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These series of posts have been co-authored by Francisco Mejía. Francisco is a Principal in the Opportunities for the Majority Office at the Inter-American Development Bank (IADB), based in Washington DC. He currently leads the preparation of various transactions involving the financing of BoP projects in leading and innovative companies in Latin America and the Caribbean. Prior to joining the Bank, Francisco was the Director of the Center for Economic Development at the Universidad de los Andes in Bogotá, the leading economic think tank and research institution in Colombia, and consulted for various international organizations. The views expressed in this blog contribution do not necessarily reflect those of the IADB.

In our previous post we introduced the two basic approaches that are currently being touted in helping incoming firms rapidly gain scale in BoP markets: the sectorial approach which was explained in detail by Al Hammond's post some time ago; and the platform approach, which is the one currently being developed by the Opportunities for the Majority Office in the Interamerican Development Bank and which was introduced some time ago in by Francisco Mejia's guest post. Platforms have two characteristics that can be very useful in stimulating scale in BoP businesses: accessibility and information. However, depending on the type of platform these characteristics and their contribution to incoming firms may change. Moreover, their products may have different degrees of complementarity and the balance of power between different platform stakeholders may also vary.

In this post we would like to talk in more detail about different platforms and explain in more detail how their distinctive characteristics can be leveraged. Based on the variables mentioned above and its usefulness in stimulating capillarity we classify the most important platforms in 6 groups, 3 of which will be explained in this post and 3 in the next one:

1. Conditional Cash Transfer (CCT) Programs:

CCT programs are a powerful public policy weapon against poverty. They transfer money (in cash or in kind) to families in exchange for them to comply with certain conditions. These conditions normally revolve around children's education and health, such as school attendance or regular vaccinations. In Latin America, the region where these programs are most popular, it is estimated that they have benefited more than 15 million poor families and over 60 million low-income people.

As a result of their activities, most of the information that these types of platforms generate are related with descriptive poverty statistics. They also have an extremely wide reach, particularly in countries like Brazil, Mexico or Colombia, where they are especially well developed. Their capillarity is also quite high, since by definition they try to be within reach of all those low-income people who may be eligible to receive aid. On the other hand the control over the platform that incoming firms may have is often low or very low, due to the public sector's dominance, so the margin for experimenting with different products may be restricted by the stance of existing stakeholders.

The best fitting industries are in this case providers of financial services that may help recipients to better manage their subsidies or smoothen their cash flows with microinsurance, small consumer loans and saving accounts. In order to lower the transaction costs for program beneficiaries, mobile phone offerings are also likely to provide excellent synergies. Furthermore, products or services related with education, health or nutrition could also be well accommodated in these platforms.

2. Utilities:

We consider utilities as those companies offering electricity, gas and water services to BoP markets. These services are quasi- ubiquitous in many urban areas in the developing world and their adjunct platforms have massive consumer bases.  On the other hand, their capillarity and reach is much more limited in rural areas, especially those with lower population densities or further away from the cities, because of higher servicing costs.

Traditionally, utility companies have perceived their core competencies to be strictly related with deploying their strategic assets in offering energy or water services at the lowest operational cost and reducing to a minimum technical and non-technical losses. However, some utility firms have discovered that the information about individual payment histories can be a very valuable asset. Subsequently many of these companies have chosen to leverage their information with their billing and collection capabilities to start offering financial services either directly or through external economic agents.

The most common financial product so far has been small consumer loans which are approved to purchase electric appliances, furniture or kitchenware, even though inroads have recently been done in microinsurance products as well. Codensa, for example, is a renowned case in this line (for more details, Manuel wrote some time ago a small case study about it).

In this case, as in the previous one, the platform falls squarely under the control of the utility company.  Hence, incoming firms have traditionally been strongly dependent on the support of the platform owner to be able to roll out new or modified versions of previous products. As a result much of the goodwill generated by these new services has been appropriated by the utility firm. This in turn has resulted in lower default rates both in bill payment and financial products and thus generating a significant source of consumer loyalty and income for the utilities and has dramatically improved the lives of the poor while offering an entry point to an otherwise inaccessible financial system.

As the volume of provided financial services has grown so has the appetite for an increasing range of goods. Therefore the outside firms who may benefit from allying with utility platforms is by no means constrained to finance providers and may include many mass consumer goods such as household products of all kinds, health, education, nutrition and /or IT products. It therefore represents potentially one of the most flexible platforms currently available in low-income markets.

3. Mobile phones:

Currently, mobile networks cover more than 80% of the world's population and more than 4 billion people are estimated to have a mobile phone. In 2007 and 2008, it is estimated that around 1.15 to 1.2 billion mobile phones were sold worldwide, the brunt of which was eagerly taken in by developing countries and especially relatively young consumers. More importantly, thanks to the particularly flexible product architecture and the increasing computing power of the microprocessors attached, mobile phones are capable of bundling with many seemingly unrelated services related with the transmission of not only voice, but also data and services. As a result, different people have given different uses to mobile phones (for more details about mobile phone platforms we eagerly recommend David Lehr's study published in Acumen Fund's website). The bundled added service that has attracted most attention is, by far and away, mobile phone banking. In low-income communities mobile phones often offer major improvements in security, convenience and range of services to previously unbanked customers. In South Africa, for example, it is estimated that half of the bank accounts will be managed through mobile phones by 2010.

