The Bottom of the Pyramid (BoP) consists of the 4 billion people who live on less than US$2 per day. These people comprise one of the largest and poorest socio-economic groups in the world, and are often poorly integrated, or completely left out of, the formal marketplace. The extent of their participation in the market has been limited to the factory floors of multinational corporations, making insubstantial wages and working in disgraceful conditions. More often than not, they are unable to afford the products they slave to produce.
In the past decade, the market has begun to make an important shift for the people at the BoP. Instead of exploiting the poor and turning them into a cheap labor-force, innovative business-people have begun to look for ways to serve the poor. This shift was motivated by two different but interrelated factors. First, as the economic recession persists, businesses are becoming desperate for new, profitable markets. They are beginning to realize that money can be made by integrating into the market the more than 50% of the world population that has previously been left out. Second, philanthropic aid is continuing to produce less than ideal results and critics of charity are raising their voices louder than ever. As a result, the strong moral values of philanthropists are combining with the profit-seeking determination of business-people and producing a market full of impact investors and social enterprises.
As described in my previous post, First Impressions, more than 1/4 of the population of Guatemala belongs to the BoP. This group of 4 million people can either been viewed as “charity-cases” or as a large un-touched economic market with a multitude of demands. Many business-people tend to shy away from emerging markets, especially those filled with entrepreneurs and consumers who lack collateral and credit history. However, the poor have proven time and time again to be creative entrepreneurs and reliable customers. In 2010, a group of four college students immersed themselves into poverty in the rural Guatemalan village of Peña Blanca to learn about the financial lives of the extreme poor. In a presentation at TEDxBuenos Aires, Zach Ingrasci and Chris Temple presented 3 Financial Secrets of the Poor:
1. “The poor are active money managers.” Money is always on their mind and they are extremely accurate at calculating and budgeting their money.
2. “They manage their money using many different tools” including borrowing from and loaning to friends, creating savings clubs, participating in micro-finance organizations, and accumulating assets for resale.
3. “Flexibility and reliability are benefits the poor are willing to pay for.”
The Living on One team has shown the world that the extreme poor are financially adept and can handle being more than just aid recipients; they are ready to become part of the “Market of the Future”. Although there are a number of obstacles to reach these people and harness and market their creative talent, it is a challenge that many social entrepreneurs and determined impact investors have already begun to successfully tackle.