The Monitor Group; March 2009.
Although microfinance may be the best known example of serving low-income groups through a market solution, many other models are now emerging to serve a large and growing population of poor people. Half the world’s population lives on less than $2 per day: that is 2.6 billion people. During the last few decades of increasing aid the livelihood for those at the “bottom of the pyramid” has not gotten better. The authors, however, do not dismiss traditional aid. Instead, they argue that market based approaches offer a complementary (and potentially more efficient and sustainable) way to address global poverty. They identify seven business models tailored to serving the poor:
1) Pay-Per-Use allows consumers to pay lower costs for each use of a group-owned facility, product, or service.
2) No Frills Service offers ultra-low prices for products and services that still meet the basic needs of the poor. The model relies on high volume, high asset utilization, and service specialization.
3) Paraskilling brings workers into the workforce to perform simple standardized tasks which were formerly part of expensively complex services and processes that relied on specially qualified professionals.
4) Shared Channels piggybacks products and services through existing customer supply chains to reduce transportation costs, often in challenging conditions.
5) Contract Production organizes small-scale farmers into rural supply chains. A contractor provides training, specifications, and credit to the farmers and in return promises better than market prices for their goods.
6) Deep Procurement is similar to contract production but in the manufacturing sector. This model bypasses middlemen to offer quality and marketability training to small scale producers.
7) Demand-Led Training can be compared to a “temp agency” for the developing world. This model is used to pay third parties to train and place employees for job openings “at the edges of the formal and informal sectors.”
Many of the examples come from India, which the authors find to be a particularly productive laboratory for testing marketbased models to address global poverty. To engage the poor better as consumers and suppliers requires functional public support systems: schools, courts, and infrastructure. The report makes it clear that these enabling systems still need to be bolstered to allow market solutions to emerge.
To access the report see: www.mim.monitor.com