Authored by: Grace Augustine

A few weeks ago, I was fortunate enough to catch Richenda Van Leeuwen, a founding board member of the Good Energies Foundation, after the Ross Net Impact Forum. I asked her a series of questions about the firm where she works, Good Energies Inc., a global private equity firm focused on renewable energy investing, and its affiliated non-profit, the Good Energies Foundation. The foundation is trying to tackle the multiple challenges of providing clean energy to citizens around the world, particularly in developing nations. The following is the transcript from our conversation:

Grace Augustine, NextBillion.net: I find your organization’s design interesting. Is it the hope of the Good Energies Foundation to fund projects that can one day be commercial through Good Energies Inc.?

Richenda Van Leeuwen: The Good Energies Foundation is an independent non-profit foundation, and the operations are separate. Our mission in the foundation is two fold: poverty alleviation via provision of access to modern energy, and future poverty prevention through climate change mitigation. Where we can, we actually leverage our corporate expertise to drive our work in the social sector.

The Good Energies Foundation focuses on geographies and situations where a fully commercial approach may not be viable, where any returns may be lower or take longer to achieve than generally accepted by investors or the people are so poor that even with micro-credit they couldn’t afford any sort of system. We have focused a lot on small scale solar powered lighting to date. Our foundation’s work with Stiftung Solarenergie, a solar provider in Ethiopia would be one example. See video on the Stiftung Solarenergie website on its Ethiopia project here.

Initially, Stiftung Solarenergie was completely dependent on subsidies, but having proved their model and shown that solar lighting works in the local context, it is now exploring quasi-commercial community solar options. This includes such solutions as solar home products, LED lanterns and small lighting systems, in order to drive scale. The organization is currently raising a fund to support their drive to scale.

Our social mission is not just concentrated within the foundation. On the commercial side, our company, Good Energies, also has a 3-P mission, which stands for People, Planet and Profit. Good Energies is a private equity firm focused on investing in renewable energy with the goal of having a positive impact on people and the planet, but of course needs profit to function. In fact, all the investment work of Good Energies is, broadly speaking, beneficial to society from an environmental standpoint and in terms of reducing carbon emissions.

NextBillion.net:  Could you tell me a little more about your other partnerships, maybe specifically with SELCO India? I see that SELCO is a social enterprise.

Richenda Van Leeuwen: We recently made a “social equity” investment in SELCO India, along with E+Co and the Lemelson Foundation. SELCO India is an award winning registered business based in Karnataka, India. It is a strongly mission-based social enterprise, focused on energy access for the poor, and has cumulatively sold almost 100,000 solar systems since being founded in 1995. SELCO has to be commercially viable in order to be sustainable and to scale their services further, but their mission orientation is all about providing custom solutions for their low income customers. In fact, they were the first solar company focusing on access for poorer customers to reach scale in conjunction with a microfinance partner, SEWA Bank, even before Grameen Shakti in Bangladesh, another significant social enterprise operating in this space. With our social investment in SELCO, if we made a dividend or decided to exit, any money that we made would go back into supporting SELCO or to other projects of the Good Energies Foundation.

NextBillion.net: Speaking of E+Co, I think our readers are familiar with both E+Co and Acumen Fund, which both seem to be pursuing similar objectives, so what would you say differentiates you?

Richenda Van Leeuwen: We look at both of those organizations as cooperative partners. In the case of E+Co, we’ve already been an investor alongside them. I think what they do is terrific. I would say that the only difference is that we’re trying to get ahead on the issue of climate change, and develop products that intentionally mitigate the risk for the most vulnerable populations.

We keep in touch closely with Acumen Fund as well. The primary difference there is that we’re affiliated with a major global player in the renewable energy space, with deep expertise across the solar, wind, hydro, green buildings, and other sectors, and therefore we can bring that commercial expertise to the table as well.

NextBillion.net: I’ve heard that microfinance is becoming a bigger part of the solution to energy access. Can you tell me more about these recent advances?