Mobile phone platforms exhibit very high degrees of capillarity. The geographical reach of these platforms depend very much on the operator, although the drive towards reaching economies of scale is spurring a move to consolidate between mobile phone companies in the search for ever-decreasing operational costs. Obviously the information generated by this growing network can be hugely valuable, especially as mobile phone standards converge and sharing of data is enabled between different serves. Depending on the variety of services offered through mobile phone networks, the accumulated information may be more or less detailed, but on the other hand the scope for a partnership may be wider. Finally, mobile phones platforms not only collect information about individual customers, but may also offer a detailed view into the social networks of their users thus giving the chance to incoming firms of catering to groups rather than to individuals.

These series of posts have been co-authored by Francisco Mejía. Francisco is a Principal in the Opportunities for the Majority Office at the Inter-American Development Bank (IADB), based in Washington DC. He currently leads the preparation of various transactions involving the financing of BoP projects in leading and innovative companies in Latin America and the Caribbean. Prior to joining the Bank, Francisco was the Director of the Center for Economic Development at the Universidad de los Andes in Bogotá, the leading economic think tank and research institution in Colombia, and consulted for various international organizations. The views expressed in this blog contribution do not necessarily reflect those of the IADB.

By now there is a reasonably strong consensus about the main ingredients of a successful business model in BoP markets, namely:

• Include low-income community members as productive agents in the firm and try to make use of their local knowledge, either by outsourcing part of the operations to local businesses or by hiring local population.
• Use flexible operational mechanisms to deal with patchy infrastructure.
• Decrease costs as much as possible to be able to offer lower prices, but without impairing quality (within reasonable boundaries).
• Offer products that meet the needs of the customer (versatility here tends to be quite important) and adapt to their payment constraints.
• Associate with local stakeholders such as civil organizations or NGOs to penetrate the target market and educate the population on the most efficient use of the product.

What is still in very much open to debate is how to scale up profitable business model so that their social impact is maximized. Broadly speaking there are two non-exclusive approaches:

Al Hammond in a series of posts proposes a sectorial approach. This in a nutshell involves identifying an outstanding business model for a particular sector and replicating it in different countries and businesses. However, as Al admits, finding such a business model capable of being applied everywhere is a tough nut to crack. In order for the business model to be replicated in different regions it needs to have a certain degree of ambiguity. The details would then have to be fixed depending on the local conditions, even though the success of business models in BoP markets can often depend on such minute details.

On the other hand, Francisco Mejía from the Opportunities for the Majority (OMJ) office in the Inter-American Development Bank suggested in one of our guest posts a platform approach as a means to rapidly gaining scale. In this post we would like to elaborate in more detail the basics of this approach while in the next two posts we will go into more detail about the advantages and disadvantages of specific platforms.

A platform is the public or private distribution and/or sales network that has been built to cater to low-income markets and, as a by-product of its operations, generates potentially useful information for additional market-based offerings. As such, it offers two very useful characteristics for incoming firms with a pre-defined business model wishing to gain scale rapidly: accessibility and information about BoP customers.

Accessibility is a variable that may be measured using two different parameters: capillarity and reach. Capillarity (from capillaries) refers to the density of the network in a particular area. For example, a mobile phone company may control either one or many points of contact in one neighborhood. Depending on the number of points of contact it owns, we may argue that it has more or less capillarity in that region. Reach, on the other hand, is related with the number of different regions the platform may have a presence in. As a result, a platform may have strong capillarity in one region but barely any reach beyond that particular area, or vice versa.

Information is also a crucial variable in gaining scale, because, if properly utilized, it can be leveraged by incoming firms to differentiate those clients that are trustworthy from those that are not. By having information about customer quality, incoming firms can then choose to serve only the reliable customers and often even lower the final retail price, since they do not have to cover any losses arising from the unreliable ones (for our economics-minded readers, this is the adverse selection problem).

Furthermore, since BoP customers know that information is collected about them, their quality as a customer will tend to not deteriorate after the product is sold. For example, a reliable customer may (consciously or unconsciously) take less care of her house after buying insurance, because now the losses will be borne by the firm, rather than the customer (for our economics-minded readers this is the moral hazard problem). This is because it is in the best interest of buyers to be perceived as "safe bets" also after the purchase because their transaction history (payment timeliness, credit, insurance, etc.) is being built through this behavior and thus will have a decisive impact in future transactions they may want to conduct.

However, accessibility and information quality and type will vary depending on the platform itself. Some platforms may generate high quality information, but at the cost of lower accessibility. Additionally, incoming firms should also consider whether their products are complementary to those already being sold in the platform and whether they will have any power in deciding the spreading and growth of the platform activities. In the next post we will talk about different platform types and explain in more detail what are their respective characteristics and how they can be leveraged.

When the subject of successful, scalable BoP models comes up, two will inevitably be cited: mobile telecommunications and microfinance (ala Grameen).  While the reach of cell phones at the BoP is indeed widespread and impressive, one still has to consider what the barriers to access are for this technology and its ancillary, the internet.  Is it cost, cultural context, infrastructure, or language?  My guess is that it's all of the above.  That's why the work of ICT pioneers like Appfrica Labs is so critical.  Having collaborated with Grameen, Google, and MTN to roll out a suite of SMS applications including QuestionBox, the company is poised to address these challenges and many more.  Needless to say, I was pleased to have the opportunity to chat with Jon Gosier, founder of Appfrica Labs and 2009 TEDGlobal Fellow.  Let's learn more about Appfrica Labs...

