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Part 2 of NextBillion's Latin America in the Spotlight features Luiz Ros, an advisor to NextBillion and Manager of Opportunities for the Majority (OMJ), an innovative initiative led by the regions's most prominent multilateral organization, the Inter-American Development Bank. Make sure to read Part 1 of this series featuring Paula Cardenau from Ashoka.

NextBillion.net: Luiz, please share with our readers a bit about OMJ and the partners you work with.

Luiz Roz: The needs of the low income population in Latin America and the Caribbean are so extensive that new investment approaches are required from the public and private sectors. In an effort to find new market-based strategies that improve the lives of those left behind, the IDB launched the Opportunities for the Majority Initiative (OMJ) in July of 2007.  By "majority" the IDB refers to some 360 million people - around 70 percent of the Latin American and Caribbean population - who live on less than US$300 per month.

OMJ promotes and finances private sector business models that develop and deliver quality products and services, create employment, and enable low-income producers and consumers to join the formal economy. This process in turn has a multiplier effect in stimulating overall economic growth and raising the incomes of this long-ignored segment of society. In only two years of operation, the initiative has surpassed $100 million total in approved loans and guarantees. Our target is to invest 250 million dollars in over twenty projects by the end of 2010.

We have also brought a diverse group of partners to the IDB, as clients and also as co-funders and advisers. For example, we organize annual Strategic Partners' Dialogues, hosted by IDB President Luis Alberto Moreno, at which leaders in the BOP sphere, including multilateral development institutions, business executives, NGOs, academics and investors learn from each other and form new alliances. Last year we launched a virtual version of this dialogue, MajorityMarkets.org, which offers information about the most effective projects and business models engaging with the BoP in Latin America and the Caribbean. 

NextBillion.net: In your opinion, what sets Latin America apart in the social enterprise space? What makes this market unique?

Luiz Ros: The legacy of serious difficulties faced by low income Latin Americans can also be perceived as something unique about LAC as a market for Base of the Pyramid strategies, in the sense that it represents an opportunity for collaboration among public and private sectors and civil society to make a positive impact. The pioneering work of institutions such as Ashoka, AVINA, and The Rockefeller Foundation to promote the emergence of social entrepreneurship in the region is now proving valuable; their initiatives have generated projects that have grown to fruition and reached scale.

Similarities in culture and language across the region also set it apart in a favorable way, if compared to other developing regions, as do the diverse business environments we find from Mexico to Peru, from Guatemala to Chile, which create great opportunities for sustainable business models. Lastly, Latin America has reached a relatively stable political scenario that is advantageous to overcoming common coordination failures.

NextBillion.net: Please tell us about one or two examples of social enterprises or projects supported by OMJ?

Luiz Ros: Several of the projects supported by OMJ represent new directions for microfinance. For example, Peru's highly effective microfinance networks are supplementing public solutions to the persistent housing shortage there by offering mortgage and home improvement loans. El Salvador's state-run low-income housing fund, FONAVIPO, is working through microlenders to make home ownership attainable for a segment of the population that never would have been eligible for traditional mortgages. Also in El Salvador, FIDEMYPE is reaching microenterprises that are so small they were not previously able to access microcredit services. And "Mejora tu Calle", devised by Mexican cement company CEMEX, allows residents of low-income neighborhoods to pool their microloans together to help pay for paving their streets.

Other projects show how existing institutions can serve as distribution channels for additional services. The Global Partnerships Social Investment Fund 2010 will use the network of microfinance institutions in the region to move beyond working capital loans and provide needed health, education, and insurance services to their clients. In Mexico, Mi Tienda, a network of stores in low-income, rural areas, is able to offer job training and a variety of services along with basic food and household products.

OMJ is also supporting projects that serve as incubators for entrepreneurship in Latin America and the Caribbean. Peru's Mibanco is reaching out to support female entrepreneurs through loans and training. Chile's Banco de Credito e Inversiones is helping microentrepreneurs by innovating in the use of non-financial information available through suppliers' distribution networks, to build credit histories and gain access to a wide array of financial services. And the IGNIA Fund is leading the way in demonstrating that investing in companies that serve the BoP can be profitable and socially responsible.

These projects are unique in many ways, but they have something in common: the demonstrated the power of partnerships. Each individual project also adds to the priceless store of knowledge and experience OMJ is developing on what works best when engaging with the base of the pyramid.

NextBillion.net: Looking forward, what do you see as the biggest challenge for social enterprise to take off in the region?

We need for efficient ways of reaching thousands or millions instead of hundreds. Scale is crucial when we are talking about close to 360 million people in poverty. On the search for scale, we at OMJ have found platforms.

