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There are skeptics in any field – base of the pyramid business is no different. Over the years, however, the nature of BOP skepticism has changed. At first, many questioned whether low-income, emerging markets really mattered to businesses' bottom lines and growth strategies. While there are those who still argue that BOP markets are best left to development agencies and charity, the general feeling is that business has a role to play in these markets. Instead, skeptics now ask: if business has a role to play, where are they? According to base of the pyramid champions, there are massive, untapped markets out there – so why haven't there been associated investments geared towards tapping the opportunity?

There's no simple answer. Business opportunities don’t materialize overnight; firms need time to establish relationships, map out strategy, and pilot new models – especially in the unfamiliar territory of developing economies. Still, many critics rightly point out that 4 years have passed since Prahalad and Hart introduced the bottom of the pyramid hypothesis. In a business world fixated on quarterly earnings reports, 4 years is a lifetime. Show me the money, they say.

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"It's a moment to balance the global with the local." - Dr. Abhay Bang, director of SEARCH

NextBillion’s news section contains 4 new items, all of which pertain to “risk” in relation to the BOP community. But this risk I am referring to is two-fold. These news items address the wrongly perceived notion by commercial banks and insurance companies that the poor are 'high risk.' But the flip side, the newsworthy aspect, is that now these companies are seeing opportunity instead of risk. In fact, they are making it their job to reduce the risk to the poor using multiple approaches.

Micro Health Insurance
For years, the poor were considered uninsurable, both for the barrage of risks they face and for being either unwilling or unable to pay for disasters in advance. Micro health insurance plans, such as the one provided by UpLift India Association, aim to provide quality healthcare at low premiums on a community-level scale. Undertaken with creative planning, this initiative can provide the same protection against risk for the poor that it does for the rich. In countries such as India (the world leader in this emerging field, with 5 to 10 million people enrolled in micro health insurance nationwide) where the poor usually work in informal jobs or are self-employed, they are highly unlikely to be included in employment-related plans. In addition, about one-fourth of hospitalized Indians fall below the poverty line as a direct result of their hospital expenses, according to a 2002 World Bank report. Many people take out steep loans or sell their homes in order to pay. And for the poor, losing even a day's wages while waiting in the hospital can be devastating. According to an article by The Christian Science Monitor...

Nandakumar Rajeshirke, a stone carver in India, bought coverage for his whole family at 50 rupees ($1.10) per person annually and renewed the plan for several years in a row. In 2005, his gamble paid off. Rajeshirke's wife needed a hysterectomy, a procedure that would normally cost 20,000 rupees ($446), one-third of his yearly salary. "Without insurance," he says, "I would have had to sell some things from my house or get a loan from someone at high rates." Instead of facing financial ruin, he paid 6,000 rupees ($134) total and had help navigating the long process through diagnosis, surgery, and medication.

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So much to read, so little time…but these activities are definitely worth a look-over.

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The equity gap is growing- small businesses worldwide are finding it harder to obtain needed financing, as has been well documented. For some companies, especially those in emerging economies with few resources, the only alternative is to seek funding from wealthy individual “angel investors” who are willing to invest in seed enterprises that are too risky for venture capitalists.

An article in the Economist details the role these angel investors play in funding startup enterprises, especially as they are becoming an effective bridge to expansion stage funding where investment firms are more willing to take over. The story of the finance gap that exists between an enterprise's startup stage and VC investment is similar to that of the major banks giving microloans; the large fixed costs associated with an investment along with the greater risk of failure small startups have deter VCs from putting money into these enterprises.

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Formal, profitable SME financing is gaining momentum in India, as two articles in last week’s Indian financial press indicate:

ICICI Venture mulls 4 specialized funds
New SME Fund to Launch in India

Small and medium sized enterprise investment funds are not new; we’ve discussed the Shell Foundation’s successful African SME fund in the past. Other previous posts have covered the unmet demand for mesofinance. Last week’s announcements by BTS Investment Advisors and ICICI indicate to me that major players in commercial finance have finally begun to understand the need for and potential in SME finance.

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An important event is coming up for investors interested in the booming, capital-hungry markets of India, China, South Africa and other emerging economies: The Emerging Markets Private Equity Association is hosting its annual forum in London November 30th through December 1st.

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“It makes good journalistic fodder, but it’s just the same story over and over!” This was fellow blogger Rob Katz’s comment when I called him about posting a story on the Strappity-do-da company. His frustration was similar to that expressed by Ethan when he complained about journalists covering essentially the same microfinance storyline instead of getting to real scalable models at the BOP. So what was the problem with Strappity-do-da, an enterprise that sells beaded bra straps sourced from a group of women in Colombia with handicraft skills?

“I’m tired of hearing feel-good stories about Americans traveling to a country, finding a community that produces a random handmade item, and selling them to their wealthy friends… it makes for a good human interest piece, and it’s great that they’re doing that, but it’s not a solution.” Rob continued ranting before slamming the phone. Okay so he didn’t slam the phone- and he doesn’t talk like that either, being a level-headed economist-type. I used some rhetorical flourish there.

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Everyone agrees that microfinance is the coolest thing since sliced bread.  That’s why in the last two months we’ve seen it covered by the Financial Times, Reuters, The Globalist, The New York Times, The Economist, The LA Times, Business Week, CNN, and The Times of London.  And in all likelihood there are other articles still hovering beneath our radar. 

I must confess that at first I was excited to see the mainstream media weighing in on development issues affecting the base of the economic pyramid.  I held the opinion that microfinance articles—no matter how repetitive and formulaic—attract publicity to an important cause that draws less attention than Paris Hilton’s latest sexcapade.  But I’ve changed my mind.

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El Universal, a Mexican newspaper, reported yesterday that by next October Mexicans will be using their mobile phones to buy everything from fast food to newspapers. The program is called Pago-Movil—or Mobile Payment in English—and will be available from six of Mexico’s largest banks and cell phone providers. The aim of the project is to convert the 50 million cell phones currently used in Mexico into electronic wallets that can perform all the same functions as a conventional billfold. If the project is successful, it could integrate many of Mexico’s unbanked citizens into the formal banking sector.

Thanks Rob [Via GlobalVoices from Chilanga Banda]

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Today, the Financial Times covers Casas Bahia, a BOP favorite from Brazil which has also been discussed in CK Prahalad’s book, The Fortune at the Bottom of the Pyramid.  Although the FT adds little to the debate about extending credit to low-income consumers, it still provides important exposure to businesses that are engaging the poor.  Below, I have highlighted some of the more interesting points raised in the article and added some of my own commentary.

Could selling to the poor be more than just turning a profit?

Michael Klein, managing director, says one reason for the company’s success lies in something understood by his father, a Polish immigrant, when he began selling table and bed linen from a handcart more than 50 years ago: “He understood that the poor want to be treated with respect. They want to be treated as if they were rich.”

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