Tayo Akinyemi, NextBillion.net: How did the idea for Appfrica Labs emerge?

Jon Gosier, Appfrica Labs: There's a lot of talent here in Uganda but an extreme lack of opportunity.  At Appfrica Labs, we incubate and mentor software entrepreneurs while offering them a productive environment in which to work and learn from their peers. 

Tayo Akinyemi, NextBillion.net: How does Appfrica Labs work? 

Jon Gosier, Appfrica Labs: We have a two part model-we're a software company that does contract work and we're also an incubator that provides seed capital.   We don't have external funding so we cover our own costs doing software development for short term cash, and the returns on investment provide long term cash flow.

Tayo Akinyemi, NextBillion.net: We've also heard about your partnership with Grameen and Google.  How did that evolve?

Jon Gosier, Appfrica Labs: The opportunity came from Grameen as it was developing SMS applications in partnership with Google.  They were looking for something different, another way to reach people.  It was by chance that QuestionBox entered Uganda around the same time, and they decided to roll out our service as part of their pilot. It added a human element to all of the high tech stuff they were offering to people who were used to low-tech solutions.

Tayo Akinyemi, NextBillion.net: So what's the nature of your relationship with Question Box?

Jon Gosier, Appfrica Labs: If we were to display our relationship on Facebook it would read "It's complicated." First and foremost, I'm Question Box's Chief Technology Officer.  I started Appfrica Labs, which incubates several projects and QuestionBox is a project we're incubating.  Eventually, it'll leave the incubator and be its own thing, but for now it's all under the same umbrella.

Tayo Akinyemi, NextBillion.net: Remind us what Question Box does?  What problem does it solve?

Jon Gosier, Appfrica Labs: Question Box aims to democratize the acquisition of information, especially here where literacy rates are very low.  We want to provide disenfranchised populations with the information they want to know.  However, there are two challenges.  First, many of the people that we reach can't read, or are otherwise uncomfortable with English.  QuestionBox allows them to talk to operators who speak and understand their language.  Second, some of the people that we reach are too poor to own their own mobile phones, much less send SMS's.  For people who can afford mobiles, they can just call into the service.  For the extremely poor, there are physical boxes placed in their villages (Question Boxes) that they can use to make calls for free.

My personal passion is using technology in ways that allows the billions of people living at the base of the pyramid to share their perspectives. Things like the real-time web (Twitter) and mobile applications (apps for the iphone) are literally changing the way the world works for  a very small segment of the human population (the Global North), but there are more ways that these technologies can be applied than are currently being  explored.

Tayo Akinyemi, NextBillion.net: What types of questions are people asking?  What are you learning?

Jon Gosier, Appfrica Labs: The information we were collecting was fascinating and I thought it would be interesting to share it with the world.  I built the site World Wants to Know to make that information public.  Anyone can go there to see a real-time feed of the questions as they come in to our call center.  You can also subscribe to the questions via RSS. 

Some callers are kids using the service to ask about homework.  Women ask health-related questions because there is very little local medical facilitation.  Men overwhelmingly call to ask about agriculture and sports.  They ask these questions because they're patriarchs in the farming villages.  The questions about Manchester United and Arsenal indicate that people everywhere, despite their status in life, enjoy entertainment.  Every question teaches us something new about the areas we're in and the people who live there.

Tayo Akinyemi, NextBillion.net: What drives this question-answering power? 

Jon Gosier, Appfrica Labs: Appfrica Labs built a localized database that stores information relevant to a particular subject or location.  It's essentially a search engine that works offline on servers that can run even when the power is cut (using generators).  The Question Box operators take calls in the languages that the callers speak.  They search the database in real-time, often finding answers while the person on the other end is still talking.  If the answer can't be found in the local database, the software searches the web. Over time the search engine gets 'smarter' because it's indexing the answers and the questions. Thus, we get better at answering questions the more often people call us.

The information we're searching comes from very specialized sources.  For instance, Grameen gave us massive amounts of data related to Ugandan agriculture, market pricing, the local government, health and more.  This is information that doesn't exist online.  It's information that traditionally only researchers and development organizations have had access to because they were collecting it for their own purposes.  In some cases the database has more information than even the local government has!

A few weeks ago there was a discussion on the website Slashdot about QuestionBox.  People criticized the service for being the same as searching Google.  Actually, searching the web is a last resort because there are no algorithms for making the search more accurate over time.  We also collect a large amount of demographic information about the callers, the type that other organizations have expended significant resources trying to collect.

Tayo Akinyemi, NextBillion.net: The QB operator job sounds challenging.  How do you train people to do it? 

Jon Gosier, Appfrica Labs: The operators undergo a lengthy training process so that they don't answer questions with opinions or provide information that can't be verified.  They're timed, so if a call takes longer than three minutes, they ask the person to call back.  Additionally, we needed the operators to speak multiple languages, so each of the women we've hired is conversant in up to five of the regional dialects. We're also working on a rather sophisticated voicemail system to allow people to call back to retrieve answers.

