NextBillion.net - Development Through Enterprise - Guest Post: Show Me the Income - Comments

time is money, nothing new there

Michael Payne — Thu, 15 May 2008 17:28:32 -0400

I think the significance of the telecommunications infrastructure is that it drastically lowers the transaction costs for all kinds of activities. Not having to walk long distances is not about quality of life, it is income. If you are making a dollar a day and you don't have to spend a day walking into town and back, that's a dollar in your pocket. Obviously that's an oversimplification, but if someone doesn't have to take a day away from their labor or childcare responsibilities to investigate an opportunity they are much more likely to investigate it.

Thresholds lower - disagregating access from ownership

Franz Gastler — Wed, 14 May 2008 23:22:43 -0400

Sagar makes exactly the point I was grappling with before: the blurring of the line between 'BOP consumption' and 'BOP production'. Lowering the threshold to get connected to information allows a productive consumption, which goes to Sagar's point about this being an unnecessary distinction here, as it would be also for water, energy, housing, healthcare and credit--all similarly productive consumption opportunities. On the other hand, wedding parties, Fair & Lovely, junk food, alcohol and tobacco would be typical expenditures where lowering barriers to buy at the BOP wouldn't do much for development, and the consumer/producer distinction would remain.

It is an integrated approach

Sagar Gubbi — Wed, 14 May 2008 14:58:33 -0400

Ryan, Your post rakes up the age-old "BoP as a consumer" vs. "BoP as a producer" debate. I think this debate is unnecessary and it is actually a false dichotomy, as described by Rob in this NextBillion post dated 2nd August 2007: dichotomy.... The "unmet needs" of the people at the BoP are not just for consumption. BoP needs also include the ones that can trigger or improve income generation. Telecom connectivity, for example, can meet both kinds of needs. Microfinance is another such example, wherein loans are offered to the BoP for consumption but they are actually intended to trigger income generation. We cannot develop the BoP as a producer without offering consumer products and services to it. Similarly, we cannot offer products/services to the BoP without enabling income generaition. What we need is an integrated approach wherein BoP is developed both as a consumer and as a producer simultaneously and Allen Hammond's Transformative Sector Strategies have the potential to achieve that. Regards, Sagar

Income Generation Needs to be the Primary Focus

Judith Hellerstein — Wed, 14 May 2008 13:24:58 -0400

Ryan Gunderson is correct, the correct question to ask is how do you help people raise their incomes so they can afford to meet their unmet needs?"

We need to ask how can policy help the poor to get onto, and stay on, a pathway out of poverty? One way of doing this is by connecting the poor to opportunities. The rural poor do not merely lack capabilities; they lack the means of connecting to growth. Sometimes the missing connection is physical, but often it is only part of the equation. Other forms of connection matter too: poor households have more difficulty in accessing credit and have no access or limited access to financial services and banks that offer credit. Access to credit for the poor is a major constraint to accessing opportunities, including problems associated with collateral, complicated procedures and the inability to use one’s repayment record as an asset.

Other important questions to ask are whether these models will accelerate expansion of access to financial services? Will they lead to a broader access to financial services among the un-banked, especially for poor people living in rural or remote rural areas?

What particular needs does this segment have and how can they be met? What are the barriers to full adoption? Why do some people accept, reject, or delay accepting or adding services?

These are all very important questions that should be asked so that we can get answers that can really solve the problem and provide us with better ways of increasing income generation and making sure that once we start down this path we make sure that the poor stay on the express lane out of poverty and remain there. Without significant work on income generation this will not work.

Really...

Franz Gastler — Wed, 14 May 2008 10:15:06 -0400

Allow me to take a stab at this one. I'm sorry to be so blunt, but really the equation is rather simple. Information is money. Where access to information is monopolized by the few (e.g., moneylenders, slumlords, intermediaries in commodity agriculture, government procurers and functionaries), the bargaining position of the 'BOP' chap is severely hindered.