Richenda Van Leeuwen: The combination of renewable energy and microfinance is just now becoming fully mainstreamed, although some groups such as SELCO India and Grameen Shakti have shown that the model can work for a number of years. There are now proven track records, despite the fact that historically many microfinance groups (MFIs) have been leery of going into any kind of asset-based lending. It has also been challenging for MFIs to structure the right kind of product.

For example, if you’re trying to lend to a farmer who only gets paid once a year, how do you structure an appropriate payment plan? On the renewables side, it is also difficult at the local level for system installations to have expertise as a loan collection agent, so generally speaking it has usually worked best when each entity focuses on its own core competences.

There are new groups out there, like ARC Finance, headed by Ellen Morris and Niki Armacost,  and Micro Energy Credits Corporation, led by April Alderdice, that are providing a roadmap for MFIs to show how they can work together with renewable energy providers. MECC is also tackling the carbon credits side of the equation, helping the MFIs tap into the carbon markets, which could be a potential for revenue generation, while ARC focuses more on assisting MFIs entering the renewable energy lending space.

NextBillion.net: In terms of technology, what advances have you seen that are making energy access more of a reality?

Richenda Van Leeuwen: There have been many recent technological advancements that have helped this sector tremendously. The cost of solar panels has gone down 20-30% even since the start of the year. If these savings are passed along to consumers, it increases affordability to an entirely new class of people, since the poor are very price point sensitive. There has also been innovation in LED lights. There are now super-bright LEDs used in low-cost lighting projects. When I was in India with SELCO recently, I saw a product working very well when I visited a poor village outside of Bangalore with approximately 50-60 people that had just installed some solar lighting projects. The houses were probably 12 x 8 feet and the LED lights, hooked up to a solar panel, produced sufficient light for those spaces. LEDs are also more environmentally-friendly than CFLs, as they don’t have the issues of mercury and special disposal, the latter being unrealistic in a rural village. LEDs do, however, tend to be very directional. Only recently, groups like d.light, Barefoot Energy and SunNight Solar have designed low cost products to overcome that limitation.

Battery technology, and energy storage in general, has also been on ongoing issue, but there is a lot of research going into these solutions and I think we’ll see some major developments in the near future.

It’s important for me to note that the Good Energies Foundation is technology neutral, meaning that we don’t give preference for one technology over another, although to date much of our work has been focused on solar lighting, since it is a natural fit.

NextBillion.net: Ok, so to wrap up, can you tell me about the major challenges with providing energy access to the world’s poorest people?

Richenda Van Leeuwen: I think one of the challenges is just the scale of the problem. The average person in the U.S. or Canada probably does not realize that one-quarter of the world does not have reliable or often any access to electricity.

Many non-profits and SMEs are in the space, but face challenges around taking their business or non-profit model to scale. Access to finance is one part of it. I did a rough back of the envelope calculation recently, which found that to provide a 50W system to the 1.6 billion people without access to electricity – generous enough to power lights, a radio, and possibly a small TV  – it would cost in the range of US $150 billion; less, incidentally, than the size of the bailout given to AIG. It could probably be done on a more basic scale for around US $100 billion. It may sound like a lot, but it is a finite, solvable problem where cost savings would not only be seen at the level of the household, but also in terms of improvements in health and education that accrue with a non-smoky, less dangerous and better source of lighting.

Our foundation is focused primarily on Sub-Saharan Africa and South Asia, where the largest concentrations of people lacking access to electricity live, but we’re also supporting a non-profit in Nicaragua, Blue Energy that is helping to bring electricity to Caribbean coast communities there. Because of the scale of the problem, working in partnership is essential, with groups such as Lighting Africa, run out of the World Bank.

We need to emphasize those approaches that really have the capacity to scale up in order to eliminate kerosene-based lighting. I have spent years working in the non-profit world, and that is a sector that has often really struggled with producing scalable and sustainable solutions, in part due to the inherent limitations of completely subsidy-driven approaches, or lack of business expertise. A commercial orientation, even within the context of a social enterprise, will often bring more discipline to evaluating the viability of a particular business model, although finding the right balance between commercial and social orientations is a challenge, as we have seen in the microfinance sector over the years.

