Newsroom

By Shloka Nath

On a rainy afternoon at a five-star hotel in suburban Mumbai, Vikram Akula is making a fervent pitch to a group of potential investors in the enterprise he founded, SKS Microfinance (SKS). Akula and SKS chief executive Suresh Gurumani take turns at the mike to impress on the rainmakers the advantages of investing in SKS, well on its way to becoming the world's biggest microlender. While their purpose is the same, the two men present a study in contrast. Akula, resplendent in his red kurta-pyjama, stands out against the dark-suited, ex-Barclays banker. While Akula tugs at the heart with his passion for the rural poor, Gurumani guns for the mind with staccato beats on operating margins, market share and return on equity.

On the stage, however, their rhythm is flawless. They tell the story of how SKS grew from a small not-for-profit with a mere 2,000 borrowers in 2001 to a vibrant company with 4.7 million customers in 19 states, a disbursement record of $1.8 billion and an outstanding loan book of $554 million. By any yardstick, these are impressive statistics. Given that 90% of India's 3,150 microfinance institutions have fewer than 10,000 customers each, this sort of scaling up is an investor's dream.

More importantly, SKS was one of the first to show that private capital could be harnessed to nurture sustainable livelihoods in villages. The company raised $153 million in equity capital along the way - a decisive show of harmony between the idealistic vision of Akula and the profit pragmatism of Gurumani.

Back at SKS, however, the two are not playing quite the same tune. The pressure from commercial capital for profit-linked growth is mounting and Akula must fight to save the social objective for which he founded SKS. The conflicts are now testing the very model of serving the poor through tiny loans and freeing them from the hold of loan sharks. "In my view, SKS right now is trying to reconcile its split identity and re-architect what the company stands for," says Anna Somos Krishnan, a former SKS executive and now executive director of Planet Finance India, an international NGO for the development of microfinance.

SKS, like the sector it represents, is at a crossroads today. The company is working to become the world's largest microfinance institution (MFI) next year by overtaking Muhammad Yunus' Grameen Bank with 8 million customers. SKS is also on the verge of becoming the first-ever MFI in India to go public: It could sell its shares in an initial public offer in the first quarter of 2010 and thus offer existing shareholders an opportunity to book profits. Internal conflicts couldn't have come at a worse time. Not only is the management divided on how to grow, but is also facing charges of overstretching and 'mission drift' - of losing sight of its customers in favor of profitability and investor targets.

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NewsHour correspondent Fred de Sam Lazaro reports on how India is trying to feed its growing population while maintaining the environment.

Watch the full video:

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According to C. K. Prahalad, a professor of corporate strategy at the Ross School of Business of the University of Michigan, corporations seeking to create new markets addressing the needs of the billions of poor people living at the bottom of the economic pyramid can — and should — use that effort to drive sustainability and innovation within their own ranks.

The primary lesson, said Mr. Prahalad in a recent telephone interview with Green Inc., is learning to “do more with less.”

Excerpts from that conversation follow.

Q. You recently co-authored a report on corporate sustainability and innovation for the Harvard Business Review. And you are well known for your writing on economic development at the bottom of the pyramid. How are these two topics related?

A. Consider that three to four billion of the world’s poor are aspiring to emerge from poverty and join the organized sector as micro-consumers and micro-producers. This change in the pattern of growth and trade and its impacts cannot be ignored. Even if our horizon is only 10 years, this will add strains on the environment that are hard to predict – be it water, energy, commodities, transportation.

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When Coimbatore Krishnarao Prahalad and his colleague Stuart Hart wrote an article on the bottom of the pyramid (BOP) in 1998, no management journal accepted it. Unconvincing, they said. In 2002, Strategy+Business agreed to publish it and that one idea changed the way multinationals thought.

