Archive for the ‘BoP’ Category
Should Urban Migration be Encouraged?
Contributed by Robert Moore
With developing world seeing rapid migration to urban areas, the wisdom behind the notion that urban migration is good is being challenged. Jonathan Glennie at Poverty Matters blogs one of the Growth Week panels on industrial development and poverty (and afterwards thanks God that economists don’t rule the world). He especially objects to one conclusion, that: “The marginal farmer in India is helped to stay in agriculture, when this is exactly the person that needs to be encouraged to move to an urban area.” This is a good article to read for both getting the view of a panel of distinguished academics and that of the skeptical observer.
Read Glennie’s full article here.
Is There Hope for a Third Wave for Microfinance?
The microfinance industry in India has seen several waves of interest and investment. The current crisis within the sector (caused by the microfinance ordinance in the state of Andhra Pradesh clamping down on MFI operations), is already causing disruptions within the industry. However, if the sector manages to successfully come out of it, it could see a Third Wave.
Atleast that is the suggestion made by Atreya Rayaprolu and Sree Kumar, in their article “Are Investors Ready to Ride the Third Wave of Indian Microfinance?” In their article the authors suggest that because so much attention has been paid to the sector during this crisis, there is a growing recognition of the need for balance between profitability and impact. Because of the pressures excerted by the system, the authors suggest that the third wave of microfinance will see a growth in client-centric innovations. This is unlike the earlier waves, where the NGOs and investors respectively were centric to the microfianance model.
The authors are of the opinion that this model will ultimately lead to further opporunities for investors, for whom the third wave presents several attractive investment opportunities.
Read the entire article here.
Is Giving Money Away the Best Way to Change the World?
Bill Gates and Warren Buffet two of the world’s richest men recently pledged to give their money way to charity. They have also been on a drive to encourage other billionaires to do the same. In India Azim Premji recently created waves when he decided to donate much of this wealth towards improving the country’s level of education. It is beyond doubt that these billions donated can go a long way to create social change. But is giving away money really the way to change the world?
Dayo Olapade, of the New America Foundation explores this question. Read the entire article here.
Power to the People
In this post, Robert Moore takes a closer look at the recently published IFMR Report “Power to the People,” and the challenges raised.
The IFMR Trust recently released a report along with the World Resources Institute on clean energy options for the base of the pyramid in India. A previous Villgro post described the impact this report should have on energy entrepreneurs and investors but the general BOP practitioner can learn a lot from this new research as well. The document starts from a Macro level view of the market potential and then goes into more detail about specific issues that certain companies face. All of the information paints a highly valuable picture of challenges at the BOP that we all can learn from.
One of the first things to note was the surprising variations in market size. Of the $2.11 billion estimated aggregate potential market for the four sectors studied in the report more than 96% of it was for Decentralized Renewable Energy Sources leaving only 1.2% for solar home systems ($27.39 million), 0.8% for Solar Lanterns ($18.58 million), and 1.1% for Energy-Efficient Cook stoves ($24.13 million). While every report’s numbers need to be taken with a grain of salt, seeing these low numbers should prompt BOP practitioners to try and understand the total market size potential for their own industry so as not to be blindsided by limited growth opportunities or high competition crowding that, if this report is correct, one can imagine will happen in this one.
Another benefit of this document is that it paints a picture of several businesses and the immediate challenges that they face. For example, one of the challenges discussed is the charitable distribution schemes that distort the local market. A real life example of this is how the free kerosene stoves and televisions promised by the Tamil Nadu has made the citizens there assume that the energy efficient cook stoves should be given to them for free as well creating a hard market for the energy efficient cook stove companies to enter as most of their customers are reluctant to pay for the product. This report is chalk full of other ideas like this that can quickly educate someone about what issues to look out for in the BOP.
A relevant issue that is pointed out in the document relates to incorrect assumptions that can be easily made in impact assessment and market acceptance. This particular situation reveals that some BOP energy companies might look more beneficial and feasible on the surface because they state their impact based on the assumed value of the fuel their clients are saving. You would figure there is no problem with this but while an energy efficient stove might have a significant reduction in the amount of fuel needed, it can’t automatically be assumed that it will be of value to the end user. This is because in many cases they get their fuel for free by just gathering biomass and burning it. When simple situations like these are illustrated throughout this document it becomes easier for one to imagine where there are incorrect assumptions about their own impact or market.
