Designing for the Poor

WSJ writes:

WSJ.com: When you design products for the poor, what must you keep in mind?

Mr. Fisher: The No. 1 items will be money-making devices, and money-saving ones only if they’re extremely cheap. You need something easy to maintain without many tools, and something that can be easily transported, because the poor live in remote areas. It can’t require a pickup truck. Human powered — maybe no petrol and no electricity. It has to be energy efficient. You’re dealing with 80 watts of human power.

Mr. Polak: You have a whole different range of affordability when you’re surviving on a dollar a day. We see it a little differently on quality versus affordability. People will pick a product that only lasts two years if it’s cheap. But some of the design principles are the same [as when you design for the rich] — you look at a tool and identify the key contributors to cost and look at ways to design around them.

MicroFranchising

Sramana Mitra points to a paper by Kirk Magelby and writes: “MicroFranchising is a development tool that seeks to apply the proven marketing and operational concepts of traditional franchising to small businesses in the developing world. The primary feature of a MicroFranchise is its ability to be streamlined and replicated. The businesses are designed for microentreprenuers and usually target development issues such as health, sanitation, and energy.”

Urbanising India

The Mint has an article by Atanu Dey and Reuben Abraham:

India has a choice of futures, say, in 2030. Will the majority of Indians continue to live in 600,000 small villages engaged in near-subsistence agriculture or will they be in living in 600 well-planned vibrant cities (or 6,000 towns of 100,000 population, for that matter) working in non-agricultural sectors and enjoying a rich social and cultural life?

Depending on how we use our resources, the latter future can be a reality. Achieving that reality would be the greatest challenge for India and arguably, the most rewarding as well. Rather than trying to trap people in villages and agriculture, the focus should be on the creation of new urban centres which will lead to economic growth and development of people

Marketing to Rural India

India Knowledge@Wharton writes:

On one side are the fast-moving consumer goods (FMCG) and the consumer durables companies. On the other are consumers in rural India, potentially the largest segment of the market. Finally, the two are coming together.

The fact that this has not happened in the past is not for want of trying. In Mumbai and New Delhi corner offices, executives have long recognized that to build real sales volumes they will have to reach outside the big cities. In several categories, rural India already accounts for the lion’s share. According to MART, a New Delhi-based research organization that offers rural solutions to the corporate world, rural India buys 46% of all soft drinks sold, 49% of motorcycles and 59% of cigarettes. This trend is not limited just to utilitarian products: 11% of rural women use lipstick.

Microfinance

The Economist writes:

Microfinance is in vogue thanks partly to the IFIs, which provided grants, loans and training to untested microcredit institutions. The private sector shunned the riskout of ignorance, a lack of expertise and fears that making money from the poor would look predatory. The pioneering work of donors means there are now some 10,000 microfinance institutions lending an average of less than $300 to 40m poor borrowers worldwide.

Only a fraction of the world’s 500m impoverished micro-entrepreneurs have access to the financial system. There is not enough donor or socially responsible money in the world to meet the demand. That’s why microfinance needs private-sector capital. Aid agencies, philanthropists and well-meaning social investors can help attract it by investing only where commercial outfits will not. When the children come of age, the best parents step aside.

Mobiles in Rural India

A note from Nokia: “Mobile communication is revolutionizing economic and social life in rural India, spawning a wave of local entrepreneurs and creating greater access to social services according to a new study by The Center for Knowledge Societies (CKS) commissioned by Nokia. The research identifies seven major service sectors including transport, finance and healthcare that could be radically transformed through mobile technologies.”

Technology Development

Atanu Dey writes:

I briefly surveyed all major areas of technological advancement, from transportation to medicine to entertainment to whathaveyou. In every single sphere, the conclusion was unavoidable, that though the advancement was made with an eye to benefit the rich, eventually the poor benefited as well. I could not come up with an instance of any technology that was developed successfully specifically for the poor. It appears to be an empirical law. How do I explain that?

A little pondering and I had what I consider the economic reasoning for that empirical fact. Briefly the story goes this way. Technology advancements have high fixed costs, the recovery of which require high initial prices. The rich are early adopters and pay for the privilege, thus underwriting the development costs. As the marginal costs are typically low, economies of scale kick in and average costs approach the low marginal costs. Note that there is a time element to the whole story. First, it takes a bit of time for the high fixed cost of development to be recovered. Second, as time goes by, there is “learning by doing.” Firms figure out how to do things more efficiently. Average costs come down further. Finally, marketplace competition forces prices to reflect low average costs.