Tayo Akinyemi, NextBillion.net: It seems like your work has implications for telecom providers at the BoP.  How well do you think they're doing at reaching customers and meeting their needs? 

Jon Gosier, Appfrica Labs: Everyone is looking for new customers.  Many people can't afford to be customers nor can they read.  QuestionBox bridges that gap.  During a recent focus group, the overwhelming message from callers was that they enjoy the service because of the human element.  All the tech heavy stuff goes on behind the scenes.  Good technology is like that, it's like your car engine.  Most people don't know how an engine works, but they find a lot of utility in what a car does.  People find a great deal of utility in this service as well.

To answer your question, SMS is the way to reach the urban poor, but I'm not so convinced it's the way to reach the rural poor.  I don't think that telecom providers are doing a good job of that. There are between 7 and 8 million mobile subscribers in Uganda out of 30 million people.  Most mobile owners are the wealthy, the middle class and the urban poor.  However, the rest of the country, the 'market' that the telecoms want to reach, suffers from poverty, poor education and a lack of technical literacy.  I think the 'human-ness' of services like QuestionBox is a big draw, and it also gets back to the basics.

Rose Shuman (the founder of QuestionBox) always says, "You can get people to take one step, maybe two, but after that you lose them." (You may recall that fellow NextBillion blogger Francisco Noguera profiled Rose and QuestionBox in an earlier post.)

To learn more about Appfrica Labs and its work with Question Box, read PCWorld's feature, visit the company's site check out the QuestionBox blog, or view Jon's TED talk.

"I cannot miss this again next year", I thought around this time last year after reading Rob's great piece about his day at the International Development Design Summit, which took place in the MIT campus in Cambridge. Sorry to miss it and after several conversations with old and new friends involved in the design-for-social-impact realm, I promised I wouldn't let IDDS fall off my radar in 2009.

Well, it turns out that MIT Professor Amy Smith and her crew took this year's version to Accra, Ghana... just an ocean out of the reach of the good old Amtrak. Unable to attend, I followed the goings on of the IDDS over the blogosphere, and thought I'd share with you a brief round up of what NextBillion allies had to say about this fascinating gathering which ended just a few days ago and served as an introduction to Maker Faire Africa, which kicks off tomorrow, also in Accra. 

But first, why Ghana? How was this different from holding the summit at MIT? Here's the answer in the words of our friends in the summit themselves. Read on to find links to what fellow bloggers commented on the summit.

The main difference between IDDS Ghana and IDDS in MIT is the proximity to community partners and potential end users of the projects. IDDS prides itself on the spirit of co-creation and this movement from the States to Africa is a crucial one in line with this vision. The difference between participants sitting in lecture halls in MIT, learning about international development and the importance of speaking to at least fifty villagers before designing a technology, and actually living with and talking to hundreds of  villagers all over the country, is immeasurable. In total IDDS this year worked with ten villages throughout the Bromg - Ahafo and Ashanti regions and teams had the chance to make three separate two night visits (spread throughout the design process to make sure they had input into every stage) to these villages. Among a huge number of other factors, the simple experience of having end users actually become extremely excited about your prototype, and seeing them test it out, is an incentive for teams to continue their project after IDDS.

Another way in which IDDS interacted with the local community, rather than simply for it, was through it's interactions with Suame Magazine. This is an engineering cluster located in the centre of Kumasi, spanning twenty miles and with a working population of over 200,000 people. There are approximately 12,000 independent micro, small and medium enterprises located in the area and their main activities of vehicle repair and metal fabrication (welding and casting) are renowned for their ingenuity all across West Africa. During the summit, participants worked extensively with these engineers and mechanics in the 'Magazine' and had the chance to share ideas, techniques, and technologies with each other

The point has been stressed home at this year's IDDS that these villagers involved in the process, as well as the workshop guys in Suame, are partners in the design process, rather than simply people we should talk to along the way. Without these partners, the technologies presented tomorrow at the Great Hall would quite simply not be possible, and I think that knowledge, in and of itself, will prove invaluable to our participants as they continue to work in international development after the conference. In light of this, five villagers from each village, as well as workshop managers from Suame, will be provided transport, accommodation and food to come to the final presentations to see all the different prototypes.

Systems have also been put in place to ensure that the projects worked on at this year's IDDS will continue to be worked on after IDDS. There are project grants and partnership grants available for the teams and there will also be a full time country liaison for Ghana, responsible for integrating the technologies into all of our partner villages, as well as sourcing new villagers and markets to help disseminate and create business models for the technologies. On a far more practical level, villagers will also have the opportunity to decide which of the prototypes they are most interested in, and then work with our partners in Suame Magazine to have these manufactured. 

Blog roundup about IDDS:

• Niall Walsh's great job reporting from IDDS's official blog
• Paul Hudnut's "IDDSy bitsy" and two other pieces about the summit in his BoPreneur blog.
• Erik Hersman's post about the final presentations at IDDS and a great set of pictures taken in Accra.
• Emeka Okafor's introductory post about the Summit and a taste of the upcoming Maker Faire Africa.