The rest of the report includes an overall introduction to India’s rural BOP clean energy market, the specific systems and products in place, and the roles of different players like NGOs and Governments. It is a great primer for their intended audience but also has a lot of insight that can be utilized across many sectors utilizing social innovation in India. You can view a copy of it here.
Addressing the Needs of Rural Populations
In this paper, Joseph Thomas, Chief Technology Officer at Villgro discusses some of the challenges of early-stage technology development for BoP markets.
Rural development endeavours have gone through many changes over the past 40 years. The first of these were the appropriate technology groups that believed in the use of local resources and skills to build sustainable technology solutions for problems faced by rural communities. The number of institutions in the world operating under the rubric of “appropriate technology” grew from a handful in the early 1970s, to over five hundred by 1977, to an estimated one thousand by 1980. In the 1980s there was a convergence of the approaches of the AT movement and participatory technology assessment.
Many practitioners of Appropriate Technology tried to establish dissemination models for innovations without enterprises. Enterprises where viewed with suspicion as their mandate was not one of social good but of profit. However these practitioners held a belief that demonstrating a successful innovation in a small locality would be sufficient. They further believed that there would be immediate adoption across geographies and governments. When these adoptions did not take place, these practitioners created small enterprises under the banner of “income generating technologies”. It was quickly realized that these had very positive local impacts but did/could not scale. Often the local enterprise succeeded due to the passion of one person.
In this paper we will discuss those problems and some of the technologies that are at the laboratory stage that have the potential to solve them. The sectors of digital infrastructure (IT), energy, healthcare, enterprise, and natural resource management will be covered here.
Read the entire article here.
Simply Fly: Chapter 2
Devyani Srinivasan continues her review of “Simply Fly,” by Captain Gopinath, the founder of Air Deccan, India’s first low-cost airline. The book promises to hold some interesting lessons for social enterprises looking to work with the BOP. This month Devyani presents a review of Chapter 2.
In Chapter 2, Gopinath fights in the Bangladesh Liberation War, is posted on the Sino-Indian border and then in Thiruvananthapuram in Kerala, South India, and then leaves the army and decides to become a farmer. Gopinath says that he went through an emotional-spiritual crisis while on the Sino-Indian border, that triggered his desire to leave the army. However, the reader is given few details on what this emotional-spiritual crisis is.
For me, Gopinath’s decision to leave the army is related to his resentment and hatred of regimentation, which I mentioned in my last post on Simply Fly. In Chapter 1 Gopinath says that when he first enrolled in the Sainik School he lived in a tent, and that, “the tent became a recurring motif in my later life and I kept going back to tents.” The tent seems to be a symbol of the life free from regimentation that Gopinath desires. At the end of Chapter 2, he makes a decision to try to farm the largely barren land that his father receives from the government, in compensation for the farmland that they were going to lose for a dam. Gopinath says that:
…I unrolled a reed mat in front of the tent and then spread a cotton durree (the thick, home-spun ethnic Indian mat) across it. I lay there in silence that evening, observing the stars in the sky, satisfied that I had at last found my true calling in life. I was exhausted from the travel and the toils of the evening, but at peace with myself.
The second tension that I identified in the first chapter, between equality and hierarchy, is also present throughout Chapter 2. It is vividly described in an incident when a general attends an army dinner in Thiruvananthapuram. According to army tradition, the officers pay for the food and beverages bill of a general, even if they drink expensive liquor. However, Gopinath felt this practice was unfair and, in consultation with his Brigadier, decided that the general would be served Indian whisky and rum, rather than Scotch.
Once Gopinath decides to become a farmer, he again demonstrates his sensitivity to inequality. He makes an agreement with a Dalit boy; Raju that they will take turns farming and cooking equally. Although Gopinath does not make this explicit, it seems that by doing so, he is freeing Raju from the bonded labor that he was trapped in, because his father had borrowed money from a few households in the village.
Shakti Pirakudhu
Shakti Pirakudhu is a feature film my Director Usha Rajeswari, that is the story of a woman in Madurai who seeks success by setting up her own enterprise. The film is based on conversations with self help groups around Madurai, and was originally made as a training manual for an MFI. Robert Moore shares his thoughts on the film, and how it is has been received.
Recently a screening of the film Shakti Pirakudhu was held in Bangalore followed by a chat with the Director Usha Rajeswari.
The creation of the film stemmed from Usha’s experience as a documentary film maker and a request from Madura Microfinance to create a training film for their self help groups. Eventually it was decided that the film would become a feature film instead of just for training.