This strategy takes advantage of existing platforms provided by utilities, conditional cash transfer programs, cell phone providers, logistics companies, or even NGOs, to massively provide additional goods and services that serve the needs of the BoP. To illustrate the possibilities here, there are over 300 million cell phone subscribers in Latin America, and in Brazil alone the conditional cash transfer program, Bolsa Família, benefits over 11 million families.

Another great example is the program Financiación Social. It is sponsored by Empresas Públicas de Medellín (EPM - Public Enterprises of Medellin), the second largest provider of electricity in Colombia as well as supplier of water, sewerage, natural gas, and telecommunications services. Analyzing its 1.7million customers, EPM concluded that many of its low-income clients were underachieving in terms of economic and social advancement: they paid their bills on time, but were excluded from credit markets and the formal banking system. Lack of access to formal financing was a handicap for 75% of the population of the city and forced many citizens to resort to informal loans to buy basic necessities like refrigerators or home improvement supplies.

So EPM established a trust, Financiacíon Social, managed by two large Colombian banks. The trust screens and evaluates the credit profile of customers based on their utility payment records and other available data, and those who qualify receive a credit line to purchase goods like refrigerators, computers or building materials for home improvements. A network of 170 retail outlets has agreed to honor the credit line, and customers using the credit option receive bills for their purchases along with their monthly EPM utility bills.

Its target is to bring an additional 190,000 households into the credit markets by 2015. The IDB is supporting the program with a $10 million loan from its OMJ financing facility and the IDB's Multilateral Investment Fund is expected to provide a grant to support refinements in the credit rating system so it may be applied to customers with very low incomes, who traditionally represent a high risk for financial institutions.

NextBillion.net: Are there any exciting new projects that you're working on and can tell our readers about?

Luiz Ros: We have a strong project pipeline for 2010, and at the end of the first quarter we already have 14 projects on track for approval by the end of the year.  These projects include support for new fortification techniques in El Salvador, incremental housing in Guatemala, community infrastructure in Ecuador and innovations on contract-based agriculture and an educational credit program both planned for Mexico.

A number of strategic themes are emerging as core topics for future work.  For example, the Corporate Leaders Program that will begin later this year marks the first step in a more deliberate and targeted approach to working with large corporations, who are in a unique position to help scale up BOP activities if the right solutions can be found to meet their highly specific needs.  We also see important opportunities opening up in the field of nutrition and food security, and expect new projects to arise in this area as a result of our current work with the Global Alliance for Improved Nutrition and the FEMSA Foundation in the program Mapping of the Potential of Private Sector Nutrition Solutions in Latin America and the Caribbean, the results of which will be available soon.  Lastly, we're exploring the role of market-based strategies in crisis response and longer-term crisis recovery, which is also emerging as a  topic of great importance after the earthquakes in Haiti and Chile.

NextBillion.net: Thanks Luiz for sharing OMJ´s news with the NextBillion community.

The US Senate Chambers. A corporate board meeting. A new car.

Three seemingly random sentence fragments – right? Not to me.

These all share something in common – all are supposed to be grand, life-changing or at least out of the ordinary. Yet when you see the US Senate Chambers on an average day, they are half empty, mostly procedural and somewhat dispiriting for those political science majors out there (myself included).

A corporate board meeting, similarly, is nothing short of average. Under informed directors, over stressed presenters and all too often, dubious decision making. Average, or worse, if you ask me.

And while a new car may retain its smell for a few days, after a week, it just feels normal to drive.

So what does this have to do with me, and my travels in Kenya? Since its introduction in 2006, I have been obsessing over an innovative little cell phone service called M-PESA. Launched by Safaricom – Vodafone’s subsidiary in East Africa – the M-PESA service allows Safaricom customers to transfer phone credit wirelessly, through SMS.

Here’s a longer description of how it works – simply put, you SMS 100 shillings and a special code to your friend’s phone, and he will receive 100 shillings of credit.  What's more, you can link up with a bank or a merchant to withdraw that credit as cash.

It’s pretty revolutionary, because it allows anyone with a mobile phone to have a way to store cash, and transfer money.  For most who live at the bottom of the economic pyramid, M-PESA is close as one gets to a bank account – which we in the west tend to take for granted. I remember when M-PESA was launched; I wrote about it on NextBillion at the time, and updated readers regularly on the service’s progress. I was definitely an M-PESA geek – I thought the service was amazing.

Fast forward to this past Sunday. I am in the Gigiri section of Nairobi, an upscale, leafy neighborhood home to many embassies, constabularies, consulates and UN offices. Every weekend, a dedicated group of ultimate Frisbee players gather on a field inside the UN complex for a spirited, fast-paced game. An avid ultimate player myself, I jumped at the opportunity to play some disc in a new city – especially when it’s about 35 degrees back in New York right now!