Authored by: Grace Augustine

As I was perusing my Sunday New York Times this past week, two stories stood out to me. Both mentioned migrants struggling to keep jobs in the developed nations where they were working. One article profiled Alexandrina Ciurea, a Romanian cleaning woman working in Rome; the other described Ignace Abdulx, a laid-off Senegalese metalworker worker in Paris.

Both Ciurea and Abdulx had been sending considerable remittances back to their families; Abdulx’s amounted to 200 euros per month for his wife and three children, yet neither knew if their adopted homelands would provide them with continued opportunity. I found their stories to be very interesting, and began to ponder the effects of slowing remittances and potential reverse migration to developing nations.

As many families living at the Base of the Pyramid are dependent on remittances, shifts in remittances and migration are both very timely and potentially worrisome trends. As Manuel pointed out when he wrote on two leading reports on remittances in 2008, "Remittances are estimated to have more than tripled as a share of GDP since the 1980s, rising from 1.1% of GDP to 3.6% of GDP in 2005."

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D.Light, the renewable energy organization that distributes clean sources of light in the developing world, is looking for its first class of Fellows.

D.Light, which has often been mentioned on NextBillion, is an incredible start-up that was founded by savvy Stanford MBA graduates Sam Goldman and Nedjip Tozun. The organization is growing quickly, and, as Kiva and Acumen Fund have exemplified, highly-talented Fellows could be a key part of that growth.
Position: Available positions include: Business Development, Marketing, Product Design, International Business Development, Marketing & Communications, Reliability & Testing, Research & Development, and Supply Chain & Operations

Location: New Delhi, India and Shenzhen, China

Application Deadline:

Feb 15th for most, March 1st for some

Description: "Fellows will be able to use their unique skills and experiences to contribute in a significant way to our mission of replacing kerosene lanterns with safe and bright light. We are committed to providing our fellows with a uniquely invigorating, challenging, and life-changing experience.

Fellows will be located in one of our field offices in India, China, or Tanzania for 3 to 10 months. They will be supervised by one of our senior managers and partner with our diverse team across three continents and multiple countries."

For more information on this position, including how to apply, check out:  http://dlightdesign.com/fellows.html

There are two competing philosophies that, at first glance, seem to both provide value to the base of the pyramid (BoP) approach – competition and cooperation. In my mind, the BoP theory is as close as any to a "free-market" approach to development, as it promotes competition that will bring the best products and services to meet unmet demand. Competition is a part of a self-regulating market. It inhibits price-gouging, encourages multiple product and business model designs, and provides consumers with choice – all key tenants of the BoP philosophy.

However, as organizations working at the BoP compete, their focus can shift – from the customer to the competitor. If competition is not dealt with properly, it becomes a battle of resources and reputation, instead of a fight to serve the poor in the best way possible.

A similar phenomenon has plagued the NGO community over the years, and this is partially caused by serving two masters – the "client" on the ground and the "donor" (agency, charity, government) in the developed markets. Were the NGO community unconcerned about serving the latter, we would probably not see as many fancy websites or media releases – but the truth of the matter is that we need both constituencies.

I am not saying that we do not need BoP organizations to engage in competition on the ground, but rather that from what I have seen that is not where the battle has been waged. From my perch at the William Davidson Institute, I have seen that as competition heightens, resources and energy shift away from improving direct delivery of goods and services towards building legitimacy in established markets. Leaders tell their teams: we have to have a case study written about us; it is time to re-brand ourselves; our website needs a facelift; why don’t we try to co-brand with a company...

When it comes to organizations that are attempting to work at the BoP, but still reliant on legitimacy (i.e. funding and talent ) from developed markets, there may be value in cooperation — a word that can leave free-marketeers shuddering with fears of inefficiencies.

Why cooperate? According to NextBillion.net’s Rob Katz, the base of the pyramid market is still largely a free-for-all.  The vast, untapped nature of the market means that it will require numerous organizations, working together, to spark more interest and investment in the BoP before the stakes are high enough to worry about stashing resources.

According to Katz,

I’m not the only one who thinks so, either. Brian Trelstad at Acumen Fund and Willy Foote of Root Capital have both articulated these ideas to me recently, and each notes that the need to cooperate in a hybrid space is what’s driving the growth of the new Aspen Network of Development Entrepreneurs.