The impact of this film as a training video seems to meet its mark as the audience of village women recalled a lot of the film from seeing one of the first cuts. Additionally it sounds like the plan is to show the village women only one clip at a time so it will be easier for them to process and utilize the learning in each clip.
The impact of this film outside of a training video will probably be determined by its distribution. There were a lot of BOP professionals at the screening so if more screenings are made available in certain cities and marketed to that demographic it is sure to gain an audience. As a film outside of a villager or BOP professional training video it could strike a chord with a normal audience because even the sound engineer at a screening was driven to tears and was inspired to treat his wife better after seeing the film.
One of the interesting aspects of the film was the types of problems that it addresses and the way they are overcome by the protagonist. As Madura Microfinance describes frequent reasons for their clients’ failure: “It was not that these women lacked intelligence, but rather their aspirations and success were circumscribed by a lack of education and exposure to the world beyond their villages. They were also constrained by a fatalistic mindset.”
The film didn’t just describe the problem but also prescribed a solution, showing how the protagonist started taking things into her own hands after being scolded by the local school teacher of how she can’t blame her failures on the outside world but she has to take responsibility herself. It was also humorous the way the film depicts the villagers’ annoyance with a different character who flaunts the fact that she has an MBA and that she thinks she knows everything about business.
Since this film is intended to train villagers in the Madura Microfinance company one can trust that the scenarios are accurate and relevant to the BOP. Because of this the film can be considered not only a great education for the villagers it was meant to train but also an education for the BOP professionals who want to get a better grasp of the real market issues and how they are being overcome today.
Open Innovation: Innovation Through Networking
In this article, Vijay Rangarajan, a Villgro Fellow, takes a look at the ‘open innovation’ route to innovation, and looks at its relevance for social enterprises.
In 2004 Proctor and Gamble was able to accelerate the launch of their new line of crisps, Pringle Prints using a new approach to innovation – open innovation. P&G was looking for a way to introduce edible printing on to each crisp. The idea was to have trivia, pictures and words printed on each crisp. Rather than develop the technology in-house, P&G floated the requirement globally, and acquired the technology from a small baker in the Italian city of Bologna. Taking this route allowed them to take the product to market at a fraction of the cost of the traditional innovation model. The term ‘open innovation’ was first used by H.W Chesbrough, of the University of California, Berkeley in his book Open Innovation: The new imperative for creating and profiting from technology. Open innovation is defined as “the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively.”[i]
Traditionally, companies follow the invention model to innovation. If it is a well established firm, they create infrastructure and recruit the best talent from their internal fund to produce innovative products. A fortunate startup or a mid-sized firm would do the same using the funds from venture capitalists. The idea behind this is to keep the innovation within their four walls and gain an edge over their competitors. The focus in this model is on talent and not on the business model. World class talent developed valuable innovation that finds its way to the market. Through this process, the innovations which are not useful to company’s core business are shelved. Often the people involved in developing the idea leave the firm and commercialize the innovation on their own. As a result the firm which financed the innovation is not able to enjoy the benefits. Chesbrough, uses the example of Xerox Palo Alto Research Centre (PARC) to explain how Xerox failed to capitalize on disruptive innovations developed by their own staff. These products were later launched by companies set up by former Xerox employees. The market capitalization of these companies collectively exceeded Xerox itself.[ii]
Secondly, the invention model is not able to sustain the high levels of top-line growth. Stagnation in R&D productivity leading to flattened sales and squeezing by nimble competitors mandated change in the innovation model. Important innovations were originating mostly from small and midsized entrepreneurial companies. Individuals, university and government were looking for ways to make money out of their intellectual property. The above factors led to the new paradigm of open innovation.
Rather than developing all the innovations inside the firm, the idea behind open innovation is to look outside the boundaries of the firm for innovations that can solve business problems. Also, the intellectual property created inside the firm can be licensed to other firms for application in other markets. It is important to understand that open innovation is different from outsourcing innovation. Outsourcing is transferring work to low-cost players. But open innovation is about finding good ideas that are almost ready-made solutions that suit your requirements. Open innovation is a form of crowdsourcing that helps companies to have a rapid design process with the help of ideas of people available globally.
