When Muhammad Yunus, Ingrid Munro and other microfinance pioneers, got together in the first Microfinance Summit in 1997, they adopted what for many was an impossible goal: to reach 100 million people living with less than $1 per day by 2005.  Although the deadline was missed, the 100 million mark was reached in 2007, an incredible feat nonetheless.

The Microcredit Summit Campaign groups microfinance institutions with the common goals of reaching the poorest and of empowering women. In their State of the Microcredit Summit Campaign Report 2009, they confirm that, having double-checked 80% of the figures of their member microfinance organizations (totaling 3,552 organizations in 2007), the 100-million-poor mark was reached by the end of 2007. Just to get a feeling of the figures involved: it is estimated that these 3,552 microfinance organizations reached more than 150 million clients, of which more 106 million were "poor."

Of these poor clients, 83.4% were women (or nearly 89 million). Assuming five persons per family (a relatively low family size in many developing countries), the more than 106 million poorest clients in turn had an effect on around 533 million family members. More than half a billion. Talk about the scalability of a business model.

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As it should be clear by now to our frequent and not so frequent readers, the BoP is potentially a huge market. Within this potential market there are different segments depending on who products are directed to, which needs they address, or what income and educational levels the target customer has. Depending on the target geographic area, BoP members may face totally different needs and constraints.

Another important differentiating feature of BoP communities are the violence levels they face. For example, it could be argued that the Indian BoP is exposed to comparatively less violence than Colombian BoP. As I pointed out in a previous post, this is important because BoP communities are especially vulnerable to violence and crime. It has been shown that younger, lower income and less educated men are more at risk of being homicide victims, while women and their children are most affected by forced displacement (Moser, 1999).

Francisco pointed out in his post launching NextBillion en Español, that one of the defining characteristics of Latin American BoP markets are relatively higher levels of chronic violence. Such violence can come in many forms such as Colombia's narco-guerrillas, slum violence in Brazil, Tijuana's border drug wars in Mexico or Guatemala's, Panama's, El Salvador's and Hondura's "maras". Additionally, Latin America has a recent history of violent dictatorships which often literally terrorized its own people and which has left deep scars from which many communities are still recovering.

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Position: Research Associate / Consultant

Location: Home based with two missions to New York

Time frame: 1 January 2009 - 31 April 2009

Organization: Growing Inclusive Markets Initiative, United Nations Development Programme.  The UNDP Growing Inclusive Markets Initiative seeks to create understanding and awareness about how doing business with the poor can be good for poor people and good for business. During its first stage, the initiative studied 50 business solutions that successfully create mutual value between business and the poor. The insights were captured in the report 'Creating Value for All – Strategies for Doing Business with the Poor', which has been launched in more than 20 countries since July 2008.

The goal of the second stage of the Growing Inclusive Markets Initiative is to identify successful business models that are good for the poor, the planet and profit and to understand their real and potential impact. The initiative will operate as a multi-stakeholder dialogue of experts in the field of sustainable business and development. These will include practitioners from business associations, multilateral institutions, civil society organizations as well as academics from leading research institutions.

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A couple of friends of mine have already asked me "So what if a couple of banks go bankrupt? Who cares about bad mortgages? What is all the big deal about?" It is hard to explain in few words why the financial sector is so vital in modern economies, when countries are as strongly connected by trade ties as it is currently the case.

Probably the best way to explain its importance is by thinking of the economy as a machine and the financial sector as a lubricant. The financial sector's role is to efficiently allocate capital from savers to investors.  Financial markets lubricate the rest of the economy's productive activities.  Thanks to this lubrication, the economy is able to "work harder" and make fuller use of all the cogs in its machinery. If financial markets stop functioning, then the machine would not be able to work as efficiently as before, because it would lack the lubrication needed to keep full speed. This is in a nutshell why Washington has bailed out the financial sector, without even thinking about it, but appears much less willing to help the collapsing US automobile manufactures.

A second important aspect to take into account of financial markets is that banks are strongly connected to each other. If GM closes down tomorrow, other surviving businesses, such as Toyota, will probably benefit. However, in financial markets, if one financial agent, for example a bank, suffers, due to the interdependencies in the system, many other banks will suffer too. If one bank fails, other banks will tend to fail as well. This domino effect is something characteristic of industries with businesses which are tightly connected with each other and strongly dependent of each other's actions.

As financial markets have grown increasingly global, the allocation of capital from savers to investors has become global. As a consequence of the US financial crisis, BoP markets will probably suffer in the coming year.

