Lecture 5 - The bop market up close (and personal). In this chapter, students will be able to understand: Understanding clients, the market, and the opportunities; the market; the average consumer in the market; tapping the opportunities.
THE BOP MARKET UP CLOSE (AND PERSONAL) Summary • • UNDERSTANDING CLIENTS, THE MARKET, AND THE OPPORTUNITIES Case Studies 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 Sonali • Doorways are open to bring some relief to the dripping heat, and inside them sariclad women sit on the floor in semidarkness, Sonali among them 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 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 needlenosed pliers in her hand, twisting wires hour after hour Sonali • Many of the women in Kherwadi 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 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 backtwist and eyestrain 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 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 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 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 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 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 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), Swadhaar FinAccess 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 What Do We Learn from Delia, Xavier, and Sonali? • Another thinker, C K Prahalad, proposed a different solution—a business solution 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 What Do We Learn from Delia, Xavier, and Sonali? • He suggested four components necessary to build a commercial infrastructure for BOP markets: 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 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 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) 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 What Do We Learn from Delia, Xavier, and Sonali? • Throughout this course we explore how such adaptations can work in the financial services sector Summary • The market • The average consumer in the market • Tapping the opportunities ... such as a loan 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... activities: Delia operates a shop and rents rooms in her home and Sonali supplements her husband’s labor income with beadwork What Do We Learn from Delia, Xavier, and Sonali? • Many such families face... land titling and other forms of official recognition, for these solutions would legitimize the fruits of grassroots labor and investment What Do We Learn from Delia, Xavier, and Sonali? • Another