Changes in the way innovations are done in firms have led to emergence of players who play a significant role in connecting technology seekers and providers. They act as knowledge brokers between the R&D labs of multinationals and scientists in government and private labs, consultants and universities. The benefits that the firms that seek them get are several times greater than the seeking charges that these brokers charge. Ninesigma, Innocentive, Yet2.com are some of the intermediaries who provide services to accelerate the process of open innovation. Other ways of looking out for innovations outside the firm would be to have your own people to look out for ideas or look out for innovations among the partners and suppliers you engage with.
The Institute for One World Health (IOWH) is a perfect example of a social enterprise capitalizing on open innovation. The organization is a pharmaceutical social enterprise founded in 2000 that is dedicated to developing drugs that can cure diseases affecting millions irrespective of their ability to pay for the drugs. They conduct an international search for most promising solutions that can cure the most infectious diseases in the world. After evaluating each identified lead, they closely work with the inventors, form partnerships to seek funding, and secure rights to develop these innovations for the noncommercial markets in the developing world where they are needed most. Through their efforts, they are able to provide an appealing outlet for idle intellectual property of pharmaceutical and biotechnology companies. Pharmaceutical scientists, drawn to a mission of saving lives and improving health worldwide, are eager to participate in groundbreaking and compassionate research and development. IOWH also plays a significant role in bringing promising drug research from the lab into the clinic and onto regulatory approval and manufacturing.
These examples show how open innovation can lead to more players entering the market, as well as direct benefits to us, the consumers who use these innovative products. The IOWH example shows how social enterprises can use the idea of open innovation to possibly create greater social impact. Open Innovation has helped realize the full potential of every innovation. But we must remember that it is not a substitute for in-house innovation, which is still required for the development of ideas that do not find a solution outside the company.
[i] Open Innovation Blog, http://blog.openinnovation.net/2010/08/definitive-open-innovation-primer.html
[ii] http://www.quickmba.com/entre/open-innovation/
Clean Energy and the BoP: More Power to the People
In this article Robert Moore shares his thoughts on a blog post by Think Change India, which reflects on the issue of clean energy at the BoP. Read the original article here.
IFMR Centre for Development Finance and the World Resources Institute are coming out with a report focusing on clean energy options for the base of pyramid in India, this report is titled “Power to the people” which was released in Mumbai on the 28th of September 2010 in front of a host of social sector investors and companies.
This article introduces the realities of rural electrification and the basis for their upcoming report. It showcases a few significant concepts such as electricity access statistics, reliability, and the current market for alternative energy sources.
In India only 40% of rural households have access to electricity and 85% depend on kerosene for lighting and firewood for cooking. However the problem is actually worse than that because as an apple farmer quoted in the article astutely said “Most houses have electrical connections, but what is the use? We have power for a few hours a day. Even when there is electricity, it is barely enough to operate one or two light bulbs. We cannot rely on it.” This farmer makes an important point but this leads to an even deeper issue – imagine the trouble that commercial companies would have trying to rely on such energy distribution. How can India move manufacturing, processing, and industry jobs closer to the villages if the electricity isn’t even reliable enough for consumer use?
As the article goes on to illustrate, there are companies such as SBA Hydro which are selling clean energy products and services directly to the Base of the Pyramid population. The SBA Hydro company sells hydroelectric power but there is also SELCO which sells solar power and Husk Power Systems which sells biomass power to name a few others. Many of these company’s customers actually have access to electricity but as the quote above illustrates, the current available electricity just isn’t enough.
With SBA Hydro’s $1.26m investment from Acumen Fund allowing them to reach 6000 households, SELCO reaching over 120,000 households in the last 10 years, and Husk being able to reach over 10,000 households you can see that these companies are doing a great job providing solutions to the BoP. But even if 100% of their sales were to be from rural customers with no previous access to electricity this still only solves 16% of the 81 million rural households without electricity in India.
While each of these alternative energy companies are still pretty small and face their own challenges the “Power to the People: Investing in Clean Energy for the Base of the Pyramid in India” report should provide valuable information to both the investors and entrepreneurs trying to meet the needs of India’s rural electrification market. Hopefully with more reports like these the energy companies can make smarter decisions and investors will feel more confident about the financial and social returns they will achieve from deploying capital in this industry.
Ed. Note: Read more about the report’s launch on the IFMR website, and access the report here.
Innovation and India
In this article, Mayank Jaiswal, Villgro Fellow 2010, looks at how innovation in India differs from innovation in the West, and what might help bridge the gap.
I have always been intrigued by the question – why does systematic innovation and product design happen so much better in the developed world compared to the developing world?