Projects in the works during this year's Summit:

• A press that speeds up the process of extracting oil from shea nuts
• A device for generating electricity from a playground carousel
  A machine for making recycled plastic products from used water sachets
  A set of tools for threshing groundnuts
  A mechanism for producing chlorine from salt water using readily available materials
• A simple, low cost battery made from local materials, for household lighting and other uses
• A human powered grating machine for speeding up cassava processing
• A thresher to improve the quality of rice by preventing stones from mixing with the grains
• A chlorine dispenser for disinfecting drinking water
• A family friendly latrine designed to promote use and hygiene among young children
• A device for monitoring the growth of children under five through cell phone technology
• A container that extends the shelf life of tomatoes during transport and storage

Unidentified Announcer: "We're here at the Roman Forum.  Wow, that's Ryan Seacrest down on main area.  He's introducing the Capulet Sharks, who are entering from the north side of the arena.  The Sharks look great, forty of them in formation, all dressed alike in their forest green and soot black uniforms with their shiny supply chains around their necks.  Each carries an identical green and black stove...let's listen."

"Okay Sharks", says Ryan "What do you have to show us today?"

"Well, Ryan, we have our incredible one-size-fits-all cook stove.  It is made in our efficient, state-of-the-art factory, tested in our cutting edge design lab and shipped just-in-time to any poor country in need of getting more joules from its lousy wood or charcoal. 

"We guarantee it has the highest efficiency and the lowest price point; in fact, when we produce enough of these babies in our low cost factory, the carbon benefit alone will keep the price to a level where every house, hut and shanty could afford two."

"That's quite a performance, Sharks.  What does our audience have to say?"

In one voice, a deep rumble begins and grows, resolving itself to a two by six syllable mantra: "e-con-o-mies-of-scale...scale-scale-scale-ba-by-scale." 

After a few minutes of that, Ryan calls for silence and introduces the other contestant, the Montague Jets, who enter from the south side.

Unidentified Announcer: "Whoa, folks, this is a different look.  There are less than twenty Jets, each in a different outfit, pretty much tee shirts and cotton slacks or local garb. Wow, that one guy is old, we're talking vintage 1970s. They each are carrying a different metal and metal and ceramic stoves, lots of colors and logos, very eclectic.  Not a supply chain in sight.  Let's listen to Ryan".

"Okay, Jets, what have you got to say?"

A few of the Jets start speaking at the same time, then it settles down.

"Okay, okay.  What we have here, Ryan, is variety.  That plus local designs and local materials.  All the labor and materials come from a seventy kilometer radius of the customer and every stove design is based on local use patterns."

There's a bit of a pause, an uncomfortably large bit. Ryan clears his throat and asks a question, clearly looking for a little more from the Jets: "What about price, efficiency and carbon benefits?"

"Efficiency varies but is an improvement on the traditional stove.  Prices vary also. Carbon monetization is hit or miss, since some of us Jets are too small to handle the paperwork or afford the consultants. But the main thing here is that we're  all local and..."

"Thank you Jets.  What does the audience have to say?

A few voices with a few banners high up in the forum jump up and shout: "We may be small but we're self sufficient." They get to say this a few times but then the rumble of the larger crowd begins to swell:  "Scale...Scale... Scale, Baby, Scale".

Unidentified Announcer: "Ryan has quieted the crowd and has announced the two call-in numbers: 1-800-SCALE or 1-800-LOCAL and has asked callers to give a reason or two for their choice.  That's it from here at Development Idol. Until next time..."  Cue music and logo.

The NextBillion.net team is proud to announce the addition of our newest member: Staff Writer Phil LaRocco.

Phil LaRocco is the founder of E+Co, the leading practitioner of the enterprise-centered model of investing in energy businesses in developing countries. Until his retirement in April 2009, LaRocco also served as E+Co's Executive Director and CEO.

Since 1998, E+Co has invested in more than one hundred and fifty enterprises and mobilized more than $152 million of capital. These enterprises provide modern energy to 3.4 million people; save 462,000 tons of firewood and charcoal; displace $18 million of fossil fuel; and offset 13.2 million metric tons of carbon dioxide over the life of E+Co's investments.

E+Co, a not-for-profit, public purpose investment company, has offices in Bolivia, Brazil, China, Costa Rica, Ghana, the Netherlands, South Africa, Thailand and the United States.

LaRocco has over thirty years of international experience. Until 1990 he served as the Director of World Trade and Economic Development for the Port Authority of New York and New Jersey with responsibility for the World Trade Center (NY), a network of trade development offices and a portfolio of industrial development and waste-to-energy projects. He was awarded the Port Authority's Distinguished Service Medal in 1990.

Phil focuses on strategic planning, financing structures and the creation of practical, hands-on training materials for entrepreneurs, financial professionals, development practitioners and policy makers. More than 800 entrepreneurs in over thirty developing countries have been trained through the efforts of E+Co and its partner organizations.

LaRocco's key qualifications and areas of expertise are the creation of innovative financial mechanisms; energy finance and analysis; SME business development and planning; public-private partnerships; capacity building for entrepreneurs; development of tools and training materials as well as teaching and training trainers; and global-regional energy analysis.

Welcome, Phil!

The Legatum Center for Development and Entrepreneurship at MIT recently opened its 2nd Annual Photo Contest to amateur and professional photographers. The Legatum Center - which we've written about before - was founded on the belief that economic progress and good governance in low-income countries emerge from entrepreneurship and innovations that empower ordinary citizens.