Restricting his or her access to information by default or design results in what Alex Nicholls at Oxford describes here as the poverty penalty: ‘[K]ey conditions … are notably absent in rural agricultural societies in many developing countries…’--Perfect market information, Perfect access to markets and credit, Ability to switch production techniques and outputs in response to market information. (Please see Chris Beshouri's great McKinsey Quarterly article: 'A grassroots approach to emerging markets business', ITC's famous e-Choupal, and its countless imitators).
TWO EXAMPLES: 1)I'm writing to you right now from Khan Market in Delhi, having paid Rs 80 (US$8 at PPP) for a coffee in order to get internet access (electricity outages and shaky broadband infra have cut my apt connection today)--that's one example that's close to home for me.
2) I need to send $400 to the states to someone who paid for a plane ticket after my credit card was pick-pocketed at the Pushkar Camel Fair. The banks want $30 on each side for a wire transfer.. After much badgering and comments like, 'This is 2008, right?' 'You're telling me this is how Indian businesspeople transfer money?', I was finally made privy to the information that I could just buy travelers cheques for $4 (which I would then courier for free through my employer).
(*Note: this is why the "Hawala" system of transferring money--which to the uninitiated would seem like entering the narcotics trade--proliferates even today among the rich; see also Basix cell-phone transfers and many others on NextBillion).
Thought experiment: My motorcycle is at the mechanic today, so I'm traveling via autorickshaw. If you don't live in Delhi, and wanted to take a rickshaw from Navjeevan Vihar in S. Delhi to Khan Market, how much would you pay? How would you determine an anchor price? How much time would you waste bargaining? How much is that time worth? What's the aggregated cost? Would you: a) wing it, b) call a friend, c) know about the rickshaw police line staffed by a call centre to make bargaining effortless, d) check the exact km on mapmyindia.com, or e) do as I did, and having done all the rest at some previous point in time, just hop in, bark out the destination in Hindi, drop two notes at the end and ask for the exact change again in Hindi.
Information is money, the utility of which increases exponentially with lower incomes.

I second your post, and then some.

Ellie Skeele — Wed, 14 May 2008 04:04:57 -0400

As a Nepal-based, serial social entrepreneur I'm often dumbfounded by the attitude that BoP is about a big, new market for products and services. BoP is not a market. It's people, people with little to no money. Yes, they want improved quality of life – health care, access to ICT – but they need money to buy these things. We must focus first and foremost on sources of livelihood and job creation. The rest of it feels a bit like a pyramid scheme to me. I am working to create a nettle textile industry in Nepal that has the potential to generate income for tens, possibly even hundreds of thousands of families. When we’ve accomplished this, only then will they be able to afford the goodies that money can buy, however reasonably priced they are. Right now subsistence farmers can only look and wonder. They cannot buy. I agree – show me the money!

Guest Post: Show Me the Income

Derek Newberry — Tue, 13 May 2008 09:29:16 -0400

Guest blogger Ryan Gunderson writes about sustainable, scalable solutions to end global poverty on his Riches For Good blog. A finance professional with an MBA from the University of Michigan's Ross School of Business and seven years of Fortune 500 experience, Ryan is transitioning to part-time work to allow him to pursue his goal of helping 1 million people out of $1-a-day poverty. He welcomes help in reaching his goal and can be reached at richesforgood@yahoo.com.

In this post, Gunderson responds to Allen Hammond's series on taking Base of the Pyramid models to scale. This week, NextBillion.net will publish responses from a number of BoP experts and practitioners, followed by a concluding post from Hammond.

By Ryan Gunderson

"The biggest reason most poor people are poor is because they don't have enough money." Why did Paul Polak find the need to write that embarrassingly obvious statement in a book? Because the development community has a long history of overlooking the concept. My initial reaction to Allen Hammond's series on transformative sector strategies is that he is perpetuating the common mistake of ignoring income generation. One of his sentences particularly strikes a wrong chord with me: "How do you meet the unmet needs of four billion people?" To me, the appropriate question is "How do you help people raise their incomes so they can afford to meet their unmet needs?"

Consider his phone example for a minute. Hammond shares a reasonable level of detail about how WiFi networks can be built relatively affordably in rural areas, theoretically at a profit to companies. (I will ignore for a moment that in his example he implies a regional government may be more interested than its for-profit partners in expanding its WiFi network). But Hammond does not talk convincingly, in my opinion, about how phone and Internet access will help raise individuals' incomes. He mentions that a phone user could solicit information about how to raise pigs, and he mentions that quality of life would improve from less walking.

(This post continues past the break; click "Read More" to continue)