Towards the end of the game, I asked around – was anyone going towards the south side of town, where I am staying? “Sorry, no man – we live around here.” “Dude, next week, I’m going that way – but not tonight.” Etc. Simple, and no worries, I thought – I’ll just call the same taxi that took me up here. He can come pick me up and what’s more, he already knows where I am.

Imagine my chagrin – and embarrassment – when I attempted to call the cab and got an error message on my phone: “You have insufficient funds to perform this action.” Oh no, I thought – I was going to have to ask one of these very nice strangers to use their phone for a minute. Not too big a deal, but embarrassing nonetheless – especially when you’re the new guy.

I turned to my right, where Mike – an Australian journalist and a helluva ultimate player – was drinking some water.

“Hey Mike,” I asked, “Could I borrow your phone a sec? I’m ashamed to admit it, but I’ve run out of credit on my phone.”

“Uh, sure.” Mike hesitated. “Do you have Safaricom, by chance?”

“Uh, yes.” This time, I hesitated. “Why?”

“Well mate, I can M-PESA you some credit, if you want.”

Lightbulbs! Soaring, orchestral music! Fireworks! I WAS ABOUT TO USE M-PESA. I could hardly contain my excitement, humongous bottom-of-the-pyramid nerd that I am. I tried to look cool. I think I failed, if Mike's raised eyebrows were any indication. Anyway, I gave Mike 100 KSH (about $1.33) and he sent me a SMS – next thing I knew, I had the cab on the way and a new experience under my belt.

Having known of M-PESA for years, I never thought my first experience with it would be so, well…mundane. But that’s my point. Just like the Senate, or a board meeting or a new car, this thing that I had held in such high esteem for so long had turned out to be rather ordinary. On the other hand, that’s the beauty of it – M-PESA is so simple (and profitable for Safaricom, to boot) that it is used by millions a day here in Kenya, and is being rolled out across East and Southern Africa.

And, to its credit, M-PESA got me home that night – can’t say THAT for the US Senate, now can you!?

Interested in learning more?  Check out this great article on M-PESA from MIT News detailing research conducted by Tavneet Suri and William Jack on the types of M-PESA transactions taking place in Kenya.

M-PESA is also being used by Bridge International Academies, a franchise-like network of low-cost, for-profit private schools.  Rather than deal with the hassles of payables and receivables, Bridge International's parents simply send school fees to the company via M-PESA - which keeps costs and delinquiencies down for the company and makes it easy on the parents.

Be sure to read Nathan's interview with Frontline:SMS's Ben Lyon, which digs deeper into the mobile money and mobile transfer issues.

At business school, we hear a lot about financial innovations that spur economic growth in developing countries. On paper, these ideas sound incredible, infallible, and a developed, prosperous world is just around the corner. But in practice, which ideas are really working and, just as importantly, can we really tell from the safe confines of a university?

This semester, one class at MIT Sloan - Financial Innovations in the Social Sector - is tackling these challenges head on. 20 students - half with a finance background and half with a development background - are studying some of the most difficult yet most compelling market-based solutions to poverty: the scalability of micro-insurance, the capital access challenge for SMEs, and understanding where the rubber meets the dirt road in creating carbon credit markets in developing countries.  At the end of the five week seminar, we head to Cambodia and Indonesia, where we will visit with companies implementing these ideas.

Finally, the students will spend two days in Jakarta with companies such as Allianz, which is pioneering a micro-insurance package throughout the region, and New Ventures' Indonesia chapter, which is looking at ways to attract more smart capital into the region for its portfolio of SMEs. The students will meet with all the stakeholders: the consumers, the organizations that provide goods and services, the government institutions that provide support and create a business environment, and the markets that enable efficient valuations and smooth transactions. Ultimately, we will walk away with a more sophisticated understand of the space and begin to create stronger linkages between these stakeholders.

You can follow all the Finnovators work at finnovation.tumblr.com and on twitter #finnovation. We would value the nextbillion.net community's feedback, ideas and thoughts as we work to make this topic a mainstay in all business school curricula.

In two recent posts I have talked about emerging business models for serving Small and Medium Enterprises (SMEs) in banking and the recent clash between commercial and microfinance banks in their future competition for SMEs. On December 2009, the IFC released a SME Banking Knowledge Guide that, in my opinion, confirms the rise of SME Banking as an important tool in stimulating private sector development. I strongly believe that SME Banking represents the next frontier in BoP finance in terms of its social impact and the sophistication required for profitably serving this population. SME Banking will increasingly shift the boundaries of the finance market at the BoP level as two types of organizations, microfinance firms and commercial banks, fight to capture this market by taking recourse in their respective competitive advantages (as I briefly outlined here).