Suddenly, everyone was looking at poor people across the world as a lucrative market. Prahalad followed his idea up with the bestselling title The Fortune at the Bottom of the Pyramid. The fifth anniversary edition of the book — with a new case study on Jaipur Rugs and CEO comments on the application of the concept — is due for release in October. In this interview with Forbes India, Prahalad talks about how the concept of the BOP has evolved over the years:

How have you seen your own idea of the concept evolve over the last five years?
There has been a big change in the acceptance of the concept. There have been significant efforts in many industries to tap micro consumers and micro producers at the BOP. Perhaps the most visible change has been in the wireless industry. Today 400 million people are connected in India. These are mostly micro consumers. There is competition to serve this market. The companies that are serving this segment are making significant profits and are valued highly as seen in their market capitalisation. Airtel has 100 million consumers.

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Imagine this: You are a budding and ambitious entrepreneur in your mid 30s and you are interested in healthcare or say Ayurveda, to be more precise. The best part is you are also sanctioned an appreciable fund to set-up a chain of Ayurveda centres across India. Sitting in your boardroom, you are thinking about the locations for your new centres. Which places are you likely to choose, keeping in mind that you have sufficient funds? Maybe a place where there are high-income group residents or where tourists flock, simply because you know that Ayurveda is more popular with foreigners or affluent residents than our 'aam janta'. Even if this answer does not match your imagination, it is not likely that you will have in mind, Mumbai-based Dharavi, Asia's largest slum, in your imagination!

Well, that is where Rajiv Vasudevan, CEO, of AyurVAID hospital chain begs to differ, as he has gone ahead and done exactly that! He opened a centre in Dharavi, as a part of his hospital-chain expansion plan. He aims to build a fortune from the bottom of the pyramid and that too through Ayurveda route. And the PE firm which is helping him to realise his vision is Acumen, which has invested Rs 4.5 crore in his pet project. Currently, AyurVAID has opened six hospitals in all, with the bed-strength totaling to 150.

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MIT Legatum Conference on Oct 2

The Legatum Center at MIT is holding its second annual conference on October 2nd, 2009 in Cambridge, MA. The Center's annual conference provides a forum for discussion of issues relating to entrepreneurship and international development. In 2008, the conference featured an unprecedented gathering of 5 Nobel Laureates in Economics, as well as entrepreneurs and innovators from around the world.

This year, the Legatum Center is hosting an address by Esko Aho, Prime Minister of Finland from 1991-1995 and Board Member and Executive Vice President of Nokia. In addition, the 2009 conference will feature three panels:

1) Entrepreneurship in low-income countries: This panel will include entrepreneurs from Africa and Asia, who will discuss their own enterprises and ways to promote entrepreneurship to further economic, social and political development.  In addition, a senior economist will provide an overview of entrepreneurship trends across the globe and the effects that new governmental policies can have on encouraging or hindering entrepreneurial efforts.

2) Internet innovations that empower citizens in the developing world: This year's technology focus is the Internet. With a special kick-off keynote by Sir Tim Berners-Lee, the inventor of the World Wide Web, this panel will look at specific internet-based services that have empowered entrepreneurs and ordinary citizens in low-income countries.  Speakers include the past president of Skype, a director from Cisco's Emerging Markets division, and a social entrepreneur who has leveraged the web to create job opportunities for people in the poorest countries of the world.  This panel will be preceded by an overview of internet-innovations across the developing world

3) Investors who fund ventures in Africa, Asia, and Latin America: The conference's third panel will begin with keynote remarks by Gururaj "Desh" Deshpande, founder and chairman of several prominent companies including Sycamore Networks, and a supporter of innovation and enterprise, especially in India. The session will include a detailed discussion with investors who lead some of the most innovative funds that support Small- and Medium- size Enterprises (SMEs) in low-income countries. Moderated by an African entrepreneur, this panel will explore the risks and rewards to these types of investments, what investors look for in a business plan, and how, given the financial crisis in the West, investing in the poorest countries in the world is now more appealing than ever.