In contrast with images that show only the most devastating aspects of life in low-income countries, Legatum's contest looks for photos that capture stories of entrepreneurial activity and demonstrate innovation and empowerment. The contest helps Legatum present a new vision for development – one that is more dignified, one that is more optimistic, and one that inspires action.

This year's theme is Women's Entrepreneurship: Empowerment through Innovation.  The judges will look for photos that depict women in low-income countries engaging in entrepreneurial activities, and showcase transformative technologies and innovative uses of technology.

Through the photo contest, the Center will recognize the inspiring women entrepreneurs who have broken down the barriers, and showcase their positive images of progress.

For details on the contest, including how to enter, the prizes (including $500 to the winner!) and the judges, check out the contest page on Legatum Center's web site.

Like Alvaro Rodriguez, Gil Crawford will be at the Social Capital Markets Conference this coming September. Mr. Crawford is the Chief Executive Officer of MicroVest Capital Management and is responsible for leading the company's investment, business development, operations and strategy.  He led the launch of MicroVest I, LP, the first commercial private equity vehicle focused on microfinance in North America.  He has over 20 years experience with microfinance institutions and capital markets, and has worked extensively in Latin America and Africa, as well as in Asia.

Previously, Mr. Crawford worked for the Latin American Financial Markets Division at the International Finance Corporation (IFC), created and ran Seed Capital Development Fund, and was the Assistant Project Director for Africa Venture Capital Project.  Mr. Crawford received his bank training at Chase Manhattan Bank in the mid-80's after working in Africa for the Red Cross and State Department. He graduated from SAIS at Johns Hopkins University in 1983 and Bates College in 1980. Mr. Crawford is currently on the Board of Directors for DC Central Kitchens.

Gil kindly agreed to answer NextBillion.net's questions about his participation in the upcoming SOCAP Conference in San Francisco, for which NextBillion readers have a special 30% discount in registration.

NextBillion.net:   Where do you think the social capital space is now, in 2009?  Where do you see it going in the next 12-18 months?

Gil Crawford: The framework that describes the 4 phases of industry evolution (by Jessica Freireich and Elizabeth Fulton at the Monitor Institute) is very helpful to understand where the different social investing sectors are today and where they are headed.  These 4 stages are (i.) uncoordinated innovation, (ii.) marketplace building, (iii.) capturing the value of the marketplace, and (iv.) maturity. (Editor's note: The framework is described in Monitor Institute's report "Investing for Social and Environmental Impact")

On one hand, microfinance has entered the third stage.  Many microfinance institutions (MFIs) have developed effective and efficient models while maintaining healthy growth.  This has helped them to become profitable and begin to attract commercial funding.  I expect the sector to continue attracting commercial funding over the next year or so.

On the other hand, many other social sectors, such as education, affordable housing, energy provision, etc., are in the first and second phases of uncoordinated innovation and marketplace building.  Individual businesses and organizations are still in the learning process to find effective and efficient models in order to attract the commercial funding that microfinance has achieved.  Over the next 12-18 months, I expect to see the market building process continue in these sectors.  Development finance institutions and other mission driven organizations have a great opportunity to play the role of accelerating this process by funding these sectors, just as they did in microfinance 10-15 years ago. 

NextBillion.net: What is different about SOCAP versus other conferences?

Gil Crawford: SOCAP has a very strong online presence that is carried through all year long. 

NextBillion.net: What useful lessons / connections came out of SOCAP08 for you?

Gil Crawford: Katherine Fulton's keynote address highlighting the 4 phases of industry evolution was very inspiring and useful. 

NextBillion.net: What are you hoping to get out of the conference this year?

Gil Crawford: I'm hoping to increase awareness of the challenges facing the Bottom of the Pyramid (BoP) and ways to overcome these challenges using the lessons we learned through building the microfinance sector.

5.    Which plenary, panel or speaker are you most looking forward to?

Sonal Shah's keynote address and the panel I'm speaking on, "Beyond MFI".

This post was contributed by Sarah Perrine on the ground in Bulgaria and Brian Murray (bio below) in New York. 

Guest blogger Sarah Perrine has been involved with Bulgaria's Roma community for ten years, first as a Peace Corps Volunteer, and later in a variety of professional and academic capacities.  She has an undergraduate degree from Mount Holyoke College and a dual Master's in Public Policy and East European Studies from the University of Michigan.  After working in Washington, DC with USAID and the Department of State, she returned to Bulgaria to serve as Director of Programs for the Disadvantaged with the America for Bulgaria Foundation.

In 2004 a colleague tried entering a café in Pazardjik, a Bulgarian town located on the old Orient Express train line between Istanbul and Sofia.   As an American whose family originally hailed from India, she didn’t have time to say a word before the proprietor shuttled her out the door.  It was a case of mistaken identity—the owner thought our friend was Roma, not American. 

This scene plays out daily all over Eastern Europe for Roma (also known as gypsy, gitano and tsigani) who are denied service at cafés, restaurants and stores.  It underlines the complicated relationship—one checkered with mistrust and misunderstanding—between the Roma and many of the communities they live in.