Think about how microfinance has grown – 30 years ago, non-commercial, hybrid microfinance institutions were all banding together at conferences. Gradually, with a lot of philanthropic support, they’ve developed a real industry, and now microfinance is a commercial, investment-grade asset class. We need to do that with small and growing businesses serving the base of the pyramid market.

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Thanks to Francisco Noguera for his contribution to this post. Please note that the following should not be seen as an exhaustive compilation of everything that has been written about the base of the pyramid. I encourage NextBillion readers to comment and make suggestions to enrich this compilation of literature and resources.

As the leaves are starting to change, and the mornings are becoming a little more brisk, it is apparent that it is back to school season. In the spirit of this shift, I would like to offer up the following list of books, articles and cases that comprise what we here at NextBillion.net consider the essential pieces of base of the pyramid reading.

I often get questions from students and readers about simply where to start. There is so much out there, and although NextBillion has done a great job of posting reviews of works as they are published, this post is designed to give a high-level overview of the literature over time. Therefore, the following showcases some of the most pivotal pieces that have influenced and continue to expand the base of the pyramid idea.

Genesis of an Idea

In 1999, CK Prahalad, Professor at the University of Michigan Business School, and Stuart Hart, then Professor at the Kenan-Flagler Business School at the University of North Carolina, wrote the article that first introduced the world to the term BoP. It was titled "Strategies for the Bottom of the Pyramid: Creating Sustainable Development." This article attempted to raise awareness of the world economic pyramid and the vastly untapped market of four billion people living on less than $1,500 PPP per capita income. Organizations that were already involved in serving BoP markets, for example Hindustan Lever Limited, were highlighted as examples of MNC BoP strategy.

Although the early BoP theory was presented primarily as a business strategy for MNCs, it also addressed the potential for poverty alleviation, as the paper stated that, "Foreign aid and charitable giving have not alleviated the problems for the world’s poor." The paper called on MNCs to "recognize that the bottom of the pyramid poses a fundamentally new question: How do we marry low cost, good quality, sustainability, and profitability at the same time?"

Despite the fact that this seminal piece broke ground for the BoP movement, the idea did not really gain speed until it was picked up in 2002 by the Harvard Business Review. Al Hammond co-authored the article with Prahalad, and it was titled "Serving the World’s Poor, Profitably."

A Shifting Tide

So why was there a three year lull between the original piece and the HBR article? Well, between 1999 and 2002 there were several books, articles, and discussions that may have shifted the business community’s openness to the BoP strategy. In the development space, scholars such as Amartya Sen and Hernando de Soto published outright challenges of what was then accepted as the traditional models of aid and development, and reframed the question of what was holding impoverished individuals back from reaching their full potential. They called on business to be part of the solution.

In 2000, the Millennium Development Goals were first established, as world leaders realized the reality of continued suffering despite years of international development spending. Fed up with government, the public began to call for the corporation to take on more of a role in sustainable development through what was termed Corporate Social Responsibility. The United Nations Global Compact, a voluntary initiative to promote socially and environmentally responsible business, was launched by the United Nations in 2000 as world leaders started to engage companies in deeper dialogue regarding their business practices.

Despite all of this pressure, companies were struggling to find the business case for most of their CSR activities, which were then framed as PR or risk-management strategies rather than strategies for top-line growth. The BoP theory, therefore, debuted on the world stage in 2002 as a potential strategy for business to alleviate global problems and tap into additional areas of growth – outside of the slowing top-of-the-pyramid markets.

The HBR article received a lot of attention, and both Prahalad and Hart decided to publish books on their somewhat divergent views of BoP theory: Those were Prahalad’s 2005 Fortune at the Bottom of the Pyramid and Hart’s 2005 Capitalism at the Crossroads; both are must-reads for anyone wanting to learn more about the foundation of BoP. The Fortune at the Bottom of the Pyramid introduces the reader to many stories of early BoP actors, such as CEMEX and E+Co, which are still referenced today as prototypical examples of successful BoP cases.