Microfinance in India

India Knowledge@Wharton writes:

In India, the history of rural finance is typified by the image of a nationalized banking system which has failed to deliver credit and, if it has, not been able to recover it. Microfinance, by contrast, is increasingly being seen as an innovation in lending and the panacea for rural India’s indebtedness to money lenders.

The recent focus on microfinance in India marks a paradigm shift in orientation. The recipients of state-sponsored subsidized loans in the early 1980’s, 75 million poor households today have become the driver of new assets. While no accurate estimate of the size of the Indian microfinance market exists, M-CRIL (Micro-Credit Ratings International), a leading micro credit rating agency based in Gurgaon, puts the estimated demand at Rs. 480 billion ($10.7 billion). That is calculated for 60-70 million households at an average household credit demand of Rs. 8,000 (less than $200).

Indian banks may soon saturate high- and middle-income customers with retail loans and home loans, and are under pressure to move to low-income and even poor households. To do this, they are choosing to partner with MFIs, most of which have current recovery rates of over 96%. Foreign banks with little or no presence outside India’s major metros are also looking to work with MFIs to secure their micro-lending market shares.

Urbanisation Needed in India

[via Atanu] Financial Express has an article by Janmejaya Sinha of Boston Consulting Group, India:

The real problem is that India has currently only eight real cities. These cities have civic amenities. They have schools, hospitals, running water, power for large parts of the day, public transport and a much better police force and security than the rest of India. They are not easy cities to live inby no means. But they are the best we have. This shows the skew as well as the opportunity for India.

My real point is, why are there only eight real cities in India? I know we have some urban conglomerations that have a million people. But when do we move to 100 real cities and 300 real towns? The operative word here is real?

Our population needs to move out of the village into real towns and cities. They dont all need to come to Mumbai or Delhi, as everyone in the US does not move to New York or LA. They need to be able to move to places where they can access real opportunities.

It is impossible to provide every village this opportunity, but surely we could develop 100 cities. Let us identify these cities and build proper urban infrastructure around them.

Transforming Education

My colleague, Atanu Dey, has a post on how he would like to transform education in India. “Want to transform education? Want to re-engineer the whole system of education so that it is effective, efficient, and relevant to the world of today? I have the business plan and the funding. I need committed smart people who want to accomplish an important task, have fun while doing it, and make a lot of money (exactly in that order.)” Atanu’s big idea:

Provide an end-to-end managed service to educational institutions which will make education more effective, efficient, and relevant.

The service will be to provide all educational content (rich, multi-media, massively hyperlinked across domains) and tools (learning, teaching, testing, evaluation, teacher training, administration, reporting), and the technology platform to host the content locally and to access it.

Microfinance

Knowledge@Wharton writes about a recent conference:

The business of making loans to poor people in underdeveloped countries is itself entering a critical period of development, according to panelists at this year’s Wharton Finance Conference.

On one hand, they said, foundations and other non-governmental groups have shown the private sector that there is money to be made in lending to some of the globe’s poorest populations. And, they acknowledge, only the private sector has the capital to do this at the necessary scale. But they also warned, at the panel and in interviews afterward, that the drive for profit could leave behind some of the neediest citizens — particularly those in remote rural areas — and thus defeat the enterprise. Meanwhile, as an indication that microfinance is indeed on the global agenda, economist Muhammad Yunus, founder of Grameen Bank in Bangladesh, was awarded the Nobel Peace Prize on October 12.

Emerging Education Technologies

Smart Mobs links to New Media Consortium’s Horizon Report:

The four major trends that emerged are identified below and reflect significantly changing attitudes toward technology and communication that surfaced again and again in the research. The significance of critical thinking skills and participatory media literacy is mentioned.

Dynamic knowledge creation and social computing tools and processes are becoming more widespread and accepted.

Mobile and personal technology is increasingly being viewed as a delivery platform for services of all kinds.

Consumers are increasingly expecting individualized services, tools, and experiences, and open access to media, knowledge, information, and learning.

Collaboration is increasingly seen as critical across the range of educational activities, including intra- and inter-institutional activities of any size or scope.

Bottom of Pyramid Mirage?

Atanu Dey discusses a paper by Aneel Karnani:

Karnanis paper argues against the BOP proposition. He summaries the BOP proposition as: there are profits to be made by selling to the billions of the worlds poor, and by doing so, bring prosperity to them, thus alleviating poverty, and that multinational corporations (MNCs) should sell to the poor to do good while doing well for themselves.