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Although we in the BoP sector often talk about the role of the informal sector as an important factor (both as a competitor and as an ally) when crafting sustainable models for low income communities, precious little has gone into analyzing it. One of the most important reasons for this lack of analysis is because of the shortage of data referring to it. By definition, informal businesses are hidden from the eyes of the state and so most of what we have relies on estimations and very micro-level studies.

A recent cross-country report that appeared in the Brookings Papers on August 2008 aims to improve the understanding of the relationship between economic development and the informal economy. The report, entitled "The Unofficial Economy and Economic Development" is authored by Rafael La Porta and Andrei Schleifer, two renowned professors and scholars in the development studies field.

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The International Food Policy Research Institute (IFPRI) is launching a new project called "Millions Fed: Proven Successes in Global Agriculture." With the help of the Bill & Melinda Gates Foundation, the project aims to document evidence on what works in agriculture—what sorts of policies, programs, and investments in agricultural development have substantially reduced hunger and poverty.

They are inviting nominations highlighting interventions that have had a significant impact on food security, including those that have empowered women and vulnerable groups to improve their livelihoods. The nomination deadline is December 31.

For more information click here.

For all our readers who have been following the mobile phone banking debate, there is a great opportunity coming up to hear about first hand experiences of the implementation of  mobile banking solutions at scale in multiple markets.

CGAP - the Consultative Group to Assist the Poor - is organizing an online conference open to everyone interested on December 11th and has invited a great group of speakers to share their perspectives and insights about this budding industry. Please remember that your participation has to be confirmed by email before November 30th to technology@cgap.org with 'RSVP' in the subject line.

The conference - entitled "Mobile Banking for Poor People: Pioneer Perspectives" - welcomes the following panelists:

• Nick Hughes, Vodafone Group (UK/Worldwide)
  
• Rizza Maniego-Eala, Globe Telecom (Philippines)
• Sam Kamiti, Equity Bank (Kenya)
• Ali Abbas Sikander, Tameer Bank (Pakistan)
• Ganhuyag Ch. Hutagt, XacBank (Mongolia)
• Brian Richardson, Wizzit (South Africa)
• Maldives Monetary Authority (Maldives)

For additional details of the conference, please go to their original announcement here.

Although gender equality is a desirable aim in itself, there are also underlying economic reasons for female empowerment. In the words of the 2007 Global Monitoring Report (partially devoted to gender issues) from the World Bank: "Improving gender equality reduces poverty and stimulates growth directly through women’s greater labor force participation, productivity, and earnings, as well as indirectly through beneficial effects on child well-being."

Plainly speaking, improving the status of women has two effects. On the one hand there is a short term economic effect, since women seem to be better investors and bookkeepers than men – and there are many studies out there to prove it.

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After having devoted my last posts to more abstract aspects of the base of the pyramid, Jim Rosenberg, from our sister organization CGAP, kindly brought me to the ground again with an e-mail about how to connect the BoP to Internet through their mobiles.

The beauty of the mobile phone phenomenon in developing countries (and the reason for its success at the BoP) is its capacity to build linkages between people and markets, thus helping generate wealth in the short and long term for the agents involved thanks to a connection that previously didn't exist. The growth of it has been dramatic: Since 2000, the yearly growth of mobile phone subscribers has averaged 24% and only a few weeks ago, the International Telecommunication Union (United Nations's branch dealing with telecom issues) stated that mobile phone subscribers were likely to reach 4 billion before the end of 2008.

The BRIC economies (Brazil, Russia, India and China) are expected to account for over 1.3 billion subscribers, with China alone representing more than 600 million. India, on the other hand was estimated to have 296 million subscribers back in July, yet its penetration rate is still around 20%, suggesting ample opportunities for growth.

Now, having a mobile phone represents not only an opportunity for generating connections between two users, but also an opportunity to connect with a network which is estimated to include 1.5 billion people, the Internet (about 26.6 billion pages). However, while the developed world is well served by extensive submarine fiber networks, how to connect the BoP to the Internet?

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Last July CGAP issued a new report about the main building blocks for any bank that is thinking about offering mobile phone financial services to its customers. (Shame on me for doing this post so late).

Banking on Mobiles: Why, How, for Whom? is, not surprisingly, very good report. After all, these are the people currently in the forefront of research efforts to understand and develop mobile phone banking and the place to go for anyone interested in this market. An additional point in their favor is that their reports are “waffle-free” and go straight to the point.