In Capitalism at the Crossroads, Hart addresses both poverty alleviation and the environment, as he asserts that "environmental and social concerns can be alleviated while spreading prosperity to those at the bottom of the pyramid." Like Prahalad, Hart also draws on the real-world cases of organizations such as Grameen Bank to highlight his theories of linking profit to sustainability.

BoP Criticism

In August of 2006, University of Michigan professor Aneel Karnani posted a critique to the BoP theory on NextBillion.net. In the view of many, the fact that the BoP perspective attracted criticism was a good indicator that enough people were taking it seriously. In Karnani's article, titled "Fortune at the Bottom of the Pyramid: A Mirage", he claimed that Prahalad’s estimates of the BoP market size were wildly optimistic, and he suggested that what impoverished people really needed was employment, not additional products.

The basis of his article was a more traditional poverty alleviation strategy of raising the real income of the poor and it deserves a close read, alongside both Al Hammond’s and CK Prahalad’s responses. This debate is ongoing, and Karnani’s point of view has been adopted by a few other critics of BoP theory.

BoP Theory Subtopics: Driving Innovation, BoP as a Complementary Approach to International Development, Market Research

When one wants to move beyond these few seminal works that have mainly defined this space, it may be beneficial to take a deeper dive into one of the multiple BoP subtopics that have emerged over the years. As the field has expanded, so have the number of independent researchers that are carving their own niche areas.

One area that has been developed further by BoP originator Stu Hart, who is now at Cornell University and the William Davidson Institute, is the opportunity for business innovation through engaging with and building businesses with the poor. One of Hart’s early articles, titled "The Great Leap: Driving Innovation from the BoP", was co-authored by Harvard innovation guru Clay Christensen. The piece discusses how emerging markets are ideal places to develop and incubate disruptive innovations.

In the quest for furthering the BoP perspective on business innovation in the field, Stu Hart and his team have now produced the second version of the "BoP Protocol." Drawn from best practices and field experience from the team, this document has laid the foundation for MNCs to engage in co-creating social businesses with BoP communities. It is an essential read for business managers who want to embark on a BoP project or people with a general interest in the startup phase of BoP businesses.

Ted London, who is at the University of Michigan, has carved his BoP niche in the role of the BoP strategy as a complementary approach to international development. London, who has on-the-ground experience with development projects, co-authored one of the early BoP papers with Stu Hart, entitled "Reinventing Strategies for Emerging Markets."  He has now gone on to consider the BoP strategy first and foremost as a means for poverty alleviation. He believes that we need to measure the social, economic, and relational aspects of communities that engage in BoP projects in order to understand the full impact.

One of his most recent works, which addresses this niche area is the "Base-of-the-pyramid Perspective on Poverty Alleviation." According to London, this paper is driven by "the development sector coming under increasing pressure to explore new approaches to reducing poverty…. [and] a growing number of private sector and socially-oriented organizations viewing the poor’s unmet needs as untapped market opportunities."

As London claims, it is true that many from within the international development community have also been calling for more accountability and more market-based approaches to development.  One of the most outspoken critics of aid-as-usual is William Easterly, and his 2006 book The White Man’s Burden may be of interest to those who see the BoP perspective as playing a role in this space. 

In terms of market research and quantification, WRI has created what is known as the most comprehensive document for defining and understanding BoP markets: The Next 4 Billion: Market Size and Business Strategy at the Base of the Pyramid, published in 2007. This hard data - driven publication estimates both the size and composition of the BoP market. It should be read by anyone who is looking to better understand the particularities of the majority of the world's consumers.

An Idea Turning to Practice: Finance at the BoP and Design for Social Impact

As the BoP idea has turned into practice in the field, noteworthy articles have begun to surface that address issues such as adequate financing, design at the base of the pyramid and new models for distribution.

One of the most interesting and noteworthy trends in the base of the pyramid space is the growth of different kinds of "social investment" capital. MIT's Innovations journal outlined this topic in an article authored by Jacqueline Novogratz, founder and CEO of Acumen Fund, one of the pioneering organizations in this field. The article, titled "Meeting Urgent Needs with Patient Capital" talks about the changing world of philanthropy (another driving force for more market-based approaches) and Acumen Fund's unique approach to investing in businesses at the BoP. 