The SME Banking Knowledge Guide is a superb book that systematizes much of what I have said in my two previous posts and adds lots of interesting insights on top of them. Mainly directed towards practitioners, either from other development institutions or commercial banks, this reading is recommended to anyone who is vaguely interested in this aspect of finance for low-income markets.

Why are SMEs important? Why do they suffer lack of access to financing options?

SMEs are often defined on the basis of their sales (below $2.5 millions, for a small enterprise, and $10 millions, for a medium enterprise) or the number of employees (less the 250 people). It is estimated that 95% of the registered firms worldwide are SMEs (OECD, 2006). SMEs serve as a middle ground for the economy and are active at nearly every point in the value chain as producers, suppliers, distributors, retailers, and service providers, often allied with larger businesses. Furthermore, SMEs often drive innovation, spur economic growth and facilitate the provision of goods and services – above and beyond other economic actors (Barreiro, Hussels and Richards, 2009), thus significantly contributing to employment and GDP as well as the development of the private sector.

However, SMEs also face severe constraints in their growth due to the reduced access to markets, skills and capital (Beck, 2007). Lack of access to financing option is a consequence of the generalized perception from commercial banks that SMEs are risky and costly to serve (especially because they rarely have any collateral to pledge in the loan). As a result, SMEs usually have to rely on more expensive or unreliable informal sources of capital, hence struggling to make the investments they need to increase their productivity, enter new markets and/or hire more people. In this line, long-term debt would enable SMEs to invest in expansion without losing ownership, while short-term and working capital loans would help SMEs grow incrementally. Additionally, bank deposit and transaction products would improve operational efficiency and enable SMEs to outsource financial functions. This finance gap is not covered by microfinance institutions, because they lack the skills and expertise required to deal with such sophisticated clients.

(Figure from SME Banking Knowledge Guide. Original source: Ayyagari, Beck, and Demirgüç-Kunt, 2003)

What can commercial banks offer?

Commercial banks have traditionally viewed SMEs as a challenge because of their lack of collateral, information asymmetry and the higher costs of serving smaller transactions. All of these hindrances make, at least in theory, SMEs better suited to relationship lending methods. This implies that the SME banking market would be better served by small local banks that specialize in niche market segments and rely on “soft” information gathered through personal contact

Nonetheless, and as I explained in a previous post, in the last few years commercial banks’ profitability margins have fallen. This has encouraged them to start exploring SME banking as an alternative. As a result, their perception of the market potential in financing SMEs has radically changed. Currently, commercial banks perceive the SME sector as strategic (Beck, Demirgüç-Kunt, and Martinez Peria, 2008). Moreover, commercial banks are now starting to figure out exactly how to use their competitive advantages to successfully cater to this segment.

Therefore, the SME banking industry is currently an industry in transition. Those banks that have been successful so far in servicing SMEs have experienced Return over Assets (ROA) of 3%-6% in their SME operations compared with a bank-wide ROA between 1%-3% (IFC, 2007). This has been achieved by developing customized risk adjusted pricing models that are able to predict risk without fully reliable financial information by exploiting other credit scoring tools and statistical inputs. Moreover, commercial banks have improved their efficiency by using mass-market approaches and by adapting the IT and Management Information Systems (MIS) tools to use more effectively the information generated in the transaction.

More importantly, commercial banks have discovered that SME credits generates only part of the revenue (38%).The rest is divided between deposits (29%) and other products (32%) (Beck, Demirgüç-Kunt, and Martinez Peria, 2008). In other words, SME Banking is much more than SME lending. This approach greatly benefits SMEs as well. Deposit and savings products provide SMEs with basic financial management tools. Transactional products such as automatic payroll, payment collection, debit cards and currency exchanges will lower the cost of doing business for the SME. Commercial banks can also offer good advice to the SME related with producing reliable financial statements, developing business plans, and selecting appropriate financing products.

What value added does IFC’s SME Banking Knowledge Guide offer?

Apart from a detailed analysis of this market, IFC’s guide also offers a simple Do-It-Yourself framework for commercial banks to improve the operations and quality of their services targeted to SMEs. This framework is based on five stages of the banking value chain: (1) understanding the market, (2) developing products and services, (3) acquiring and screening clients, (4) serving clients, and (5) managing information and knowledge.

(Figure from SME Banking Knowledge Guide)

Additionally, for commercial banks that have not entered the market yet, but are thinking about doing so, IFC’s guide offers several lessons to take into account while still on the drawing board.

