Fighting Poverty with Profit

by Curtis Runyan

(Washington, DC, March 2004) When Dr. Allen Hammond looks into solutions to poverty, he sees a big role for the private sector. With more than 4 billion people living on less than $1,500 a year, he says, charity and aid can only go so far toward improving conditions for the poor. "What we really need to do is to make poverty reduction a business proposition."

Dr. Hammond, who is vice president for innovation at the World Resources Institute (WRI), has begun tracking examples of business ventures in poor communities that are making a profit, and helping to improve the lives of local people. Companies now profitably provide cell phones to rural Bangladeshi women, who in turn provide reasonably priced telephone access for their villages. Business ventures now offer small loans at reasonable rates to poor communities formerly dependent on exploitative money lenders. Corporations have begun to provide Internet access to poor farmers who want to track the prices of their commodities in order to get the best price when they sell their crops.

"The business opportunity at 'bottom of the pyramid' is enormous," Dr. Hammond says. "We just need to convince more businesses that the markets in poor communities are there, and that they are the markets of the future." Hammond and the Digital Dividends project at WRI have already tracked dozens of groundbreaking efforts by major companies to develop profitable, socially beneficial markets in thousands of poor communities around the world. The project has constructed an on-line clearinghouse that provides information on more than 900 business ventures and projects that serve poor communities around the world.

There are a number of misconceptions about poverty that often act as obstacles to businesses working in poor communities. "Businesses assume that poor communities have no money to spend, and this is not true," says Dr. Hammond. "In fact, the poor typically end up paying a lot more for the exact same goods and services as people in the middle class."

For example, the urban poor throughout the developing world often pay at least four times more for water (and in some cases, 100 times more) than wealthier neighbors who have water piped into their homes. The poor are also badly served when it comes to food, access to credit, and the prices of medicines.

This is where Dr. Hammond sees a real opportunity for corporations to play a positive role in low-income communities. In many cases, businesses can provide the poor with better products and services, and at considerably lower prices than what they currently get. Companies willing to make innovative forays into underserved communities can make profits while boosting the standard of living of their customers.

Another deterrent for many corporations looking into markets at bottom of the pyramid has been the high cost of setting up shop in rural areas. But the rapid development of communications technologies can open up many markets and provide poor communities with crucial resources.

For example, India's second-largest bank, ICICI, has developed the country's first online banking network and has begun setting up cash machines across rural India, which eliminate the costs of setting up brick and mortar bank branches. The bank is also working with a large network of women in "self-help groups" whose members become eligible to receive "micro-loans" of up to $250 after learning basic money management principles. The loans can provide crucial capital for new business ventures, or help poor families cope with temporary unemployment, natural disasters, or emergency healthcare in times of need. The money management skills help the women to make better financial decisions for their families, creating lasting developmental impacts within communities.

Since ICICI first ventured into micro-finance, the bank has come to view cultivating markets in poor, rural communities as an essential part of its business strategy. Most micro-finance ventures operate on a relatively small scale because of limited returns on the micro loans. Through its self-help groups and by investing in existing micro-finance organizations, ICICI is working to provide financial services to large numbers of the poor in India at profitable returns. This makes serving the poor make "business sense," and that has convinced bank executives that market opportunities with poor rural clients are critical to ICICI’s future success.

Dr. Hammond believes that the efforts of companies like ICICI are only the beginning. "Many poor communities are ripe for opportunities and growth," he says. "We are gathering hard numbers and business data to convince investors that targeting poor communities makes sense both for a company's bottom line and for the benefit of the people living in poverty." (WRI Features, 761 words)