In this piece, I have tried to triangulate the causes and potential solutions, using my reading and understanding of the book “From Jugaad to Systematic Innovation” by Rishikesha T Krishnan, talking to Heather Fleming (Co-founder, Catapult Design) and my own grey cells. I have also attempted to predict some future trends. First, it is pivotal to confirm whether the developed world actually does design better products than those of the developing world? I am not going to quote texts, tomes, or indices as mentioned in the book, but from first-hand experience, the details and attention to efficiency, ease of use and the ‘user experience’ derived from a salt shaker or an airplane, I can say product design is executed better in the developed world than the developing world.
This begs the question: are product design skills God’s gifts to certain individuals or are they acquired? I turned to Heather Fleming for answers. Fleming has worked with Engineers Without Borders both in Kenya and India. She is also an Adjunct Professor at Stanford University, where she teaches at the School of Design where she interacts with students from different nationalities. Speaking to her, I got a sense that genetic disposition may not be a factor, i.e, you don’t have to be born with keen spatial or aesthetic sense. But the cultural differences surely are. For example, Flemming suggests that in the US there is an ‘innovative air,’ particularly in Silicon Valley. This spirit to innovate and make things better is ingrained deeply in the US due to the capitalist nature of society which rewards better processes and innovative solutions to problems. India has slowly started emerging from the quasi-socialist model, moving towards a capitalist model for economic governance. I am not criticizing or condoning the reasons why India took the quasi-socialist route to develop after independence, since I believe that is a separate discussion altogether. However, it is a fact nonetheless and in this model’s focus was on provision of jobs and making mega industries with foreign help.
So is culture the only aspect? Not quite, there’s actually more! Applied design also has a strong role to play in developing a sound innovation system. Fleming pointed out that she went to Stanford to study design and right from the get go the focus was on applied design. This mirrors the discussion about educational institutions and academic institutes referred to by Krishnan in his book. The incentives for educational institutes in the US (and now China too) are tied much more closely to research and innovation as compared to Indian institutions. Also, the funding for basic science research like Physics and Chemistry is huge in countries like the US as compared to India. This leads to more innovative products, which in turns leads to more innovation and better designed products.
The academic research is followed by great infrastructural support. If an individual is passionate about innovation and product design there are a plethora of companies in the US one could join and hone these skills. Apple, which makes the ‘coolest’ products, as well as more mundane businesses like Kellogg are working grounds for product designers. (Yes, Kellogg! I personally think they need to figure a way to increase the shelf life of their product, as well as use less packaging material.) Not to mention established design shops like IDEO or start ups like Catapult Design.
Are we to assume then that individuals do not matter? Is it just the infrastructure? Well, that would not be fully correct. Heather attributes Stanford for her ability to design for “American companies,” but it was her zeal and passion for sustainable design which led her to self-learn concepts of sustainable design (the basis of all of Catapult’s work). Due to her experience, Heather and Catapult incorporate a holistic view of design beyond the nuts and bolts to include questioning who the consumer, what competition exists and how the consumer use the product. Heather has actually taken a few pages from the business analysis book and uses it to design a complete, practical and implementable solution for her clients. Thus, it is not all about the infrastructure!
Finally, what does the future hold? Will the balance remain as is – developed world doing all the design and the developing world following along? This is a tough one, and one can but make educated guesses at best. We can clearly see a trend in countries like India and China towards innovation. There are more incubators opening and more incentives for academic institutions to do cutting edge research, but is the developing world there yet? I would say not really, that it is on the right track but still has a ways to go. On the other hand, is everything hunky dory for the developed world? Not really! The U.S state of Ohio recently banned outsourcing of federal or state government contracts. It is getting tougher for foreign nationals to get jobs in the developed world, given that a major recession is going on and the developed world is facing unemployment issues, but the flight of talent to the developed world was a key reason for its cutting edge technologies. Companies such as Microsoft, Intel have openly valued the role foreign nationals played in growing their companies. Thus these trends do not augur well for the innovation ecosystem of the developed world, but what has to be seen is do these trends continue when the developed world has come out of the recession.
Of course, an ideal situation would be when both the developing and the developed world ignite a healthy competition to attract human resources – the key to innovation – and simultaneously provide infrastructure to support them. In such a situation the world will come out ahead.
The author would like to thank Heather Fleming, Co-Founder of Catapult Designs who graciously gave her time to talk on the subject and review the draft of the article.