In my previous post about Anand Jaiswal’s article, Erik Simanis left a comment adding one more critique to the approach to BoP markets from a producer/consumer framework. In this critique he refers to an article, “Beyond “Basic Needs Business Strategies” that he recently coauthored with Stuart Hart and Duncan Duke. This article offer a very good overview of the current approach that is being developed in their Base of the Pyramid Program and that, by extension, lays the groundwork for their BoP Protocol Initiative. It is written in a clear and concise language, so would I strongly suggest anyone interested in their work to take a look at it. (And for those who want to get a better feeling of what he means, do check out Robert Katz’s interview from last April).

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Some time ago, we at NextBillion had the pleasure of facilitating a debate about how - and how much - bottom of the pyramid strategy can improve the plight of the poor. The University of Michigan's Aneel Karnani wrote a very insightful paper critiquing various points about the BoP proposition. This paper then received a response by Michigan's C.K. Prahalad and Al Hammond (then at WRI; now at Ashoka).

Recently, a new critique was published by "Innovations: Technology|Governance|Globalization", a journal we have praised already here. The critique, entitled "The Fortune at the Bottom or the Middle of the Pyramid?" is authored by Anand Kumar Jaiswal, from the Indian Institute of Management in Ahmedabad.

As I read his paper, I found myself agreeing with many of his points, similar to when I read Karnani’s publication. This is because Jaiswal, like Karnani, doesn't refute BoP strategies as a means to approaching poverty problems, but rather contends that reality is sometimes more complex than theory, which is why I find it refreshing to read such articles.

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What defines a Base of the Pyramid (BoP) business? Here at NextBillion.net, our goal is to identify and discuss sustainable business models that address the needs of the BoP.

We have had many debates about the size, total income and expenditure of this group. NextBillion is currently hosting some debate about what development means. At the same time, we've been thinking about the role and importance of BoP businesses within the development community thanks to Michael Edwards' criticism of 'philanthrocapitalism'. But what exactly do we mean about when we talk about BoP businesses?

Everything BoP is currently in fashion. The 'BoP business' term is catchy, but unfortunately it has no easy or clear-cut definition. That BoP business initiatives are currently so popular is, of course, a wonderful thing. All of a sudden, people want to consider alternatives to traditional, top-down development.

On the other hand, being fashionable is also dangerous. We – the base of the pyramid movement – risk forgetting the big picture. We're involved in a debate that more and more people are joining, and in the process, we risk diluting the meaning of what BoP businesses truly are.

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Our regular NextBillion readers will already know that the MIT is one of the most important universities in the base of the pyramid arena. Some of their most important initiatives are the Legatum Center for Development and Entrepreneurship, stimulating bottom-up entrepreneurship fueled by innovations, and the Lemelson-MIT Awards, recognizing the impact that inventors can have on economic and social well-being.

In these and other cases, MIT's strategy has been to apply its engineering prowess to try to solve BoP problems in the shape of technologically-adapted inventions.

Now, MIT has launched a Next Billion Network to deploy innovative mobile technologies that can help people reduce friction in their local markets from the bottom up. This approach is based upon the belief (which I share) that mobile phones, by enabling increased connectivity, can offer new opportunities for low-cost, sustainable solutions in the BoP.

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This is part 3 of our series reviewing Michael Edwards' Just Another Emperor and the concept of 'philanthrocapitalism'. Follow the links to read part 1 and part 2.

Recently, there has been some debate surrounding business involvement in philanthropy and its usefulness after the publishing of “Just Another Emperor?” last March by Michael Edwards. Michael Edwards, Director of Governance and Civil Society at the Ford Foundation takes a critical look for the first time at a relatively new phenomenon: using sustainable business tools and models to solve poverty problems. NextBillion.net’s core content (and passion!) deals exactly with these issues.

Constructive criticism is always welcome, especially if it is from someone who has worked at Oxfam, Save the Children and the World Bank. In the fight against poverty, Edwards makes a distinction between government, civil society and what he calls, philanthrocapitalists. According to him this last group is made of market agents that claim to be able to solve social problems through business approaches alone. Edwards states that, although these approaches are important, they are very difficult to operate successfully at scale and that they usually experience some trade-offs between their social and financial goals. Furthermore, he argues that civil society might be being damaged by these trends.

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This is exactly the same question that was asked by the World Bank last year and I have recently had the chance to read their subsequent report “Unleashing India’s Innovation”.

All in all it was an interesting reading with a complete analysis of the main innovation levers in the country, although sometimes I felt it was much too vague in its recommendations.