This past week saw a fantastic Tech4Society conference take place in Hyderabad, India, focused on the worthy goal of how to build systems that maximize the social value of technology.  When I came to understand the thrust of the conference in this way, I became that much more enthusiastic about it.  This is a particularly valuable approach to take because while technology is often conceived in a relative vacuum, imagined with a very specific audience or market in mind, it of course exists within a broader context.  From Google's business decisions vis a vis China to the countless simple low-cost improvements to basic tools used globally like more efficient cookstoves or drip irrigation, the systems in which technology is used and propagated determine more of its impact than any particular aspect of its design.  A good example of the sensitivity of technology interacting with business models and human proclivities is here.

I was not, unfortunately, in Hyderabad, but I followed the Twitter feed from the conference, #tech4soc, which you can still peruse.  Not surprisingly, a popular topic was scale, because it is difficult for technology to make an impact if it doesn't get out of the garage in which it's put together, and systems for scale are essential.  But building systems for scaling technology deployment requires a very different set of skills than building a technology, and the tweets I caught included discussion of this need for organizational change by technology companies that hope to reach any modicum of real market penetration.

You can read full coverage of this uniquely oriented conference on Tech4Society's blog and the website of the Lemelson Foundation.

Two recent reports that caught my eye:

• The 2009/2010 Beyond Grey Pinstripes report from the Aspen Business and Society Program (a report initiated in the past by Next Billion managing partner World Resources Institute) came out recently, highlighting what's behind the hype when it comes to business school curricula and courses on social and environmental topics.  Lots of schools talk a good game, but who's actually got the content to back it up?  Topping the global ranking by Aspen's measurement is the Schulich School of Business at York University in Canada, followed by the Ross School at Michigan (wonder if Next Billion managing partner the William Davidson Institute has anything to do with it?), the Yale School of Management, and the Stanford Graduate School of Business. 
• To follow on my post from last week on mobile money, I've finally gotten the chance to look at a scenario analysis done by CGAP and the UK's Department for International Development (DFID) for "branchless banking" looking out to 2020.  This is from November 2009, but should still be relevant giving it's intended to look ahead for ten years still.

Many BoP ventures are beginning to think hard about metrics, more so than ever before. There has been much written recently about the importance of measuring impact and the large number of new tools and frameworks that have emerged, including many posts here on NextBillion which can be found by searching "metrics." These posts, along with many other continuing conversations in the field are helping us all navigate the same questions around collecting meaningful metrics.

Measuring outputs and reiterating anecdotes isn't sufficient in order to truly evaluate an intervention's impact. Measuring outputs only indicates how well an organization implements what it has set out to do.  This is certainly important for donors, who want to know how and where their funds have been used. But what if this implementation is wasting resources, or actually making the situation worse? It's impossible to tell by only evaluating data on outputs.

Take the example of mosquito bed nets. By measuring number of nets distributed by an organization to a population (an output), you don't know how or if the population is using the nets. The nets could still be in their packaging or being used as fishing net. I'm not saying ventures shouldn't measure outputs, but there is no point measuring them unless they also consider the outcomes - the broader impact on their target population such as the influences of bed nets on  locals income, education, health and relationships.

Most experts seem to agree that it makes intuitive sense to measure outcomes.  Well why aren't more organizations measuring outcomes? Based on observations and conversations we've had with numerous organizations, I've come up with three different reasons that highlight the underlying constraints:

1. Confusion - Many organizations don't know where or how to start. This is mostly a result of lack of time dedicated to impact assessment at an organization. There is plenty of information out there on how to measure outcomes.
2. Uncertainty - Organizations don't know what their outcomes will be, and they are nervous about hearing anything other than positive news. However, you can't improve without understanding your weak points!  The development community as a whole needs to emphasize and reward learning from mistakes. Ultimately, this will benefit everyone.
3. Apathy - Some program managers won't do it until they are forced, and instead will continue using anecdotes and outputs in attempts to show their influence in alleviating poverty. As the attention around impact investing grows, soon these organizations will be "forced" by donors to measure outcomes. As more take the step to measuring outcomes, it will soon become the norm.

It will be interesting to see how these organizations evolve their thinking and action as the pressure to measure metrics increases both from funders and other organizations doing so. At the same time even some of the organizations currently measuring outcomes end up frustrated and without quality data due to poor methodology. At WDI we have developed a robust and straightforward data collection process for collecting impact data at the project level. My next post will focus on recapping outcomes from our upcoming BoP Impact Assessment Workshop which will share our framework and data collection process with participants.

I look forward to exploring the area of metrics, sharing our latest thinking at WDI, and continuing the conversation around metrics with you all. 

