a 5-page rebuttal to Karnani, which was also posted on NextBillion.net. The controversy has received attention in Andrew Leonard's How the World Works column on Salon.com; many readers have weighed in at Salon with their thoughts as well.

As the debate took shape online, I received an e-mail directly from Professor Karnani, who asked me to share his words with the NextBillion.net community:

A criticism of the BOP proposition is that targeting the poor as consumers could lead to their making bad consumption choices not in their own self-interest. Thus the firms could end up exploiting the poor. The BOP proponents dismiss such arguments as arrogant and patronizing and assert that the poor are value-conscious consumers.

My recent paper focuses on this debate by examining the case of Fair & Lovely, a skin whitening cream marketed by Unilever. I chose this case study because Hammond and Prahalad, two leading proponents of the BOP proposition, mentioned this example in one of their early articles. Also, Unilever is frequently mentioned in the literature as a socially responsible company that markets to the BOP. Fair & Lovely is indeed doing well; it is a profitable and fast growing brand. It is, however, not doing good, and I demonstrate its negative implications for public welfare. I conclude with thoughts on how to reconcile this divergence between private profits and public welfare.

By Allen Hammond, Bill Kramer, and Rob Katz

The recent debate over Fair & Lovely Whitening Cream, both in Aneel Karnani's working paper and in Andrew Leonard's column in Salon, brings up many interesting points. In response to Karnani, who argues that Fair & Lovely "entrenches disempowerment," we suggest that a well-regulated free market may be the best indicator of what works and what doesn't work, for the BOP as well as for other economic strata.

Hindustan Lever and its Fair & Lovely product did not create skin-color bias in India. Indeed, HLL simply responded in a rational manner to the demand for a product that effectively lightens skin. We do not have sufficient information to pass judgment on the way HLL has marketed this product, nor is it our remit. Of course, we condemn discrimination in all its forms, for what that is worth. However, as a Salon commenter notes, when a BOP customer chooses to buy skin cream, it is an aspirational purchase that she would not have had the wherewithal to make in the past. The consumer is making a rational choice, based on the circumstances.

Fair & Lovely would not be a commercial success if it did not work as advertised. Clearly, HLL understands the BOP market better than its competitors and has created a product that is very much in demand. At the same time, when HLL engaged in discriminatory advertising for Fair & Lovely, there was public pressure on them to cease the ad campaign, and backlash against the company in general. The market, in other words, was working.

Understanding market structure and the demand implicit in that structure is key to success for companies--and to meeting the needs of consumers. And while a skin cream may not seem to be a basic unmet need, that is really for consumers to decide. In any event, the same approach is key to dealing with market-based solutions to undeniably basic unmet needs, such as for clean drinking water and for access to health care or financial services.

That's why, next month, WRI and IFC will publish a detailed empirical guide to the size and structure of BOP markets worldwide, along with an analysis of the business strategies that seem to be gaining traction on the ground, sector by sector. The report, to be called The Next 4 Billion: Market Size and Business Strategy at the Base of the Pyramid, is intended to help both businesses and the development community to engage with the BOP in a more strategic fashion. It will provide, hopefully, a more detailed basis for a discussion of the pros and cons of market-based approaches to poverty alleviation.

I received an e-mail from Ted London, Director of the William Davidson Institute at the University of Michigan, to let me know that the web site for their upcoming conference is up and running. Business with Four Billion: Creating Mutual Value at the Base of the Pyramid will be held in Ann Arbor, Michigan from September 9 to September 11.

Confirmed speakers include:

• C.K. Prahalad (University of Michigan)
  
• Stuart Hart (Cornell University)
  
• Luis Alberto Moreno (Inter-American Development Bank)
  
• Allen Hammond (World Resources Institute)
• Helene Gayle (CARE USA)

For more information, including registration details, visit the newly-updated web site.