Registration is now open / Seating is limited 

http://legatum.mit.edu/conference2009

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The 2009 Pioneers of Prosperity Caribbean program is pleased to announce that Bulkan Timber Works of Guyana has taken the competition’s grand prize. Alternative Insurance Company of Haiti and Totally Male Ltd. of Jamaica were also recognized. On September 11, 2009, ten finalists from seven countries across the Caribbean competed for a grant of US $100,000 to invest in the growth of their company, and the prestigious title of Pioneer of Prosperity.

The Honorable Orette Bruce Golding, Prime Minister of Jamaica, presided at the event and presented the grand prize.

From a highly competitive pool of 580 applications, ten Pioneers of Prosperity emerged representing some of the most innovative, dynamic businesses in the region. Each one of the finalists has already won a grant from the Multilateral Investment Fund of the Inter-American Development Bank (IDB) of US $40,000 and will be connected to a global network of technical expertise, potential investors, and other cutting-edge entrepreneurs.

“These ten entrepreneurs are role models for all of us. They built new distribution systems, found new and attractive markets, pay high and rising wages to their employees, and are outstanding corporate citizens of their respective nations. And they do this under challenging conditions-- never asking the government for favors, often beginning without specialized infrastructure or sufficient skills and abilities, but always with an eye to the future and their own self-determination ,” said Michael Fairbanks, co-founder and co-director of the Social Equity Venture Fund.

The Pioneers of Prosperity Awards Program is a global program made-up of regional competitions spanning the Caribbean, Africa and Central America. Seven countries participated in the inaugural Caribbean competition: Bahamas, Barbados, Belize, Guyana, Haiti, Jamaica, and Trinidad and Tobago. The program will launch in Central America on September 14, 2009.

Kenneth Hynes, Managing Director of the OTF Group who executes the global program offered the following: “We congratulate the 2009 Award winners and each of the finalists who all represent the best in Caribbean entrepreneurship. Each of them demonstrated the level of excellence, leadership and vision required to grow their businesses regionally and internationally. These entrepreneurs are important role models for others throughout the Caribbean wondering if they too can succeed in business.”

A distinguished panel of judges flew to Jamaica from around the globe to evaluate the firms. Judges included entrepreneur Willa Shalit; S.E.Ven Fund co-Director Andreas Widmer; Jamaican entrepreneur and Paymaster CEO Audrey Marks; 2008 Africa Pioneers of Prosperity winner Nicholas Nesbitt; and Inter-American Investment Corporation Deputy General Manager Steven Reed.

The Pioneers of Prosperity Program seeks to inspire a new generation of entrepreneurs in emerging economies by identifying, rewarding, and promoting outstanding small to medium size businesses who will serve as role models to their peers. The Program is sponsored by the Multilateral Investment Fund of the Inter-American Development Bank, the John Templeton Foundation, and the Social Equity Venture Fund (S.E.VEN Fund) and was conceived and initiated by Michael Fairbanks, a recognized entrepreneur and author in the area of enterprise solutions to poverty. Michael Fairbanks is a co-founder of S.E.VEN Fund. The program has also built a network of over 35 local partners throughout the Caribbean. Jamaica Trade and Invest co-hosted the Final Awards Ceremony.

A brief description of each of the winners follows:

Sandra Samuels of Totally Male Limited (Jamaica), a company she founded in 1994 which offers Jamaican professional men with a full aesthetic upgrading experience

Alternative Insurance Company, founded in 2001 by Olivier Barrau (Haiti) to provide a range of insurance products adapted to the local market and specific products aimed at Haitians earning less than $4 a day

Howard Bulkan of Bulkan Timber Works, founded in 1997 (Guyana) was selected as a maker of house building materials from sustainably harvested wood, including wall cladding, tongue & groove flooring, wall studs and rafters, for clients across the Caribbean.