Like its neighbors, the Bulgarian government, with the assistance of the European Union and foreign aid organizations, has made some progress in its attempts to incorporate the Roma into the mainstream economy.  But it is still falling short.  Moreover, traditional capital markets have failed to bring jobs and opportunities for communities on the bottom of the economic pyramid – forcing both Roma as well as ethnic Bulgarians to look abroad for work.

The importance of identifying solutions that are sustainable and replicable – either in the public or private sectors – has never been more imperative.  The statistics are unsettling.  The UNDP issued a comprehensive report on Roma in Central and Eastern Europe that found Roma minorities were living in “third world conditions” with Roma scoring as low on the HDI index as some countries in Sub-Saharan Africa.  More than four out of 10 have no access to running water and infant mortality is high.  In many Roma neighborhoods, unemployment stands at around 80-85% and at least 18% of the population is illiterate.   The list goes on and on.

The bottom line is that Roma poverty has multiple and interrelated causes.  It is linked to social exclusion, but is reinforced by low educational levels and limited opportunities in Bulgaria’s new, market economy.

Despite these challenges, market forces can be used to improve the lives of the Roma.  For the purposes of this blog post, we will highlight an energy company’s remarkable efforts in one of Bulgaria’s largest Roma ghettos.  By taking the time to learn about their customer and adapting to the community’s needs, they were able to both profit as a company as well as challenge conventional thinking about the Roma.  We believe that these lessons are replicable and necessary to ensure the delivery of basic services to disadvantaged Roma communities.

In 2004 EVN, an Austrian-based electrical distribution company, purchased the electrical distribution system in Southern Bulgaria.  Prior to 2000, production and distribution of electricity in Bulgaria had been managed by the State National Electric Company (NEK) and in 2000—as a result of the restructuring of NEK—seven distribution companies were established.  EVN soon discovered that one of its greatest challenges would be faced in Plodiv’s Stolipinovo  neighborhood.  With 40,000 Roma residents, Stolipinovo resembled a small city.   However, with more than half of its residences illegally and haphazardly constructed, Stolipinovo lacked the status that would have entitled it to municipal services-- leaving it an isolated shanty-town on the perimeter of society.

In the context of Bulgarian society, Stolipinovo is a recent development.  During Communism, public utilities were heavily subsidized and relatively inexpensive.  Moreover illegal settlements such as Stolipinovo did not exist.  Roma were largely housed in public housing blocks or on agricultural cooperatives.  However, after democratization a resurgence of nationalism combined with soaring unemployment led many Roma to crowd into these settlements on the edge of larger cities and towns.  They constructed illegally zoned houses next to legal apartment blocks.  As more families crowded in from the villages, these neighborhoods quickly became ghettos.

By the year 2000, the situation in Stolipinovo had become quite volatile.  A number of political parties were provoking unrest and manipulating the Roma electorate—promising free electricity for votes.  Many families stopped paying based on these promises.  Moreover, illegally constructed houses were unable to connect to the power grid, as they did not possess the requisite paperwork to prove their residency.  So instead, they began illegally tapping into neighboring power sources.

The consequence was devastating for Roma-Bulgarian relations.  As the economic situation worsened many Bulgarian families, who also found it difficult to pay their monthly bills, grew bitter over reports that Roma families were getting electricity for free.  Tensions rose and the amount of electricity lost in Stolipinovo grew, leading the State to decide to cut the whole settlement off.  Roma families rioted, the police were brought in, and violent clashes ensued.  Not knowing how to contain the situation, the State determined to regulate power supplies.  They kept the electricity off during the day, but began turning it on for a few hours each night.   While this helped Roma families meet their basic needs, it continued to nurture a feeling among Bulgarians that Roma families were receiving privileges and benefits that they themselves were not entitled to.  Not only that, but Bulgarians complained that they were being forced to pay for Stolipinovo’s free electricity.

EVN inherited this situation.  According to EVN’s General Manager Stefan Szyszkowitz, at the time they acquired the electrical distribution company they were collecting only 3% of all payments in Stolipinovo and losing 40% to technological losses, primarily due to illegal tapping.  The territory they were supposed to serve in Stolipinovo was quite large—4.5 km².  5,500 families were connected to the grid, but 2,000 facilities were still unconnected.  More than 56 GWh of electricity were being consumed each year.  Moreover, the settlement’s 187 km of electric lines and infrastructure were in very bad condition.  Finally, the residents of Stolipinovo had accumulated nearly 8.74M USD of unpaid debt.

EVN knew that it had to act.  Their incentive was not only financial, though the economic loss was clear.  They also knew that they needed to establish their reputation as a long-time partner in Plovdiv and that the way to do this was to meet the challenges presented by the local and state authorities head-on.

Their first step was to develop a technical solution.  This took nearly two years to develop.  EVN created a distant reading system to measure consumption from afar as well as a remote control, which would allow the company to switch off and on the electricity for individual residences—rather than the whole community—in response to their failure to pay bills. 

Most importantly, EVN also took time to get to know its customer base.  Whereas the local government was unable to clarify its aims and had never taken the time to survey its customers, EVN worked closely with the Open Society Institute  and other actors well-acquainted with the Roma community to locate and address respected local leaders.  They set up community meetings with these leaders, during which they discussed customer concerns and obstacles to payment.  They also discovered that many families lacked the experience necessary to understand the cost and worth of electricity since this utility had been heavily subsidized by the State during Communism.  

