16.04.2010–NikoBenjaminSpiegel

Doingbusinessforthepoor

Ruraldevelopmentandbo>omofthepyramidapproaches

ByNikoSpiegel

16.04.2010–NikoBenjaminSpiegel

Agenda

1

2

3

Thebo>omofthepyramidconcept

Twosuccessstories

Thecycleofruralpovertyandwaysoutofit

4 CashflowproblemsandsoluIons

5 Lessonslearned

16.04.2010–NikoBenjaminSpiegel

Thebo4omofthepyramidconcept

Improving the lives of the billions of people at the bottom of the economic pyramid is a noble endeavor.

It can also be a lucrative one.

C.K. Prahalad & A. Hammond

Claims of the BoP approach

The 4 billion people with a PPP below $2,000 have up to now been largely overlooked by MNCs. The BoP market offers 3 main advantages:

(1)  Immense growth potentials (2)  Reduced costs (3)  Innovation

Criticism

Aneel Karnani (2007) criticizes the BoP and describes several deficiencies in Prahalad’s assumptions.

(1)  Scalability is difficult (2)  Cost-quality trade-offs (3)  Exploitation

ClaimsoftheBoPapproach CriIcism

16.04.2010–NikoBenjaminSpiegel

Twosuccessstories

MYRADA (M ICROF INANCE ) THE AMULCOOPERAT IVE

•  Foundedin1946•  1.33billionUSDinturnover•  2.8millionmilkproducers

•  10.16millionlitersofmilkperday

•  TheAmulpa>ernwascopiedthroughoutthecountry,makingIndiathelargestmilkproducerintheworld.

•  Foundedin1968•  52.8millionUSDfundsundermanagement

•  9,253women’sself‐helpgroups

•  15‐20womenformaself‐helpgroupthatisboundbyaffinityandtrustamongthemembers.

•  Groupmembersmanagefinancesjointly.

16.04.2010–NikoBenjaminSpiegel

Thecycleofruralpovertyandwaysoutofit

Lackofcapital

Noinvestmentsintoassetsor

workingcapital

Dependenceonmoneylendersor

localmonopolies

Lowreturns Microfinance

CooperaIves

•  Powerfulmiddlemenareskipped.

•  ThecooperaIveisulImatelyownedbythefarmers.

•  Costsavingsarepassedontothefarmer.

•  Accesstocapitalatlowinterestrates.

•  LoanscanbeusedtopurchaseproducIveassets.

•  Groupaffinityservesascollateral.

16.04.2010–NikoBenjaminSpiegel

CashflowproblemsandsoluLons

MICROFINANCEINSTITUTIONS

•  Themonopolyoflocalmoneylendersisovercome.

•  Pre‐financingofcroppurchases.

•  CollateralmaybesubsItutedwithaffinitythroughgrouplending.

COOPERATIVES

•  Farmersreceivehigherpricesoncropsduetoskippingof“lastmile”traders.

•  CooperaIvescanincreasemarginsbystoringcropsunIltheendofharvestseason.

•  Sizeallowsforproductbranding.

cash

flow

s

time

KEYCHALLENGES

•  Se^ngtherightincenIves.

•  Dealingwithconflict,resistanceandexploitaIon.

•  Qualitycontrol.

16.04.2010–NikoBenjaminSpiegel

Lessonslearned

Bottom of the pyramid markets are complex.

Classical challenges (e.g. quality, incentives, conflict) reappear in unique contextual settings.

Finding the levers of poverty is key.

Joint ventures with NGOs can provide access to vital experiences in target markets.

16.04.2010–NikoBenjaminSpiegel

Backup1:Balancesheetofaself‐helpgroup

16.04.2010–NikoBenjaminSpiegel

Backup2:FinancialsustainabilityofSHGs

16.04.2010–NikoBenjaminSpiegel

Backup3:InterestratesofSHGsandassociatedbanks