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THE BOP MARKET UP CLOSE (AND PERSONAL)

THE BOP MARKET UP CLOSE (AND PERSONAL). Summary. UNDERSTANDING CLIENTS, THE MARKET, AND THE OPPORTUNITIES Case Studies. Sonali. Kherwadi , a slum in Mumbai, India

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THE BOP MARKET UP CLOSE (AND PERSONAL)

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  1. THE BOP MARKET UPCLOSE (AND PERSONAL)

  2. Summary • UNDERSTANDING CLIENTS, THE MARKET, AND THE OPPORTUNITIES • Case Studies

  3. Sonali • Kherwadi, a slum in Mumbai, India • Sonali’s house sits along an alley of broken pavement with an open sewer running along the middle. Bundles of pipes have been laid helter-skelter on top of the pavement.

  4. Sonali • Doorways are open to bring some relief to the dripping heat, and inside them sari-clad women sit on the floor in semidarkness, Sonali among them.

  5. Sonali • A delicate young woman with two small children, Sonali’s much older husband works when he can, but lately has been at home because of a heart problem.

  6. Sonali • Sonali has a skill: beadwork. She can take small metal bits and string them together to create necklaces and anklets. She sits with a tray on her lap, a pair of needle-nosed pliers in her hand, twisting wires hour after hour.

  7. Sonali • Many of the women in Kherwadi do beadwork or a similar handicraft such as tailoring or embroidery. This kind of work suits their need to stay home, as cultural norms require, and allows them to look after the children.

  8. Sonali • It is not a true microenterprise, however. Sonali actually works for a middleman who comes once a week to bring her the raw materials and take away the finished products. He pays her by the piece. She earns only a few rupees for hours of back-twist and eyestrain.

  9. Sonali • Most of the work she does is of low quality and will be sold in small shops to people in Mumbai, but some of the residents of Kherwadi undoubtedly sew products that end up in handicraft markets around the world.

  10. Sonali • Sonali’s earning power is fixed by the hours of her labor. One of her main financial needs is for what economists call “consumption smoothing”: managing the ups and downs in her income.

  11. Sonali • Sonali used her first microloan to help pay the unexpected expense of her husband’s fees at the local health clinic.

  12. Sonali • Although repaying the loan will be hard unless he returns to work, she is better off than if she’d gone to the moneylender. Many of the local moneylenders charge only interest, not amortizing the principal.

  13. Sonali • This practice leads clients into permanent debt. If a borrower cannot get a large enough sum together to repay the principal, she will pay the interest forever. If she faces another emergency and has to borrow again, her debt burden grows.

  14. What Do We Learn from Delia, Xavier, and Sonali? • Even the briefest look at life stories of the working poor provides great insight into their financial needs and the kinds of customers they can be.

  15. What Do We Learn from Delia, Xavier, and Sonali? • Without stable employment in a formal-sector job and with little or no government-sponsored social safety net—in fact, with few connections to any large institutions—vast numbers of the working poor survive by operating microenterprises.

  16. What Do We Learn from Delia, Xavier, and Sonali? • In Egypt and Indonesia only 10 percent of the population works in the formal sector, and in Mexico only 20 percent. These enterprises range from retail shops to family farms to artisanal manufacturing.

  17. What Do We Learn from Delia, Xavier, and Sonali? • Families often piece together several income-earning activities: Delia operates a shop and rents rooms in her home and Sonali supplements her husband’s labor income with beadwork.

  18. What Do We Learn from Delia, Xavier, and Sonali? • Many such families face great vulnerability, so much so that we can consider vulnerability an integral part of what it means to be poor. Among the three people profiled here, two had experienced war, one had multiple thefts, and two had economically debilitating health crises.

  19. What Do We Learn from Delia, Xavier, and Sonali? • Financial services could help them manage some of this vulnerability. In the absence of inclusive financial institutions, they turn to informal sources—friends and family, moneylenders and suppliers.

  20. What Do We Learn from Delia, Xavier, and Sonali? • The informal sources respond quickly when needs arise, but they have many drawbacks. These clients used moneylenders only reluctantly to solve crises because of their high costs.

  21. What Do We Learn from Delia, Xavier, and Sonali? • Other informal sources, especially family and friends, are often seen in a more favorable light, but their resources are limited.

