NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Tuesday, May 3, 2016

For the last 15 years or so, there has been lots of hype about “business models” that will alleviate global poverty while turning a profit.  It was a premise derived from the success of the microfinance industry in providing credit to some of the poorest people in the world, who, contrary to conventional wisdom, had a higher repayment rate than the typical borrower.  As the late Dr. CK Prahalad hypothesized in his landmark book, “The Fortune at the Bottom of the Pyramid”, there are several strategies that organizations fighting global poverty need to master – and that those capabilities are in abundance in the private sector.  They are better at marketing.  They are better at R&D and understanding price points.  And they are good at partnerships when it serves their purposes.  The public and non-profit sectors, alternatively, are generally not very good at any of these things.

Over the last few months, the promise of business and the “base of the pyramid” (the updated term), has started to yield real results in India.  Three companies that have been predominately focused on serving India’s poorest customers – those living around $1.25 a day (the World Bank definition of poverty) had initial public offerings (IPO’s) on the Bombay Stock Exchange.   This isn’t the first time companies serving the BOP have gone public.  But the first time, in 2011, the IPO of SKS Microfinance resulted in hand-wringing, confusion and criminal wrongdoing in an attempt to withstand the pressures of being a public company while maintaining the mission of social impact.

This time, the three companies that listed have a longer operational history, are based in one of the faster growing economies in the world today, and face a market that understands their mission much better.  In December, it wasNarayana Health, led by visionary physician Dr. Devi Shetty.   They provided low-cost health care – from preventive checkups to heart surgeries at a fraction of the cost of American hospitals.  The other two companies are in the microfinance and SME financing space.  Equitas and Ujjivan Financial have both listed in the last few weeks and seem to be doing well.

It may be more than just a few IPO’s.  At this month’s Sankalp Forum, over 500 entrepreneurs, startups and investors from around the world gathered in Mumbai to discuss innovations, startups and impact investors also serving the world’s base of the pyramid – which is estimated to be 3 billion people.