First there is the disagreement regarding the actual size of the BOP market. The BOP camp estimates that the potential market at PPP terms is US$13 trillion. Karnani estimates a more modest US 1.2 trillion at PPP, and more like US$ 0.3 trillion at the financial exchange rate. Thats an order of magnitude difference there.

Furthermore, Karnani points out that the poor spend most of their income on food; the poor have little disposable income. Therefore, if their incomes dont rise, they cannot afford to consume more than they actually do. If there are ways of making stuff more affordable to the poor, it is certainly not by selling stuff in smaller packages. Smaller packages in fact have a higher unit cost, not lower. Pretending that smaller packages increase affordability is similar to pretending that selling food in very small packets will solve the hunger and malnutrition problem of the poor. He concludes that the single serving revolution is a dud.

More discussion.

Education and the Web

[via Smart Mobs] Judy Breck writes:

Education practice today does little more than toy with the emerging innovation of digital connectivitywhen, in fact, a new knowledge ecology it causes will have to become central to global learning for education as an institution to remain relevant into the future.

You may believe that education does not belong in the open chaos of the emerging Internet. But thinking that misses a wonderful new cognitive order of learning that emerges from the chaos of connected knowledge. Education should be right in there with the other major elements in the ubiquitous mix of the Web world. The openness of the content within the Internet is a change for learning that is as complete as the invention of phonetic symbols was for language.

Education in India

Ramesh Jain writes: “The higher education system can not grow without the elementry education system. India needs education system for masses at every level. India does have excellent Institutions for higher as well as early education, but they are all only for a small fraction of population. It will be great if the current momentum takes India to build the infrastructure, including education infrastructure, in India.”

More on OLPC

Atanu Dey continues his dissection:

Since the One Laptop Per Child (OLPC) proposal is being considered here, we have to have alternate proposals which can be considered in contradistinction to it. I propose, for arguments sake, the One Blackboard Per School (OBPS), One Teacher Per School (OTPS), and One Set of Basic Facilities Per School (OSOBFPS) schemes out of many potential candidates. First, we will consider how they stack up against the OLPC proposition. The next thing we do is to figure out which of the alternates is the one that is perfect and which therefore poses the threat to the achievement of the good.

Which of the twothe OLPC or the OBPSis the perfect and which the good? If OLPC is the prefect solution, then clearly it will impair the good solution of providing basic educational opportunities to many; if the OBPS is the perfect solution, then the OLPC, as the good solution, may be prevented. My position is the former: in an ideal world, where all children have the opportunity to gain a basic education irrespective of the accident of birth, giving all children laptops will be an unalloyed blessing. An ideal world, which in our case we have not got, would admit the perfect solution and no trade offs will be required. The imperfect world, which is what we have, requires we trade off the potential benefit of the few for the guaranteed benefit of the many.

India’s No to OLPC

Atanu Dey comments on India’s decision to decline the $100 laptop:

Tens of millions of children dont go to school, and of the many who do, they end up in schools that lack blackboards and in some cases even chalk. Government schoolsespecially in rural areasare plagued with teacher absenteeism. The schools lack even the most rudimentary of facilities such as toilets (the lack of which is a major barrier to girl children.)

Attention and funds need to be directed to those issues first before one starts buying laptops by the millions. Fact is that we need basic education (literacy, numeracy, etc) and secondary education. These have been provided very successfully without computers around the world. Every one who went to school and became educated more than a mere 30 years agoin the entire history of human civilization, billions of people in alldid so without having ever seen a computer. What they had was much less expensive than PCs: they had teachers and an environment conducive to learning.

Rural India and Reliance

Atanu Dey writes about Mukesh Ambani’s initiatives:

First, he talks about creating cities. Cities are the engines of growth since it is an urbanized population which has the productive capacity to create economic wealth and thus lead to development. Indias largely rural population has to be urbanized and since the existing cities are basically incapable of absorbing the population, new cities have to be developed.

Second, he talks about transforming agriculture by raising its productivity. Building a large number of farm-supply hubs will make the supply chain for agricultural inputs more efficient. Raising agricultural productivity will not only increase production but will also release farm labor which can then migrate to the cities and produce non-agricultural goods and services.

Third, the farm output will be more efficiently brought to the market. It is estimated that around 40 percent of farm produce never reaches the consumer. Introducing efficiencies in the supply chain of farm output and retailing it efficiently will translate into lower prices for consumers and higher realized prices for the farmers. This in turn will increase farm incomes so that the remaining rural population would be able to effectively demand more non-agricultural goods and servicesthe same stuff that is being produced by the labor released by the farms.

This is along the lines of Irma Adelman recommended long ago: Agricultural Demand Led Industrialization, or ADLI.