It also gives a good overview of some of Acumen’s main investments. Novagratz says that, "capital invested in businesses seeking to deliver basic goods and services to the marginalized majority will require long-term commitments, a lot of management assistance, and sustained relationship building." This article is very useful for understanding the new approach to investment in SMEs that serve the BoP.

As adequate capital has begun to enter this field, there has been an increased push for innovative organizations and moreover innovative products and services that address the needs and aspirations of those living at the base of the pyramid. In 2007, the Cooper Hewitt Museum in New York City hosted an exhibition titled "Design for the Other 90%", which highlighted design-driven innovations in areas as varied and vital as water, healthcare, energy and housing for the poor. The book that summarizes the exhibition is worth your time if you are interested in seeing how design can, for example, change the way men and women transport water and thus attain dramatic improvements in their quality of life.

Design for the Other 90% is the brainchild of Paul Polak, a prominent figure in the space of entrepreneurial approaches to the challenges of poverty, who has revolutionized small scale agriculture through the design of affordable drip irrigation equipment at International Development Enterprises (IDE). His own book Out of Poverty describes the path of building his organization and provides valuable insights from the field, emphasizing the importance of listening to and becoming aware of the specific context and conditions surrounding those at the base of the pyramid.  

Additional Resources

There are of course numerous other books, articles, and cases that highlight the growing adoption of the BoP approach. If you know of any additional pieces, feel free to comment on this post. Here are some in addition to those highlighted above:

Books

The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It, by Paul Collier

Creating a World without Poverty: Social Business and the Future of Capitalism, by Muhammad Yunus

The Power of Unreasonable People: How Social Entrepreneurs Create Markets That Change the World, by John Elkington and Pamela Hartigan

The 86% Solution: How To Succeed in The Biggest Market opportunity of The 21st Century, by Vijay Mahajan and Kamini Banga

Creating Value for All: Strategies for Doing Business with the Poor, by the Growing Inclusive Markets Initiative at UNDP

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This post is the second in a two part series exploring China’s role in Africa’s development. Part 1 focused on the breakdown and impact of African exports to China, and Part 2 focuses on the role of China’s investment and imports into Africa.

Investment

It is no surprise that most Africans are welcoming Chinese investment and products. The history of traditional Western aid and investment in Africa is one of a nagging "I correct you because I want what's best for you" parental-like stronghold over the continent. Tired of "the politically motivated, finger-wagging approach of western governments," Africans have welcomed China’s emphasis on pure business. Numerous sources quote the lack of political motivation, as well as societal or environmental demands, as one of the primary reasons that Africa is welcoming the Chinese investment.

Sahr Johnny, the Sierra Leonean ambassador in Beijing, was quoted as saying the following regarding China's projects in Africa:

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This post is the first in a two part series exploring China’s role in Africa’s development. Part 1 focuses on the breakdown and impact of African exports to China, and Part 2 focuses on the role of Chinese investment and imports in Africa.

I think that those of us who are interested in the potential of market-based development need to initiate a conversation around one of the biggest elephants in the room, and that is the role that Chinese foreign direct investment (FDI) and aid is playing in Africa's development. In particular, this inflow could fuel potential base of the pyramid (BoP)-focused enterprises and mean new opportunities in both employment and a greater access to choice in goods and services for BoP consumers.

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This past weekend, I had the pleasure of attending the Growing Inclusive Markets Forum in Halifax, Nova Scotia. The conference was hosted by the Faculty of Management of Dalhousie University and the Coady Institute of St. Francis Xavier University.

The Growing Inclusive Markets initiative is a UNDP program that aims to "raise awareness by demonstrating how doing business with the poor can be good for poor people and good for business." The forum hosted a mix of development specialists, academics, and practitioners, who were all debating the growing role of the private sector in development.

There was a great energy throughout the weekend, and the people in the room seemed to have no problem connecting across the issues and committing to action. I thought that one of the best aspects of this conference was that numerous citizens from the developing world were in the room. Representatives from over 45 countries were present, and this shaped the conversation considerably.