The neighborhood also lacked other public utilities—notably central heat and hot water—which meant that Roma families were over-relying on electric stoves and heaters.  This resulted in significantly higher costs each month, compared to the average Bulgarian household.  Roma families responded to monthly bills with a great deal of skepticism, doubt, and irritation toward the electric company.  Through pamphlets, talks, and information sessions, EVN worked with local residents on strategies to reduce the consumption of energy, to improve insulation of windows and roofs, and to decrease monthly costs.

EVN also hired five local Roma residents (each chosen by a different community leader) as direct employees of EVN, tasked to maintain open channels of communication with the community.  These five employees still work actively in the community, answering questions and concerns regarding bills, meter readings, etc.

A variety of challenges were identified during these community meetings.  To start off with, residents initially addressed the installation of meters perched on high poles.  This was a daily reminder to Roma living in Stolipinovo that the State did not trust them and had classified them all as ‘thieves’.  Moreover, the meters were so high that they could not read them, so they were always unaware of how much electricity they were consuming.  They asked EVN whether they might lower the meters, and after extensive discussions and commitments on the part of community leaders, EVN agreed.  The Austrian-based company hired a local security team to monitor and protect the meters, but only after winning consensus from within the community that this was an acceptable option.  In the three years that this program has been implemented, there has been only one attempt to break into a meter.

The next identified challenge concerned the payment of bills.  Stolipinovo is located on the outskirts of Plovdiv and is isolated from the mainstream community.  This means that Roma found it very time-consuming (and sometimes cost prohibitive) to utilize public transportation to pay their bills in EVN’s central offices.   Residents asked whether they might have the option to pay their bills within the community, and EVN responded by opening two branch offices for the payment of bills in Stolipinovo.  They conducted an aggressive recruitment campaign within EVN and located several high-performing employees who expressed interest in working in Stolipinovo and who demonstrated above-average capabilities to work in difficult situations.  As a reward, these employees were granted a bonus.  To date, they have been highly effective in their interaction with customers, particularly in describing to customers why their bills might appear high and in providing suggestions on how to lower their energy costs in the future.

The third and perhaps most complicated obstacle concerned legal restrictions that prevented EVN from hooking illegal homes up to the power grid.  Despite the illegal status of these homes, many had been in existence for 10-20 years and housed large families with young children.  Most importantly, their inability to connect with the grid was resulting in 40% of EVN’s technological losses—which was not the kind of loss the company could afford.  So, it worked closely with the municipality to discuss the merits of connecting these homes to the power grid and eventually won sufficient public buy-in to utilize a minor provision in the ordinance that allowed these families to be legally connected.

The most important challenge concerned the 8.74 M USD debt that Stolipinovo had accrued over the past two decades of privatization.  EVN, after internal deliberations, acknowledged that this debt paled in comparison to the anticipated impact of future losses.  EVN toyed with the idea of wiping out the debt entirely and starting anew, but it soon became apparent that this path would create a great deal of tension and understandable resentment on behalf of Plovdiv’s Bulgarian residents.  Discussions within the community indicated that while asking Roma families to pay off the entire debt would prove overwhelmingly prohibitive, most were willing to try to pay a small amount toward the debt each month. 

So, a compromise ensued.  EVN, with the help of community leaders within Stolipinovo, settled on an amount that it believed families could reasonably afford and, with the agreement of the Roma community, decided to add this amount to each monthly bill for the next five years.  In this way Roma families demonstrated their desire to pay off old debts to the greater community.

Finally, the last obstacle concerned the poorest families living in Stolipinovo.  In order to get initially connected to the power grid, a residence was required to pay 321 USD.  However, this cost proved prohibitive for some families.  In response, EVN started the realization of a pilot project together with Open Society Institute and MICROFUND, a financial institution that gives small loans to poor families to help them pay the start up cost.  This loan is repaid within the course of one year.

The result of EVN’s efforts has been dramatic.  While they inherited a collection rate of only 3%, they are currently collecting over 85%.  Similarly, technological losses are down from 40% to 5%.  Around 6,400 residences are currently connected to the grid, and 3,800 agreements are in place to pay off old debt.  17 transformer stations have been renovated, and 185 km of electric lines and infrastructure have been changed.  EVN invested nearly 3 M USD in Stolipinovo, but the projected benefit far outstrips this cost.

The program has proven so successful that EVN has begun to implement it elsewhere throughout Southern Bulgaria.  26,000 customers have benefited, with an anticipated additional 4,000 in the year to come.

While this is a great example of the power of successful public-private partnerships and the commitment of one company to overcome a complex challenge, it also underlines the importance of listening to your customer – in particular in lower income communities where buy-in and cooperation is critical to success.

The talks from the recent Bankinter Foundation Future Trends Forum "Reinventing Support for Sustainable Development" have been released on Foundation's website. I had the chance to participate in the Forum and listen to great presentations delivered by relevant folks in the base of the pyramid world, like Maria Blair, Jocelyn Wyatt, Nishant Lalwani, Andrew Wolk, Chris West and others.

I encourage you to visit Bankinter Foundation's website and join the conversation about social innovation. A publication with lessons and take aways from this last Forum will soon  be published and we'll be sure to keep you informed when that happens.