India is becoming a global innovator for high-tech products and services. However, it is well-known that the country is underperforming relative to its real innovation potential. This is quite puzzling taking into account the fact that India's stock of scientists and engineers engaged in Research & Development (R&D) is among the largest in the world.

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Remittances - transfers of money from foreign workers to their home countries - have been a critical means of financial support for generations. These flows have generally been conducted away from formal markets. However, as more and more workers move abroad, the volume of remittances sent back home has grown and thus become an important flow of foreign currency in many countries.

Earlier this year, the International Monetary Fund published a working paper about the evolution of capital flows to Low-Income Countries (LICs). The paper sheds light on the increasing importance of remittances in development. Although the working paper is based on shaky data (on the admission of the authors), it calculates that total capital inflows to LICs increased from 4% of LIC GDP in the 1980s to more than 10% for LIC GDP by 2006. All the net growth in these inflows is due to private sources, while official inflows remained unchanged at roughly 2% of LIC GDP.

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Many regular NextBillion.net visitors will have noticed that the News Section has been nearly monopolized of late by news about the takeover battle surrounding mobile operator MTN, followed by a lull in events. For those who have not had the time or patience to track this news, what follows is a summary of what has happened and why it is so important to those of us interested in the base of the pyramid.

MTN is a mobile phone operator backed by the South African government, with 68.2 million customers in more than 20 countries and a market value of $33 billion. Its largest operations are in South Africa, Nigeria and Iran. On March 20th, MTN announced that it was looking for acquisitions and would consider targets outside its existing territories in Africa and the Middle East. That same day, MTN reported revenues of $9 billion for 2007 and an EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization) of $3.9 billion, both of which were 42% more than the previous year. The group's total number of customers increased 53% year-on-year to 61.4 million.

Why did MTN start seeking a potential acquisition?

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Most of NextBillion's visitors have heard about the current jump in food prices. These higher prices have already triggered responses locally in the form of riots in countries such as Haiti, Egypt and Bangladesh. The OECD and FAO have recently issued a report predicting that food prices have moved permanently to higher levels compared with past prices (the Financial Times offered an advance of the study's highlights some time ago). Although the reasons for this trend are beyond the scope of this post I suggest readers who are interested read this article.

In this post, I would like to explore the likely effects of higher food prices on the budgets of Base of the Pyramid consumers. An argument widely heard these days is that such food rises at least might improve the plight of poor farmers in developing countries, however, a recent study (which due to lack of data available includes only 16 countries) from the World Bank claims otherwise.

Price increases have a negative effect on urban areas since they are net buyers. In most rural areas, the effects are negative too. The overall impact in rural households is negative since possible benefits depend not on what they produce, but on the net sale of these goods. Often rural households have to acquire other goods for which the price has risen too, so the increased income is more than offset by the other price rises.

Most poor people are net consumers of food, and not net producers.
The only exceptions might be rural Peruvians thanks to high maize prices and rural Vietnamese thanks to high rice prices (although the Vietnamese government has set restrictions on rice exports to keep national prices under control).

At any rate, in every country taken into account by the authors of the study, the poverty rate increases and people who were already poor are made even poorer by high food prices.

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The International Chamber of Commerce (ICC), the United Nations Development Programme (UNDP), and the International Business Leaders Forum (IBLF) have opened nominations for the 2008 World Business and Development Awards in support of the Millennium Development Goals (MDGs).

The awards recognize the contribution of the private sector to help achieve the MDGs through their core business. Recent winners of these awards have been De Beers for its HIV/Aids programme, ITC eChoupal and Procter and Gamble's PuR water purifier.

The MDGs are eight goals that promote poverty reduction, education, maternal health, and gender equality, and aim to combat child mortality, HIV/AIDS and other diseases (for more information click here). The World Business and Development Awards is one of the central events this year that will recognize the key contributions of the private sector to achieve the MDGs.

The deadline for nominations for the World Business and Development Awards is 15 June. Companies, institutions and associations of all types and sizes are invited to participate by nominating projects that document business activities leading to progress in achieving one or more of the MDGs. The winners will be announced on 24 September during a presentation ceremony in New York.

For more information about the awards, including eligibility criteria and nomination forms, please go here.

This weekend I had the chance to read CGAP’s new report about branchless banking. The report is a short summary about the current state of the branchless banking market. To those readers who do not know anything of the market it is an easy introduction. To those readers who have been following the sector in recent months, it offers a good peek into the future of what branchless banking may become and what it needs to get done.