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To get a sense of India's rural-urban union, drop in on a McDonald's restaurant in the southern state of Andhra Pradesh, where hungry customers scan the brightly lit menu panel above the counter and line up to place orders. The eatery, nestled in a busy shopping mall in downtown Hyderabad, is unique: Most of the youngsters flipping burgers and taking orders are not city slickers, but employees recruited from India's rural belly.

Take college dropout K. Bhargavi, 23, whose widowed mother runs a roadside sweet shop about 90 miles away, in Warangal, a district known for its granite quarries. The young McDonald's staffer had never ventured out of her village until just over a year ago, but now earns US$100 a month for nine-hour daily shifts at the golden arches -- an increase from the US$34 she made keeping accounts for self-help groups back home. Bhargavi wants to save enough money to go back to school in two years and then settle down in an arranged marriage. "I am happy I came here," she says. "I can now plan my life."

For people like Bhargavi, there is no economic downturn, because they are being snapped up by India Inc. Rural recruits account for 70% of the employees at McDonald's restaurants in southern India today. Other big rural recruiters range from international firms such as IBM, Adidas and Vodafone to home-grown ones like telecoms giant Bharti Airtel, private-sector bank HDFC, and retailers Pantaloon and Aditya Birla Group. These companies are increasingly relying on rural India to staff their front and back offices in urban and semi-urban towns, but what's unusual about this rural regiment is that they are not just trained, but also placed in their jobs by a public-private partnership called the Employment Generation & Marketing Mission (EGMM), headquartered in Hyderabad. The EGMM takes responsibility for the short-term training, while ensuring employment for each of its young job-seekers.

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Groupe Danone, the $18-billion French dairy company, is understood to be exploring a strategy for India which will leverage on its experience in Bangladesh.

One of the things Danone is studying is to enter with an affordable initiative, what it internally calls a bottom of the pyramid one. Danone has a joint venture with The Grameen Group in that country, from early 2006, with a focus on easily affordable dairy products.

The Grameen Danone Foods model relies on the creation of independent business and job opportunities in the farming, processing and sales and distribution sectors. To ensure sustainability of the initiative, an emphasis is on providing micro-financing solutions with adequate professional training to local communities that will engage in business with the project.

The equally-held joint venture focuses on providing daily nutrition to low income, nutritionally-deprived populations in Bangladesh and also alleviate poverty through the implementation of a proximity business model. Company officials say the India dairy strategy is in its early days and it will try out its Bangladeshi experience to make a real business model.

These moves are part of Danone’s strategy to increase focus on emerging markets, from which it derives a third of its sales. A decade earlier, Danone realised 90 per cent of its sales in developed countries. Danone is present in four businesses — fresh dairy products, the packaged water market, baby nutrition and medical nutrition. Danone already has an equal joint venture with Yakult Honsha to develop the Indian market for probiotics. This joint venture has invested close to Rs 150 crore for a manufacturing unit and has been increasing its presence in India in the recent past.

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In India, the economic crisis may actually be good news.

During the salad days of the past decade, India's entrepreneurs grew fat selling gas guzzlers and palatial homes to the country's new rich, while ignoring the needs of the biggest segment of Indian consumers: the poor. It was an expatriate Indian, the University of Michigan's C.K. Prahalad, who first posited that there were millions to be made selling to the "bottom of the pyramid."

Now that's starting to happen.

The rich aren't buying, and Indian businessmen are finally starting to look at the teeming masses as something more than cheap labor. The result could be the solution of some of India's most persistent problems -- an abysmal housing shortage, chronic underemployment and an unsustainable rate of rural-urban migration, for instance.

"The slowdown was a great thing to happen to India," affirmed management consultant Harish Bijoor, who said the downturn has encouraged companies to look beyond the "low-hanging fruit" in the urban market to the vast multitude of consumers in India's rural heartland -- which still accounts for more than two-thirds of the country's population and some 60 percent of its gross domestic product.

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