In a conversation about the role of ICT in Development, one of the panelists was a Tanzanian Ashoka fellow, Joseph Sekiku, whose organization, Family Alliance for Development and Cooperation (FADECO), is utilizing a combination of mobile phone networks and radio to get accurate market prices to rural farmers. His most salient comment was probably that, "Africa has been dependent on donors for too long." In a discussion regarding the role of carbon markets for the poor, an organic farmer from the Caribbean shared her struggles with reaching the scale and capital required to access the established carbon markets. It was wonderful to hear these voices and witness their influence on the conversation.

The following outline was presented during the last session, and does a good job of summarizing the constraints and opportunities that were highlighted over the short conference.  It is also a concise summary of many of the same overall challenges and hopes we all face when considering the role of the private sector in addressing poverty and inequality in the developing world.

Constraints & Barriers

• Enabling Environment
• Lack of regulation or enforcement of regulation
• Lack of infrastructure
• Unstable political environment

• Finance
• Models need to be revised to match the different contexts in the developing world
• Both startup and continued growth capital in necessary to build up the private sector in the developing world

• Trust
• The poor have a history of being exploited, and are subsequently mistrusting of the private sector (i.e. Coca-Cola in India)
• There is continued worry about private sector provisions of what many see as "public goods" such as clean water, healthcare, and education

• Human Capital
• There is a need for building entrepreneurial skills in the developing world (there was an ongoing debate throughout the conference about the nature vs. nurture of entrepreneurial tendencies)
• Need to strengthen and retain the overall labor pool

• Market Awareness
• Extra effort is needed to inform citizens of the market opportunities / there is still a great problem with information asymmetry and lack of communication technology
  
  
• Market Access
• Lack of intermediaries
  
  
• Scaling Up
• It is difficult for businesses to scale while considering local cultural and geographical sensitivities and preferences

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Thanks to Dana Krechowicz, Associate, Markets and Enterprise Program at WRI, for providing the background on Socially Responsible Investing.

In April of this year, The Opportunities for the Majority Office of the Inter-American Development Bank (IDB) and Innovest Strategic Value Advisors (Innovest) announced the completion of a groundbreaking project – to create the Opportunities for the Majority (OM) Index of publicly traded national and multinational firms operating in the Latin American and Caribbean (LAC) region that are engaged in BoP activity.

In Latin America and the Caribbean, the majority of people, estimated to be over 70 percent of the population, lives on less than $3,260 a year (about $9 per day). The Opportunities for the Majority program was launched to engage the private sector in addressing the needs of this population. According to the IDB, in Latin America and the Caribbean, this market represents a combined purchasing power of $500 billion USD per year.

The IDB’s partner in creating this index, Innovest, is a financial advisory firm with substantial experience in what it calls "sustainability-enhanced" and "community investment" indices.

Although the new OM Index is not a fund that you can invest in today, it attempts to create a benchmark for comparing large-scale companies that claim to be serving and engaging with BoP markets.

The index is in its initial phase, but its eventual goal is to generate awareness around those companies that are heavily involved in BoP markets, determine a framework for what it means for them to be truly serving and co-creating with the BoP, and then measure their financial performance to see if there is a correlation between BoP market engagement and financial success.

These initial steps are very similar to the beginnings of the Socially Responsible Investment movement, which has taken off over the last decade. According to the Social Investment Forum, SRI assets in the U.S. have risen more than 324 percent from $639 billion in 1995 to $2.71 trillion in 2007. During the same period, the broader universe of assets under professional management in the U.S. increased less than 260 percent from $7 trillion to $25.1 trillion.

The OM Index is trying to capitalize on the changing demands of many in the investment community. According to the OM report, "Global sustainability indices such as the Dow Jones Sustainability Indexes (DJSI) and the FTSE4Good Index have proven effective in shifting capital flows into more sustainable companies…The DJSI has resulted in a shift of USD 3 billion to companies rated as 'sustainable' in the index." This index aims to similarly shift capital into companies in the LAC region with BoP strategies.

