Saturday, November 13, 2010

Business for Profit and Social Change

Innovative business opportunities exist which can benefit corporations while serving the poor and middle-class in countries around the world.



One of the topics I have been most interested in over the past few years is innovation and entrepreneurship designed for non-traditional or under-served markets.  Mohammed Yunus, the 2006 Nobel Peace Prize Laureate, popularized the use of microfinance as a means of sustainably helping people lift themselves out of poverty.  Today, microfinance has become one of the hottest areas in the NGO/development world.

The late C.K. Prahalad published a book in 2004 called The Fortune at the Bottom of the Pyramid in which he talked about the potential business opportunities that existed to serve the world's poor (the "bottom" of the "financial pyramid").  Bill Gates described this as a way to "fight poverty with profitability".  To me, this represents a far more effective method than simply handing out money, which is unsustainable and of dubious effectiveness.  Involving the "bottom of the pyramid" in the modern economy, on the other hand, is win-win, with companies incented to provide goods and services to new markets, and those customers receiving access to what they need.

This kind of social entrepreneurship doesn't apply just to the very poor, but to those in, or on the cusp of, the burgeoning middle class in countries all over the world (the U.S. included).  A comment by a Mr. Siddhartha Banerjee on a New York Times discussion board has stuck with me for several months: "The corporate world... [must] recognize and meet the needs of the low margin, high volume markets hidden in plain sight before them."  Mr. Banerjee went on to point out that, over a century ago, Sears and Roebuck were early examples of this type of entrepreneur, and they played an instrumental role in the development of the American middle class.

I recently returned from a month spent traveling in Kenya and Tanzania, and of the things that struck me the most--aside from the view from the summit of Mt. Kilimanjaro, and seeing a cheetah kill a gazelle while on safari in the Masai Mara--was the popularity of the mobile banking system M-Pesa, which my friend and I used to effortlessly pay our safari operator.

M-Pesa, a joint venture between Safaricom (the Kenyan subsidiary of telecom giant Vodafone) and the government of Kenya, allows people to use their (basic, cheap, ubiquitous) mobile phones to make deposits and withdrawals, and send or receive money to anyone.  M-Pesa eliminates the need for bank branches, using a myriad of common retail outlets to act as agents who process transactions while taking a tiny commission.  Not only has M-Pesa been a huge profit driver for Safaricom (see numbers here, here, here), it has been widely effective in Kenya at providing bill payment and banking services, even in demographics that have typically lagged, such as in rural areas and among women.

(An interesting side note: this year, Vodafone rolled out the service in Afghanistan under the moniker M-Paisa.  The Afghan National Police adopted the service to pay the salaries of its officers, and discovered that they had almost immediately eradicated systemic corruption.  Many policemen thought they had received raises, but in reality, they were just receiving their full salary--under the old cash-model, much of their earnings had been pocketed unbeknownst to them.)

M-Pesa is just one of many examples of how social entrepreneurship--an admittedly nebulous term--is having a transformational effect that is still driven by old-fashioned capitalism.  These new business models which are improving people's lives are important precisely because they are founded on more than altruism.  They present one answer to the question of what the new drivers of global economic growth will be in the future.

1 comment:

Andrew Tourtellot said...

Cool! I was just reading about phone banking in India (I think), can't remember what publication (perhaps linked by you :P); glad to hear it's big in Africa as well.