The paper lists off seven key observations about the current state of the market, in addition to four uncertainties about how the market will develop and four predictions. In my opinion, most of the seven observations are already well-known. Still, these known knowns are nicely and succinctly explained. Many of these observations were brought up during my interview (see part 1 and part 2) with CGAP’s Mark Pickens.

In my opinion, the most important observation of all corrects the common misconception about poor unbanked people being offered this service. CGAP estimates that in fact less than 10% of branchless banking customers are poor and unbanked. However, CGAP also predicts that poor people will end up using mobile banking more than rich people in about three years, when the market matures and competition increases.

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We live in a world obsessed with growth. According to the National Bureau of Economic of Research (NBER), there have been only four recessions in the US since 1980. Between March 1991 and March 2001, the US experienced the longest economic expansion in its history. It comes, therefore, as no surprise that BoP experts seem to be concerned only with applying BoP lessons toward stimulating growth. In this post, I would like to suggest the possibility of using BoP knowledge as a palliative action in places that are experiencing extreme hardship and as a first step towards returning to normalcy.

One of the defining characteristics of BoP markets is the lack of connections with global markets. This lack of connections results in smaller markets with fewer competitors and higher prices. Furthermore, BoP markets suffer from a lack of infrastructure, efficient bureaucracy and the legal, political and economic certainties that are normally provided by public actors. Now, what happens in an area afflicted by disaster or violence where some or all of these variables are totally non-existent? Would BoP lessons be applicable in these cases?

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Mark Pickens is a Microfinance Analyst with the Consultative Group to Assist the Poor (CGAP), a global resource center for microfinance housed at the World Bank. We published the first part of the interview here on April 4th. CGAP are arguably the most authoritative source of information about branchless banking services and are currently in the forefront of research efforts to understand and develop this market.

Mark has co-authored a global review of regulation for mobile- and other forms of branchless banking, forming an evidence base from more than 500 interviews with central bankers and executives in mobile, banking and technology industries. His work has been quoted in The Economist, The Banker and CNN.com. Prior to joining CGAP, Mark consulted with the UN, US government, commercial banks and specialized microfinance lenders.

In the first part of the interview, Mark elaborated on the most important issues as the branchless banking market evolves in complexity and size, as well as explaining why mobile phone banking is currently one of the hottest issues in the financial services sector.

In this second and final part of the interview, Mark and I explore the possible evolution of the mobile phone banking industry as it grows out of payments and remittances and into other financial services.

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Mark Pickens is a Microfinance Analyst with the Consultative Group to Assist the Poor (CGAP), a global resource center for microfinance housed at the World Bank. We have quoted CGAP on NextBillion in several posts (see them here, here and here). They are arguably the most authoritative source of information about branchless banking services and are currently in the forefront of research efforts to understand and develop this market.

Mark has co-authored a global review of regulation for mobile and other forms of branchless banking, forming an evidence base from more than 500 interviews with central bankers and executives in the mobile, banking and technology industries. His work has been quoted in The Economist, The Banker and CNN.com. Prior to joining CGAP, Mark consulted with the United Nations, US government, commercial banks and specialized microfinance lenders.

Last Friday, I had the pleasure of interviewing Mark about branchless banking’s recent developments and the most important issues as this market evolves in complexity and size. Mark explains why mobile phone banking is currently one of the hottest sub-topics in the financial services in emerging economies sector.

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By all measures, this has been a pretty long post to finalize.

In January, Ana’s post about the mobile phone banking conference at Chemonics aroused a series of insightful comments. Al Hammond then weighed in with a post of his own (he also recently wrote about Biometric Security for Mobile Banking). In this context, I felt I could join in the debate with a post about business strategies in the mobile phone banking sector (or m-banking, as it is commonly known). Specifically, I set out to analyze what affects mobile phone banking business models, their most common critiques and their challenges for the future.

However, the post quickly got a bit out of hand, growing beyond what I had envisaged to more than 10 pages. With this in hand, I felt I could develop it from a blog post into a “proper” study. When I finished it, I decided to try my luck and get it published. Thanks to the support of Professor Juan Luis Martinez, I got it published as an Instituto de Empresa Teaching Note. Due to work commitments, I could not sign all the required papers until February the 27th, during the BoP Conference here in Madrid (which we recently covered).

I hope that this study helps to clarify many of the issues we have touched upon here at NextBillion, and that it helps stimulate yet more questions.

After doing some research on the issue (I am by no means an expert), there is one thing I can say with certainty: the very field of mobile phone financial services is opening in front of our eyes. It is very exciting indeed.

To download the study, please click here.
Comments are welcome!