Earlier this year I wrote why I thought 2010 would be plentiful with news and initiatives related to leadership development in the social enterprise/base of the pyramid space. In effect, fellowships and cohort-based programs continue to flourish all over, aiming to equip leaders (entrepreneurs, students, intrapreneurs, senior business executives, and so it goes) with the tools, networks and confidence boost they need to push their GO buttons and take this movement to a next level.

In the fall last year I had a chance to meet the Pop!Tech Social Innovation Fellows in person, while attending the conference in beautiful Camden, Maine. Everyone I met spoke about the way this experience had truly transformed their ventures. In particular, I felt that the Pop!Tech fellowship had a special emphasis in improving their ability to communicate and spread the ideas and vision behind their ventures. That's what Pop!Tech is best at, after all; It is a world-class ideas festival, where people from diverse backgrounds come together to tell meaningful stories, share ideas that matter and do so in a way that sticks.

Nominations for the 2010 Class of Pop!Tech Social Innovation Fellows are now open. So roll up your sleeves and nominate that someone you know has potential to effect meaningful change in the world. Give that someone the gift of being considered for an experience that will transform the way she conceives her venture and, particularly, the way she spreads the idea throughout the globe. Give that someone the gift of joining a remarkable cohort, which, together with the Pop!Tech extended community and the Program's exceptional faculty, truly make 1+1 equal 11.       

Go ahead. Nominate that someone. 

To read Pop!Tech's official Press Release, click here. 

If something isn't broken, do we still fix it? This is something one hears quite often and it's importance in Base of the Pyramid contexts is often neglected. A recent talk at BITS Pilani by (Retired) Brigadier P. Ganeshan, Andhra Pradesh head of Honeybee (we have earlier covered Honeybee here), focused on just that. In a nutshell, Honeybee is a digitized compendium of rural innovations and local practices implemented by rural communities in Indian villages. It currently houses over 100,000 innovations from all over India. Talk about an idea pool huh?

The crux of his talk was the need for knowledge-based growth. Despite India being a knowledge-based economy, he said, it is surprising to see how the knowledge possessed by BoP populations is being neglected and not given the attention it deserves. He stressed that many social entrepreneurs, though willing to spend vast amounts of time lending an ear to the problems of villages, aren't as willing to accept that these villages have come up with solutions to their own problems. The critical part, he believes, is optimizing these solutions to maximize their output.

He spoke of how India's farmers usually follow 30-35 farming practices, but no initiative is in place to optimize these practices and introduce appropriate technologies. According to him, villages are the oldest and most natural and form of open source knowledge, with potential to be further improved for the benefit of the entire nation.

The best thing social entrepreneurs could do is understand local technologies already being used and optimize them with local knowledge gathered from the insight of their users. Local solutions in the villages are often the most eco-friendly and sustainable, and they are also locally made, cutting down on operation costs.

This video further simplifies the point he was making.

Continue reading this article

One of my roles as Editor is to scan the news for articles of note to a readership interested in base of the pyramid development.  I wish I could say this involved reading a huge number of newspapers from around the world every morning but it actually takes the form of a number of Google alerts on some key phrases so that we can highlight stories that specifically reference market-oriented development approaches.  

But my job is getting harder - because "base of the pyramid" is becoming the general phrase used not only by a select number of people referring specifically to market-oriented development strategies, but as a figure of speech to refer to the poor broadly, particularly in India.  An example is midway through this article.  It's a much better descriptor than "low income" - and though it makes scanning the news for stories directly relevant to Next Billion that much harder, it is great to see this construction become popularized because of how much more powerful of a concept it is.  I am constantly reminded of the title of Ela Bhatt's book, We are Poor but So Many.

New Reports 

I wanted to highlight two reports that should be appearing soon in our Research section - Dalberg's Franchising in Frontier Markets report done with the John Templeton Foundation and the IFC, and Oxfam's new Poverty Footprint report intending to help businesses understand the full impact they are making on poverty and development in their supply chain, products, and more.

The Dalberg Report starts with analysis of well-known multinational brands that grow through franchising, and examines how such a strategy can be relevant at the base of the pyramid: 

"Franchising addresses the challenge of large distances between outlets and the need for local adaptation in frontier markets. The lack of market density makes franchising an interesting strategy for growth in frontier markets." 

The report includes case studies of SPOT City Taxis and Visionspring in addition to in-depth analysis of how both traditional and micro-franchising has emerged in select emerging markets.  

Around the Web

The recent launch of Kopernik intends to fill a crucial missing gap between technology creators and the intended customers at the base of the pyramid - or more accurately, between product distribution companies and technologies that may be deployed in one place but are relevant elsewhere.  I am curious to see how well the web format works in reaching such product distributors.  