In selecting companies for inclusion in the OM Index, seventy-five companies were interviewed and then analyzed within the OM framework to benchmark their performance. This index is clearly targeted only at large multinational and national companies involved in with BoP. The top companies are listed here:

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Base of the Pyramid (BoP) strategy has a few key tenets, one of which is the power of aggregated demand. Those living at the base of the economic pyramid may have little buying power on their own, but when they are pooled together, their consolidated demand amounts to a viable market.

Companies are increasingly aware of and planning around this aggregated demand approach, as we have seen through such examples as the William J. Clinton Foundation's ability to bring down the prices of AIDS drugs through a guaranteed high volume of sales.

That said, there is a need for not only existing products and services, but even more so for innovation at the BoP – so what about aggregating demand in those cases? How do you assess the ability and willingness of the poor to pay for products and services that do not already exist, and how do you convince companies to take a risk on such a vast and fragmented market?

I asked myself this question while researching the myriad of innovative water filtration systems designed for the BoP. As I was getting ready to critique a few of the designs and business models, I realized that I wasn’t qualified to make those judgments. I have only had to use a water filtration system a handful of times, and I don’t know the numerous local realities well enough to criticize one design over another. However, the targeted population for these systems is geographically scattered, linguistically diverse, and resource-intensive to reach, so who would decide which innovations would move forward?

While many in the base of the pyramid movement have hoped that innovations to serve both developing and developed markets will come from BoP communities themselves, co-creation has been lengthy, intricate, complex and time-consuming. Hart and Simanis have invested countless hours in the field practicing their embedded innovation model, and although they have had numerous success stories, the businesses that have been created through this model are still primarily community-centric versus globally-reaching. As Al Hammond’s recent writings on transformative sector scaling have pointed out, "A number of community-initiated business models have produced good results, but they aren't easily replicable and don't scale." Going from community to community and engaging each in participatory design may be the ideal for embedded innovation, but it is certainly not at the scale that is necessary to reach efficiency gains and profitability through aggregated demand.

So, how do we engage with and understand the needs of millions of geographically dispersed people? Part of the solution may come from the model of internet-based networks that consolidate demand – which I was first introduced to through Pop!Tech’s curator Andrew Zolli.

Zolli spoke recently at Columbia Business School about forces shaping our society. One of the key determinants that he laid out was the power of networks. Zolli, who is known as an expert in global foresight and innovation, said that understanding networks will be an increasingly invaluable skill, and the power that networks yield will also grow in enormity.

He was not just referring to social networks or to personal networks, but also to technology-based demand networks. These are online communities that have been created to aggregate the demand of multiple users in order to attract events, boycott businesses, and even design new gadgets. He cited Eventful and CrowdSpirit as two leading examples of these technology-based demand networks. Thanks to the internet, individual actors who would normally not yield much power on their own are able to connect virtually with people with similar demands and make something happen.

CrowdSpirit, though very much a start-up, is the type of platform that I feel could help bridge the divide between innovation and high-volume demand at the BoP. It was launched to "co-create" electronic gadgets through an online design community. In essence, innovators from anywhere can submit ideas to the site, and numerous people vote for their favorite designs and aspects and then agree to purchase the device if the producer adopts their preferences.

The inventor decides to go forward with the idea if he or she sees that there is sufficient demand. CrowdSpirit is built on community-based and participative design, and takes some risk out of the equation for the producer/inventor, since there’s an advance purchase commitment at the end of the R&D pipeline.

Although it is built for high-end electronics, the model is fascinating. The internet is enabling people to overcome traditional boundaries and bringing together the voices of millions. In 1983 Pierre Bourdieu, an early economic sociologist, realized the power that could be created through networks of relationships, "enabling numerous, varied, scattered agents to act as one and overcome the limitations of space and time."

That sounds like exactly the type of model that would work for the BoP, and with technology that Bourdieu could not imagine only two decades ago, it may be possible. In C.K. Prahalad’s latest book The New Age of Innovation, the author notes that "we have finally reached the point where the confluence of connectivity, digitization, and the convergence of industry and technology boundaries are creating a new dynamic between consumers and the firm." He continues by observing that

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