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Business Weekly
Potential at bottom of
pyramid
K S Sreekumar
Thirty dollar cell phones, $30
cataract surgery, less than a cent for a minute of cell
phone time and a one cent sachet of shampoo may not be great
technological innovations.
But they are definitely new business innovations that have
been transforming most of Asia and a lot of Africa.
In Africa Celtel and MTN are two of the fastest-growing
local companies and people are finding a way to buy cell
phones and use them because they improve their lives.
In India, once upon a time, the poor were seen as a burden.
Converting the poor into micro-consumers and micro-producers
- recognising the fortune at the bottom of the pyramid - has
changed the character of the economy, notes management guru
Dr C K Prahalad, author of The Fortune at the Bottom of the
Pyramid.
Yes, there are still 200 million Indians who live in abject
poverty. But the cell phone revolution, two-wheelers,
consumer finance, and consumer goods of all kinds are
fuelling the economy and changing people's lives.
Amul, ITC eChoupal, Jaipur rugs, EID Parry and Reliance
Fresh are showing us that we can creatively connect
subsistence farmers to regional and national markets.
Micro-producers thus can get a chance to improve their
livelihoods.
Why offer charity to the poor when we can make them good and
profitable customers, quips Dr Prahalad.
Making customers out of the poor is not as crazy an idea as
it seems.
There are many successful business cases that we can borrow
and adapt from like Grameen Danone Foods Ltd, which is a
50:50 joint venture between the Grameen Bank of Bangladesh
pioneered by Nobel laureate Muhammad Yunus and the French
multinational, Groupe Danone. They have partnered to produce
low-cost, high-nutrient yoghurt products for the poor in
Bangladesh!
Therefore, this unique sub-continent laboratory where the
poor are empowered with micro-finance and made good and
profitable customers, has caught the imagination of the
world.
No wonder Bahrain is seeking India's help in setting up
micro-finance schemes. "India has a vast experience in the
area of micro-financing, which has contributed to the
development of families belonging to low income groups,"
Bahrain's Minister for Social Development Fatima Al Balooshi
says.
The minister headed a seven-member delegation to India,
which included officials who had earlier interacted with
Bangladeshi micro-financing pioneer Yunus.
Bahrain has been in the forefront of poverty eradication
right from 1998 with its MicroStart initiative, which has
been able to help more than 2,000 low-income entrepreneurs.
The programme, which was funded with $1 million from the
Government of Bahrain and $500,000 from UNDP (United Nations
Development Programme), has been working with the Alexandria
Business Association, an international microfinance service
provider.
Before the programme started, the only way small-scale
entrepreneurs in Bahrain could get access to credit was to
approach relatives or bargain with shopkeepers to get
supplies on credit.
That changed and people began feeling more in control of
their business and proud that they could support themselves
and their family.
Around the world micro-finance is booming.
According to Deutsche Bank, the volume of micro-finance
loans hit $25 billion in 2007, up from $4 billion in 2001,
with another $250 billion still needed. The bank expects
private investors, drawn by the sector's social mission,
stable returns, low default rates and potential as a
diversification play, will be pouring $20 billion into
micro-finance institutions in 2015 - ten times more than
they did in 2006.
Many groups that started as non-profits have become
for-profit enterprises and a plethora of micro-finance
investment funds, targeted at institutions and individuals,
have opened in the last few years.
Citibank, Credit Suisse, Deutsche Bank, Morgan Stanley and
India's ICICI have all entered the micro-finance market,
either providing direct funding, backing investment funds or
securitising debt. Private equity investors including
Sequoia, Blackstone Group, Carlyle Group and Dubai's Legatum,
have also piled in, according to the World Bank's CGAP, a
micro-finance research group.
Meanwhile, in an effort to head off a potential crisis in
the fast-expanding micro-finance industry, its leaders are
adopting global truth-in-lending standards and creating a
system for comparing loan terms offered by competing
lenders.
To manage the effort, a new self-monitoring organisation,
Micro-finance Transparency, is being set up as the
industry's policeman. The goal is to prevent companies from
taking advantage of poor people with high interest rates and
misleading credit offers. The initiative was announced at a
micro-credit conference in Bali by Chuck Waterfield, a
professor at Columbia University who spearheaded the
initiative and Yunus, who launched the micro-credit
revolution in Bangladesh 30 years ago with his Grameen Bank.
"Micro-finance emerged as a struggle against loan sharks, so
we don't want to see new loan sharks created in the name of
micro-credit," Yunus said.
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