The report takes the perspective of a small/middle sized bank or microfinance institution in a developing country that wants to start offering mobile phone financial services, but does not really know how or where to start.

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The base of the pyramid conversation often involves talking about the size and composition of BoP markets (which, in fact, was the topic of my previous post) and how to create business models that sustainably create wealth for the people in those communities and the firms involved.

I recently came across a very interesting paper from the World Bank that sheds light on something we have not touched upon that much (if at all): the changes in expenditure patterns of BoP consumers as new products enter the market. The paper is entitled "So You Want to Quit Smoking: Have You Tried a Mobile Phone?", and authored by Julien Labonne and Robert S.Chase.

The basic idea is very simple: how do the spending patterns of BoP consumers change as they gain access to more products?

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Most estimates of the size of the BoP population sit between 3 and 4 billion people. The original population figure of 4 billion by CK Prahalad in his "Fortune at the Bottom of the Pyramid" has been criticized as an over estimation. It is true that, for scientific analysis, exactness is something we should always aim for.

However, from the point of view of the colossal opportunity that BoP markets represent for the private sector, the exactness of our measurements of the BoP population is not crucial. That is why, in the past few years, the lessons taught in his book have been taken to heart and developed by BoP entrepreneurs, investors and researchers alike.

According to WRI and IFC's publication, "The Next 4 Billion", the number of people at the BoP is estimated at 4 billion, representing a market size of $5 trillion, in purchasing power parity (about the GDP of the UK and Germany together). If the actual population of the BoP was 3 billion people we would estimate the actual size of this market to be between $4 trillion (slightly less than Japan's GDP) and $3 trillion (more than India's GDP).

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In my previous post about Anand Jaiswal’s article, Erik Simanis left a comment adding one more critique to the approach to BoP markets from a producer/consumer framework. In this critique he refers to “Beyond Basic Needs Business Strategies”, an article he recently co-authored with Stuart Hart and Duncan Duke.

The article offers a very good overview of the current approach that is being developed in their Base of the Pyramid Program and that, by extension, lays the groundwork for their BoP Protocol Initiative. It is written in a clear and concise language and I would  strongly suggest anyone interested in their work to take a look at it. (And for those who want to get a better feeling of what he means, do check out Robert Katz’s interview from last April).

In his article, Simanis et al. criticize the oversimplification of the BoP term, which has ended up reducing poverty alleviation and development to the managerial terms of customer needs and product development. The talk about a “BoP market” has falsely created an image of a homogeneous market, where there is no homogeneity and where, often, there is no market either.

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Some time ago, we at NextBillion had the pleasure of facilitating a debate about how - and how much - bottom of the pyramid strategy can improve the plight of the poor. The University of Michigan's Aneel Karnani wrote a very insightful paper critiquing various points about the BoP proposition. This paper then received a response by Michigan's C.K. Prahalad and Al Hammond (then at WRI; now at Ashoka).

Recently, a new critique was published by "Innovations: Technology|Governance|Globalization", a journal we have praised already here. The critique, entitled "The Fortune at the Bottom or the Middle of the Pyramid?" is authored by Anand Kumar Jaiswal, from the Indian Institute of Management in Ahmedabad.

As I read his paper, I found myself agreeing with many of his points, similar to when I read Karnani’s publication. This is because Jaiswal, like Karnani, doesn't refute BoP strategies as a means to approaching poverty problems, but rather contends that reality is sometimes more complex than theory, which is why I find it refreshing to read such articles.

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What defines a Base of the Pyramid (BoP) business? Here at NextBillion.net, our goal is to identify and discuss sustainable business models that address the needs of the BoP.

We have had many debates about the size, total income and expenditure of this group. NextBillion is currently hosting some debate about what development means. At the same time, we've been thinking about the role and importance of BoP businesses within the development community thanks to Michael Edwards' criticism of 'philanthrocapitalism'. But what exactly do we mean about when we talk about BoP businesses?

Everything BoP is currently in fashion. The 'BoP business' term is catchy, but unfortunately it has no easy or clear-cut definition. That BoP business initiatives are currently so popular is, of course, a wonderful thing. All of a sudden, people want to consider alternatives to traditional, top-down development.

On the other hand, being fashionable is also dangerous. We – the base of the pyramid movement – risk forgetting the big picture. We're involved in a debate that more and more people are joining, and in the process, we risk diluting the meaning of what BoP businesses truly are.

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