What is life like at the base of the economic pyramid? How can social enterprises reach the people of the BoP at a scale that can generate widespread improvement in peoples' lives? Last Wednesday, a panel entitled "Measuring Life at the Base of the Pyramid: Scale and Leverage for the $2 a Day Population" addressed thesequestions; Rob Katz of Acumen Fund and Maya Chorengel of Elevar Equity provided an opportunity to examine these issues through a real world example.
Despite the title of the panel, Rob began the discussion by throwing out the traditional measurements for the BoP. Instead of focusing on income measurements like $1 or $2 per day, which often lead to unnecessary debate in the BoP space, Rob outlined three common challenges that are prevalent in BoP communities: artificially high prices, limited access and poor quality of goods and services.
In order to illustrate how creative social entrepreneurs can work with the BoP to meet these challenges and achieve the ever-elusive scale, Rob and Maya focused the discussion on Acumen Fund investee, D.light Design. D.light Design is seeking to bring light to the dark homes of the BoP. One in four people are not connected to the electrical grid and are often reliant on kerosene lamps to light their homes. These lamps are not only relatively expensive to fuel, but also pose a dangerous fire hazard. D.light developed the Nova solar-charged LED light as a safe, effective solution for home lighting. But with a $25 product and no distribution infrastructure, how was the company going to get these devices to the rural masses who needed them?
The Indian for-profit microfinance organization SKS Microfinance, an investee of Elevar Equity, seemed to be a perfect answer to D.light's two main problems: financing and distribution. Given that BoP customers were already spending 40 cents per week on kerosene to fuel their lamps, a microloan could be provided by SKS to finance the purchase. This loan could be paid off in just over a year without adding any additional costs to the customers. SKS also had a trusted relationship and "last mile connectivity" with its network of over 4,000,000 clients, many of whom could benefit from the Nova light. From SKS Microfinance's perspective, the Nova light provided the opportunity to extend the products it offers to its customers, leverage its strength in the rural market and create a new revenue stream. The synergies appeared to be there and the two companies agreed to conduct a pilot study.
According to Maya, the two soon discovered that the "devil was in the details." Part of the success of SKS was due to its highly efficient process for servicing customers. How much time were SKS loan officers supposed to spend marketing D.light lights? Were SKS officers trained properly to sell consumer products like lights? Given the somewhat bulky nature of the Nova lights, how were SKS employees supposed to transport the lights to the remote villages? The sale and distribution of lights was taking time and energy from SKS employees and it was unclear what compensation SKS should receive for this expense of time and energy. These questions still have not been answered and a broader D.light/SKS relationship remains in limbo.
The panel discussion was quite illustrative of the challenges of scaling to serve the BoP. It was clear that both Rob and Maya saw the great benefit that D.light's products could bring to rural villagers in India, but when wearing their investor hats the answers are not quite as simple. SKS has a duty to its investors, which not only includes Elevar Equity but also more traditional VC firms like Sequoia Capital, to ensure that any business arrangement generates a satisfactory return on investment.
Few organizations have the breadth and depth of channels to the BoP that microfinance organizations do. However, it is still to be determined whether MFIs in their traditional form are adequately equipped to distribute tangible products on a large scale. While SKS works to figure this out, D.light is left looking for other bright ideas to bring light to the homes of the BoP.