Trick Lies in Treating the Poor as if They Are Rich

Monday, July 23, 2007

THE idea that money can be made from the poor has attracted much interest in the past couple of years, fuelled by books such as The Fortune at the Bottom of the Pyramid and Banker to the Poor.

Brazil is one market with plenty of potential. Millions of people live near the poverty line. Income distribution is among the most unequal in the world. More than half of all jobs are in the informal sector. More than half of the economically active population have no bank account.

Attempts to tap this potential have had mixed success. From 2002 several banks began granting micro consumer credit to the unbanked on the premise that the poor were good payers. It turned out that the poor were unused to this kind of credit and delinquency rates have been much higher than expected.

But there are success stories. One such is Casas Bahia, a retailer of household goods (and a case study in The Fortune at the Bottom of the Pyramid), which has been making money successfully from low-income consumers for decades, largely on the premise that the poor do indeed make good payers ? if they are properly screened.

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Source: Business Day (link opens in a new window)