  22. What Do We Learn from Delia, Xavier, and Sonali? • The harsh realities of working poor lives, including poor living conditions and exposure to risk, create a daunting picture for businesses contemplating serving the low-income market.

  23. What Do We Learn from Delia, Xavier, and Sonali? • It would be easy to conclude that no prospects lie in their communities. Looking below the surface conditions, however, reveals a different picture, one that brings to mind qualities such as resilience, determination, aspiration, and self-reliance.

  24. What Do We Learn from Delia, Xavier, and Sonali? • The working poor have many assets, but lack mechanisms to leverage those assets. This is the essential insight put forward by Peruvian economist Hernando de Soto in his book The Mystery of Capital, and it points to a crucial role for inclusive finance.

  25. What Do We Learn from Delia, Xavier, and Sonali? • De Soto pointed out that the poor actually control a surprising amount of real assets in the form of housing, business premises, and other physical wealth.

  26. What Do We Learn from Delia, Xavier, and Sonali? • In Peru alone, de Soto estimated that these assets totaled some $90 billion, about 11 times the value of the Lima Stock Exchange.

  27. What Do We Learn from Delia, Xavier, and Sonali? • Worldwide, de Soto estimated in 2001 that about $9.3 trillion of dead capital in poor communities was waiting to be leveraged from informal assets and enterprises.

  28. What Do We Learn from Delia, Xavier, and Sonali? • As important as the untapped physical assets may be, the human and social assets of the poor may be even more valuable, though far less recognized.

  29. What Do We Learn from Delia, Xavier, and Sonali? • Delia and Xavier are resourceful businesspeople who have found ways to earn • a living despite numerous hardships. Delia has friends who help her, while Xavier supports members of his extended family.

  30. What Do We Learn from Delia, Xavier, and Sonali? • Both have become expert money managers through years of experience. Their aspirations to improve their life circumstances make them value the opportunities offered to them, such as a loan.

  31. What Do We Learn from Delia, Xavier, and Sonali? • That value translates into willingness to pay for services and repay credit on time. Xavier and Delia are ideal—and profitable—customers for inclusive financial products.

  32. What Do We Learn from Delia, Xavier, and Sonali? • Sonali faces more extreme poverty and has fewer assets to draw upon. It might be surprising to learn, however, that even Sonali is a client, having opened a savings account at ICICI Bank through its linkage with a microfinance institution (MFI), SwadhaarFinAccess.

  33. What Do We Learn from Delia, Xavier, and Sonali? • De Soto’s proposed solution to the lack of leverage that characterizes assets of the poor involved land titling and other forms of official recognition, for these solutions would legitimize the fruits of grassroots labor and investment.

  34. What Do We Learn from Delia, Xavier, and Sonali? • Another thinker, C. K. Prahalad, proposed a different solution—a business solution.

  35. What Do We Learn from Delia, Xavier, and Sonali? • Prahalad challenged the world’s largest corporations to find their own ways to catalyze the BOP market, contending that the potential rewards of doing business in emerging communities are worth the required adaptations.

  36. What Do We Learn from Delia, Xavier, and Sonali? • He suggested four components necessary to build a commercial infrastructure for BOP markets:

  37. What Do We Learn from Delia, Xavier, and Sonali? • Improve access through distribution and communications systems. • Create buying power with financial access and income generation.

  38. What Do We Learn from Delia, Xavier, and Sonali? • Neither Prahalad nor de Soto are primarily interested in financial services, but their arguments point strongly toward inclusive finance as one of the most important keys for unlocking the potential of the BOP market.

  39. What Do We Learn from Delia, Xavier, and Sonali? • Financial services allow people to leverage their hidden assets (de Soto), and they are a central part of the commercial infrastructure needed to make business work in BOP markets (Prahalad).

  40. What Do We Learn from Delia, Xavier, and Sonali? • Prahalad’s suggestions require rethinking almost every aspect of doing business, whether it be the price/performance equation, brand management, market building, product design, packaging, or capital efficiency.

  41. What Do We Learn from Delia, Xavier, and Sonali? • Throughout this course we explore how such adaptations can work in the financial services sector.

  42. Summary • The market • The average consumer in the market • Tapping the opportunities

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