From Microfinance to the Bottom of the Pyramid: serving the poor profitably

I would like to basically make a comment regarding both micro finance and bottom of the pyramid market potential. I do believe that micro finance is nothing more than an application of financial credit to the bottom of the pyramid market. It is a basic adaptation of a common product of credit to the necessities of the bottom of the pyramid: no possibility to give any collateral is replaced by group solidarity, amounts and channels of distribution are adapted to local needs among many other specificities.

I do think that BOP really represents a big potential for multinationals. It is enough to analyse what multinationals such as Unilever and other similar companies are doing in consumer good markets. In India Unilever, for example, introduced an inexpensive powder detergent called Wheel and outsourced its production to a local manufacturer. The product was less refined than Unilever’s premium Indian brand and sold for about one-third as much, allowing the company to serve a previously neglected low-price market. With only one strong competitor in it, Wheel quickly won 38 percent of the powder-detergent market in India, thereby matching the competitor’s market share. Margins in this market, due to less spending in branding and other administrative costs, were however as high or higher than for the premium brand.

What is the social impact of this business development of BOPs? The main social impact of this type of activity is the supply of much better quality products or services to low income consumers at a cheaper price. Additionally it also impacts a lot the whole economic and social tissue of less developed countries and regions. In order to capture this low-priced markets multinationals usually try to emulate local competitors. By doing so they try to retain the best local managers that best know the market and don’t focus so much on branding but much more on distribution effectiveness, efficiency of operations and simplicity. By doing so the local market/industry gets more developed through bigger economic activity as well as more efficient hence being able to produce more value to both production factor owners and end consumers.