I saw a brief but informative post with great links on the blog of the Foundation for Youth Social Enterepeneurship on innovations in transportation in South and Southeast Asia - that is, in rickshaws.

As part of our continued focus on Haiti, I also wanted to highlight a post on the World Bank's PSD Blog on private education in Haiti, which is incredibly prevalent, and examines the reasons for this.

Finally, a movie is coming out of Hollywood that is even more radical than Avatar in its subtle message - one that I think is very relevant to base of the pyramid development space.  It has also been causing a similarly intense reaction among audiences who are emotionally struck by its subject matter. You can see the trailer here.

I am a BoP researcher based in London, with experience as a SRI analyst in the Tokyo stock market, researching business development in emerging / developing countries. I had a good chance to post here (thanks to Duncan Duke and Rob Katz) and introduce what is happening in Japan, as most of Japanese BoP movements are written in Japanese and will never be disclosed to the world without any will of opening information.

While I spent years and years researching BoP related business, there had been a lot of small changes in Japanese business and aid society, but last year, 2009, was totally different. It was surprising that BoP related seminars and meetings have been held almost every 2 weeks in Tokyo or somewhere else, although only few knew the word of "BoP" a year ago.

2009 was the year of a "Social Business" big boom, as domestic social business individual entrepreneurs are featured in many contexts by media and also by governmental policy makers.  These include Mr. Komazaki from Florence (English URL: http://www.florence.or.jp/english/index.html ), who is helping working mothers with care of sick children; Ms. Murata from Kamonohashi project (English URL: http://www.kamonohashi-project.net/english/ ), who is tackling with child labor in sex industries in Cambodia; and Ms. Yamaguchi from Motherhouse (http://www.mother-house.jp/en/ ), who has a high end handicrafts business operating in Bangladesh. Like anywhere else in the developed world, social business had been a hot issue during last year amongst young generation, and many related conference and students' meetings (such as in Keio University) were held.

(ex. Skoll centre Keio Symposium: http://skollforum.jp/en/index.html , Social Venture Partners Tokyo: http://www.sv-tokyo.org/ , Social Innovation Japan: http://www.socialinnovationjapan.org/c000011/ )

And 2009 was the big dawn of "BoP business" for Japan. Especially soon after the Ministry of Economic, Trade and Industry (METI) invited tenders for feasibility studies in developing countries for BoP related business, the media and private enterprises began to look at this as a new kind of business, just after suffering from credit crisis and the big depression in developed countries' market. This is because the budget of METI for this project was relatively huge, 2.8 million dollars (280 mil JPY) in total.

The METI had been researching BoP related business in the contexts of PPP (Public Private Partnerships) for a few years, and in September 2009, 10 companies were selected to conduct feasibility studies. This scheme is similar to the USAID or UNDP model.

(The result of selection is here available in Japanese: http://www.nri.co.jp/opinion/r_report/meti/090911_kekka.pdf)

Some are the projects that will be undertaken include:

• Ajinomoto (Food industry) will explore nutrition improvement business targeting BoP in Ghana, based on their strength of amino acid technology. (http://www.ajinomoto.com/csr/achievement2/index.html )
• Sanyo (Electronics) will collaborate together with Gaia Initiative (Japanese NGO) on a solar lantern business targeting rural India, based on their strength of solar panel production. (http://www.gaiainitiative.org/en/ )
• Sumitomo Chemical (Chemical) is already famous in BoP circles for their work with Exxon Mobil, PSI, and Acumen Fund, who have collaborated to help start a company in Tanzania that manufactures long-lasting insecticide treated bed nets. Sumitomo will pursue a new business line, tackling tropical infectious diseases in Kenya. (The press release related to their product "Olyset® net" : http://www.sumitomo-chem.co.jp/english/gnews/news_pdf/20090721_1.pdf )
• Sony (Electronics) is researching a business in rural India for decentralized power generation based on a battery storage system. (Sony's activities in Ghana: http://www.sony.co.jp/SonyInfo/News/Press/200907/09-0717/  only in Japanese)
• Termo (Healthcare Electronics) is working on a business in blood packaging for blood transfusion, which may be used in Zambia, Tanzania, and Mozambique. (http://www.terumo.co.jp/English/ )
• Toyota Tsusho (Wholesale & Trading) will collaborate with Planet Finance (Microfinance NGO) to produce and sell bio-diesel energy generation systems for plants like Jatropha in Kenya and Uganda.
• Nipro (Healthcare Electronics) is working on a diagnosis kit for tuberculosis in South East Asia.
• Hitachi (Electronics) targets rural Indonesia with their solar power generation products.
• Yamaha (Motors and Electronics) had received recognition for their GSB project, and they continue to work on building the business eco-system around a decentralized water purification facility. (http://www.yamaha-motor.co.jp/global/area-marketing/csr/clean-water-project/index.html  and only in Japanese, their ambitious entrepreneurship can be read here: http://www.yamaha-motor.co.jp/profile/craftsmanship/technical/publish/no41/pdf/ts_06.pdf )
• Japan Poly-Glu is a relatively small to medium sized company in Osaka, whose strength is in purification technology. They have already spread their business selling arsenic removal purification products in Thailand, Mexico, and many developing countries, with a lot of help from volunteers and NGOs. They will scale up to more countries with this project, together with Poly-Glu Techno Japan, Yukawa Iron Casting Works Co, Ltd. (Japan Poly-Glu CEO Mr. Oda's comment here in Japanese: http://www.poly-glu.com/pdf/BoP20090915.pdf )

