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Monday, May 19, 2008

Taking BoP Strategies To Scale Pt. 5: Concluding Thoughts

By Al Hammond

This post is the last in a five part series on a radical new approach to scaling BoP business models, what we call a transformative sector strategy. In this segment, I address the six preceding guest posts that commented on this strategy and offer some concluding thoughts.

scaleI welcome these thoughtful comments on the transformative sector model I am proposing to scale service delivery to the BoP. Sagar Gubbi thoughtfully extends the sector-based scaling model. His examples illustrate the richness of potential solutions that are springing up and that can be learned from and replicated across a sector. I think he is correct that any transformative model will need adaptation to local conditions and policies. But mostly his examples encourage me in pushing ahead to implement the approaches I have outlined. The comment by Paul Rigterink on the potential of using a pharmacy platform to also distribute veterinary medicine and thus improve livestock supplies underscores the synergies that a sector approach can generate.John Paul suggests that the sector approach can adapt to local conditions by integrating existing entrepreneurs or service providers, which is certainly worth considering. In one country, we and our local partners are looking into partnering with and upgrading local outlets that sell medicine informally. However, it is worth noting that the franchise pharmacy in Ghana, which grew by incorporating existing medicine sellers, has struggled in part for just that reason. Paul also suggests an alternative approach, the Cornell strategy of co-creating solutions with local communities, which is interesting but to my mind clearly harder to scale-it lies at the other end of the spectrum from the search for "common business DNA" in a replicable sector model. More field experience will shed light on the degree of localization or common business DNA that is needed.

Acumen Fund is one of the inspiring pioneers of BoP investing, and from the beginning has focused its investments in a few sectors. Brian Trelstad gently points out the inherent complexity of the process of scaling solutions and the multiple actors necessarily involved, and of course, he's right. I confess, I'm one of the "impatient entrepreneurs" he describes. But I also think the time is propitious to push the process of bringing together the ecosystem of actors necessary to scale transformative solutions. As much as I respect Water Health International, for example, our joint research on the sector with Santa Clara University is turning up a range of new technologies, some of which appear more energy-efficient than that used by WHI, as well as a potentially novel financing approach for this sector. A sector approach will enable both existing and new enterprises to scale more effectively.

I share Ryan Gunderson's concerns about job creation and income enhancement, but I think they don't apply to the sector examples I have described. Perhaps he is unaware of the substantial evidence demonstrating how mobile phones have improved access to livelihoods, increased incomes, and accelerated GDP growth in poor communities-some of which has been posted here on NextBillion.net over the years. A forthcoming review of the research literature prepared for the GSMA, for example, finds more than 40 well-documented studies of this impact. Rural connectivity, then, is a primary tool for increasing access to markets, including employment markets, and improving the bargaining power of small producers in generating income from their crops. And mobile phone banking will be the primary means of access to financial services, including remittances, for most of the BoP-also critical to improving savings and raising incomes.

As for health care, surely Gunderson is aware that illness is often the catastrophe that devastates BoP household incomes and drives people deeper into poverty. And what is clear from our own research and from Gubbi's examples is that connectivity can significantly enhance rural health care. I will go so far as to bet that within ten years rural connectivity will be the rule rather than the exception, simply because that is where most of the growth for telecommunications companies in emerging economies will come from.

Avina Foundation and FUNDES have been our partners in exploring the application of some of these sector strategies in Latin America, and as Emily Fintel points out, the preliminary results are encouraging. She also stresses the need for adaptation to local policy conditions and properly takes me to task for seeming to slight social entrepreneurs and development organizations. Again, I plead impatience, as a social entrepreneur, in my desire to mainstream market-driven approaches so as to get to scale.

Finally, Francisco Mejia suggests combining the sector approach with the potential for leveraging existing utility platforms, showing how that can help scale service delivery of products or services very rapidly. This seems well worth considering.

My takeaway from these comments is that there may be more than one way to scale, but that there is wide acceptance of the need to accelerate the process. Whether working with existing enterprises or incubating new ones, the scarcity is of viable-and investable-businesses that provide needed services to low income communities. So it is useful to try new scaling approaches, to share experience, and to debate strategies, but also to get on with the work.

In parallel with this ferment in the enterprise development space, there is also a growing tide of new capital seeking ways to invest in sustainable small enterprise and BoP-serving businesses. Both Acumen Fund and David Green of Ashoka, for example, have raised new investment funds, and I am also part of an effort to organize a new private equity fund to invest in BoP enterprises, especially those that share a common business DNA and are thus potentially replicable. And there are a variety of efforts underway to make it easier for mainstream financial entities to invest in such activities-to transform capital market flows for the benefit of the poor.

If we can put new capital to work by creating a rapidly growing stream of viable businesses that address the needs of BoP households and communities, then perhaps we can in fact catalyze meaningful change. That is certainly the motivation behind the sector strategy approach I have outlined in this series of posts.
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