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Friday, December 21, 2007

Does BoP Success Require the Moral Imperative?

By Nitin Rao

HBR September 2002 coverWhen I first read the seminal article "Serving the World's Poor, Profitably" in HBR, I found the direction it pointed to elusive. Instead of tugging at sympathy, the paper pointed to an exciting and fast growing market - the immense collective entrepreneurial capabilities and buying power of the world's poor. Looking back, made easy by NextBillion, I wonder how organizations are using different approaches (read - for profit and non-profit) to social innovation.

According to Prof. Reuben Abraham at the Indian School of Business, Hyderabad, the first step to understanding BOP Markets is to "Forget the Moral Imperative".
Point number one is forget the moral imperative. Let?s look at the economic imperative of why this market is important. Everybody tends to emphasise the moral imperative of why economic growth needs to spread, but I think there is a strong economic imperative why growth needs to expand beyond the 15 per cent, say, in India that actually enjoy the fruits of the current economic growth. Because ultimately, if there are a billion people and only 150 million people are participating, that is not sustainable. That is not sustainable for a bunch of reasons because there will ultimately be saturation, and there will also be all sorts of political ramifications to this as there is a disconnect between aspirations of people who live in these markets and the elite in these countries. So, there is definitely an economic reason for why we should look at these markets.
The questions are: Are we doing this? And indeed, should we? After all, some organizations might pride themselves on their non-profit approach - right?My impressions are largely influenced by my exposure to 2 organizations in the Indian education sector: Spark and the India School Fund.

Born from a thesis paper at MIT Sloan, Spark is a for-profit education startup working to improve the quality of education at a grassroots level in India. Spark's goal is to create a ready framework - School-in-a-Box - using which grassroots entrepreneurs challenged by regulations can go from "ink on the contract" to "chalk on the board" in 100 days flat. Spark's challenges include implementing its laudable, futuristic vision in missing markets weak on synergies and high on transaction costs.? (Full disclosure: I worked at Spark this past summer.)

On the other hand, the India School Fund uses fundraising - including corporate donations - as a source for implementing its model. ISF has begun impressive work in the village of Rajugella (Uttar Pradesh), where 90% of women and 70% of men are illiterate. Even as the founding team bring impeccable credentials, ISF might find itself asked often about the scalability of its initiative beyond Rajugella. Its Harvard Business Plan Contest-winning business model focuses on triggering micro-enterprise activity and offering its investors "social return as a result of new economic activities generated."

HBR September 2002 article graphicIf "How to Change the World" chronicled the successes of Ashoka Fellows in the non-profit sector, today Ashoka: Innovators for the Public appears to be open to facilitating both for-profit and non-profit entrepreneurs. For instance, it recently organized a Round Table to explore synergies between Spark and its Fellows and to identify new, innovative models.

So, does an entrepreneur have the option to choose an approach of his/her choice? Probably not. As an entrepreneur recently told me: "The moment you say that you are for-profit, people stop talking."

My unqualified observation has been that organizations which have succeeded in driving a for-profit paradigm have often brought in innovative technology to the marketplace. In addition to being able to scale, organizations using market-based approaches to development might find it easier to attract top talent.

Perhaps, at least in the immediate future, one answer might lie in Acumen Fund's venture philanthropy model. The non-profit organization uses the rigor and thinking of a for-profit VC firm in its investments. In India, a nimble team of five people manages investments of $12 million and pushes the rest of the Acumen team closer to its goal of impacting 50+ million lives.

I look forward to comments and experiences from both academia and industry on whether we are better placed forgetting the moral imperative altogether.
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