Established Jan 2005 Bangalore

Established Jan 2005 - Bangalore

• Established Jan 2005 - Bangalore

• Goals

• World-class academic research
• Contributions to Microsoft products and businesses
• Support growth of research programs in India and elsewhere

• Six research areas

• Cryptography, Security and Applied Mathematics
• Vision, Graphics and Visualization
• Mobility, Networks, and Systems
• Multilingual Systems
• Rigorous Software Engineering
• Technology for Emerging Markets

• Collaborations with government, academia, industry, and NGOs

The classic BoP approach (and its detractors)

• The classic BoP approach (and its detractors)

• Returning to the evidence: what enables ascent from poverty?

• Inverting the classic BoP paradigm

• Pursuing BoP Producer  ToP Consumer linkages

• Technology’s role in enabling ascent from poverty

Huge collective purchasing power at the BoP – 5-13 trillion $ (PPP)

• Huge collective purchasing power at the BoP – 5-13 trillion $ (PPP)

• Large and small companies can make significant profits by selling to the BoP

• Small margins, large volume business models

• Selling products & services to the poor can enable poverty exit through improved consumption

• ToP corporations’ development impact is in selling quality and needed products to the BoP

Inaccurate measurement – much smaller mkt at $1.2 trillion (PPP). Even smaller at real fx rates.

• Inaccurate measurement – much smaller mkt at $1.2 trillion (PPP). Even smaller at real fx rates.

• Cost of and constraints in serving BoP very high

• Cited examples either non-profit or serving MoP

• Significant poverty exit can only occur through increasing the real incomes of the poor

• State must deliver key services to the poor and protect from ‘bad’ consumption

• ToP corporations’ development impact is in employing the BoP

“Diversification of income sources was mentioned as a principal reason in the corroborated accounts recorded for 35 per cent of escaping households. Accounted for in equal part by irregular, informal sector employment and by ancillary activities, especially dairying, such diversification of income sources is a very significant reason for escaping poverty in these villages, and it is almost as important in more industrialised Vadodara district as in less industrialised Sabarkantha district” (Krishna, 2005:19)

• “Diversification of income sources was mentioned as a principal reason in the corroborated accounts recorded for 35 per cent of escaping households. Accounted for in equal part by irregular, informal sector employment and by ancillary activities, especially dairying, such diversification of income sources is a very significant reason for escaping poverty in these villages, and it is almost as important in more industrialised Vadodara district as in less industrialised Sabarkantha district” (Krishna, 2005:19)

BoP as Consumers

• BoP as Consumers

CONTRACTUAL PRODUCTION

• CONTRACTUAL PRODUCTION

• Third party assures producers of demand and sets price

• Risk is borne by the external aggregating agency

• Earnings gain is only through sales, and does not include any stake in any further value addition or the final product

• Producers still retain individual ownership of assets

PRODUCER COMPANIES

• PRODUCER COMPANIES

• Aggregate the production of the poor in a manner that allows greater bargaining power in the market around both sales as well as procurement of inputs

• Use the ‘Producer Company’ structure to allow member-ownership structure (one member-one vote)

• Hire management to target new markets

• Allow thousands of producers to pool their output, and invest in some amount of processing and value-addition

• Producer-members have a stake in the final returns generated by the company

• Distributed dividends alone ~4% of annual household income (Masuta)

Providing finance for production becomes a less risky proposition for most banks when the supply-side is streamlined, efficiency gains from aggregation and specialisation are realized, and a collective of producers shares the risk of production

• Providing finance for production becomes a less risky proposition for most banks when the supply-side is streamlined, efficiency gains from aggregation and specialisation are realized, and a collective of producers shares the risk of production

• In a Producer Company, internal management of working capital is moulded to suit production timings, input purchase, and the consumption needs of the producers. Innovations in financial management allow convenient cash flows for the producers throughout the production cycle.

Surviving shocks:

• Surviving shocks:

• PRADAN’s poultry cooperatives grew by 50% in 2005-2006

• But the bird flu scare caused the market price of chicken to plummet to half the cost of production

• Heavy losses of Rs. 5 to Rs. 20 lakhs per coop that year

• Yet, the size of the organisation allowed the producers to use reserve funds, collectively mobilise more working capital, wait out the downturn

• They subsequently rode the boom in 2006-07 to more than double their revenues the next year

“Technology, it is already apparent, can be as powerful a tool for addressing barriers and inefficiencies at the bottom of the pyramid as in more established markets.” (Prahalad and Hammond)

• “Technology, it is already apparent, can be as powerful a tool for addressing barriers and inefficiencies at the bottom of the pyramid as in more established markets.” (Prahalad and Hammond)

• Yet, the effects that investments in technologies have on enabling the poor to move out of poverty vary greatly, and in many cases are hard to establish.

• Technology primarily works as an amplification tool. The impact of technology in enabling poverty alleviation is then only as good as the task it seeks to enable.

M-PESA: a mobile money transfer/payments service with outreach to ~6M in Kenya

• M-PESA: a mobile money transfer/payments service with outreach to ~6M in Kenya

• Used predominantly for small-denomination (<$80) domestic P2P remittance transfers between family members and friends

• Weakest case: Urban migrant paid $1 more per transaction using M-PESA once every 2-3 months

• Strongest case: Urban migrant saved ~8% of monthly income by using M-PESA

“ITC's empowerment plan for the farmer centres around providing Internet kiosks in villages”

• “ITC's empowerment plan for the farmer centres around providing Internet kiosks in villages”

• ITC’s e-choupal is primarily used to facilitate the distribution of coupons for procurement of crops like soybean by ITC - less for accessing information for negotiation or arbitrage by the farmers

• The disintermediation leads to an average net upgrade of ~6% of annual income per farmer

The Masuta Producer Company coordinates and aggregates the production of Tasar silk yarn. The fabric produced goes on to be part of FabIndia textile products,

• The Masuta Producer Company coordinates and aggregates the production of Tasar silk yarn. The fabric produced goes on to be part of FabIndia textile products,

• A combination of TV, DVD players and videocameras (through Digital Green) enables training in productivity-enhancing opportunities and assists with the ongoing promotion and sharing of best practice

• The average producer’s income has involved an increment of 30-40% of household income

Some market-based mechanisms to assist poor households to rise out of poverty are more effective than others

• Some market-based mechanisms to assist poor households to rise out of poverty are more effective than others

• The most powerful mechanisms have to do with substantially improving incomes of the poor

• Strong earnings gains have been realised by aggregating production of the poor, collective risk-sharing, specialization, value-addition through selective processing, and direct sales and marketing to rich clients

• Pursuing BoP Producer-ToP Consumer linkages through Producer Companies and enabling these with appropriate technologies can indeed make significant progress towards “eradicating poverty through profits”

Role of Government in Producer Companies must be limited to infrastructure provision and prudent industry regulation

• Role of Government in Producer Companies must be limited to infrastructure provision and prudent industry regulation

• Social and psychological effects of technology adoption/consumption are critical to well-being as well, but often do not themselves drive ascent from poverty

• In an economic downturn, overall demand falls. Yet, the rich have greater buffers to sustain consumption than the poor.