Most of the selected are big multinational entities, in very early stages of feasibility study, but some of them such as Japan Poly-Glu or Sumitomo Chemical are in the stage of improvement and scaling up. The feasibility study survey is now being conducted from through December 2009.

There also seems to be some parallel surveys on 5 issues (Healthcare, Nutrition, Education, Agriculture & Timber, Energy) simultaneously held by METI with JETRO (Japan External Trade Organization) in worldwide perspectives.

We can see here that the business sector is quite keen on entering the BoP market, and most of the aid agencies have taken considerable steps. This will impact Japan BoP related issues, as many of them seek a new target of consumers with "doing good business" products.

As a starting point, this may be enough at this time, but in my opinion, these businesses must go beyond their own hands and consider giving some ownership to the community itself in longer term, or at least ensure the value created from the business will be shared among those who engaged in the projects. It is not "trading" the benefit of good product; it has to be "co-creating" the benefit locally.

And there is also an interesting case happening with Japanese SMEs. They might have potential to bring huge impact on poverty issues, but it is quite hard to find leadership.  An exception is Mr. Oda at Japan Poly-Glue, who fuses passion and business mind together.

Like other MNCs worldwide, most of the intrapreneurs working inside Japanese MNCs who are eager to get involved in "Business that matters to the poor" are now struggling a lot because they cannot be adequately recognized in their own organizations and by CEOs. In-house support is greatly needed to push forward their idea to get more involved with community development and poverty alleviation with their possible product and service, but they spend most of time explaining to CEOs and stakeholders the social business benefits and mission, and another way of thinking about profitability.

But in 2010, this should change. Some authorities, including METI, JETRO, and JICA (Japan International Corporation Agency) have plans to support BoP projects, and UNDP's Growing Inclusive Markets initiative in Tokyo will be a big influence to CEOs. Recognition from outside will be a good help for intrapreneurs.

JICA had announced in their public seminar last week that they will support MNCs or SMEs to work with local NGOs or SHGs and build up the sustainable business model within the community. They are providing 50 million yen at maximum for each projects in the early stage, with longer-term commitment for 3 years. This promotion policy will stimulate Japanese companies to apply their skills and technologies to social business in developing countries.

Apart from the side of policies, a bottom-up approach by individuals across various organizations and companies is also happening, from my own view. There will be soon some broad BoP networks among individuals, and those will connect to the rural/urban poor community to kick start their ideas and businesses.

Actually, we had launched the networking website in ning.com, at the beginning of January 2010. It's only in Japanese language but anyone can sign up.

Please visit here: http://boplabjp.ning.com

For launching, we had a casual meeting together with BoP related individual entrepreneurs, working very actively in Japan. Our guests were: Mr. Ashir Ahmed in Kyushu University with Grameen foundation for ICT technology development on banking card with healthcare information, Mr. Kanehira, working as a McKinsey consultant in his daily life, trying to connect EV car technology with Grameen foundation, Mr. Kono from Arun LLC, social investment fund for Cambodia, and so on.

2010 will be the kick-starting year for Japanese BoP related entrepreneurs, and I hope this will bring the variety of ideas and concepts understanding BoP business discussion sphere worldwide. For example, for some Japanese, education or awareness-raising means something very different when you sell a product to the community. Moreover, we feel very different about the word of "inclusive" business. I suppose those concepts originated from East Asian Chinese literature and philosophy contexts (affected by Confucianism and Buddhism) will give some hints to some point of understanding BoP community. Variety and mixtures of races and cultures who engaged in this projects will probably bring about innovative and sustainable, next generation business.

Further contact:

Shino Tsuchiya, email: tsuchiya.shino@gmail.com / JRI Europe (London)