‘fortune’ for all: creating shared value, reducing capability poverty and improving livelihoods...
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Module Code 7YYAA0023
Module Title MULTINATIONAL ENTERPRISES, GLOBAL VALUE CHAINS AND LOCAL DEVELOPMENT
Question Answered 2. Can “Base of the Pyramid” business models helpimprove the livelihoods of the poor? If so, under what conditions? And if not, why not? Please answer referring to at least two different industries/sectors.
Essay Title ‘Fortune’ for all: Creating shared value, reducing capability poverty and improving livelihoods at the Base of the Pyramid
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‘Fortune’ for all: Creating shared value, reducing capability poverty and improving
livelihoods at the Base of the Pyramid
In 2006, Bangladeshi patriot, economics professor, philanthropist and successful
businessman Muhammad Yunus was awarded the Nobel Peace Prize for his organization and
subsequent work with the Grameen Bank. Grameen Bank later spawned for-profit businesses
in textiles, Internet and mobile phones, as well as 13 not-for profit organisations for as
diverse sectors as funding to knitwear (Yunus 1999: 303-304). Yunus was one of the first
innovators of new business models with social missions geared toward the poorest of the
poor, with Grameen Bank established in 1983 in Dhaka. Without overstating the influence of
the Nobel Committee, by awarding Yunus the Nobel Peace Prize in 2006, the committee
clearly signalled a slow acceptance in the West of Yunus’ unorthodox, market- and
economics-driven solutions to poverty.
The Grameen family of businesses and not-for-profit organisations are one of many
examples of how interested parties can approach various sectors in developing countries like
Bangladesh. The for-profit ventures targeting the poorest in the global marketplace became of
especial interest at the turn of the century with Prahalad and Hart’s seminal work “Fortune at
the Bottom of the Pyramid” (2000). Base of the Pyramid (BoP) (also known as “bottom of
the pyramid”) business models are a 21st century phenomenon with roots in social programs,
value-based competition strategy, a drive for new markets and a desire to combine social
progress with business resources. These endeavours often target poverty alleviation as a core
business goal in addition to profit generation, scalability and other more common goals.
Many measurements of poverty alleviation are available to BoP companies, from the highly
tangible income poverty (which is often used to define BoP demographics) to the highly
abstract capability poverty devised by Sen (1999). This work will use multidimensional
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poverty, founded in Sen’s capability poverty and measured in Alkire and Foster’s
Multidimensional Poverty Index (MPI) (2011). This measurement of poverty includes the
many facets of life in which the poor can experience poverty: income, nutrition, health,
productivity, and many more. By targeting indicators on the MPI, BoP businesses can change
the livelihoods of the poor for the better. BoP business models can help improve the
livelihoods of the poor when the business models create shared value at the BoP by targeting
multiple causes of poverty and demonstrably reducing multiple poverty indicators. Falling
short of targeting multiple poverty indicators, BoP models will not generate enough shared
value or have a large enough impact to improve the livelihoods of the poor.
What are ‘the BoP’ and ‘BoP business models’?
Who is at the ‘BoP’?
Although the BoP is often thought of as a singular concept, there are actually several
variations of BoP theory that result in several variations of BoP business models. The first
division divides who makes up the BoP market demographic. Prahalad and Hart (2002)
introduced the idea of the bottom tier (Tier 4) of the global population when that population
is stratified by income. This is those living under $1500 PPP annually in 2002 dollars (4)—
about four million people. Hammond et al (2007) define the four billion at the BoP as all
persons earning under $3000 PPP/year––double Prahalad’s calculation. Rangan et al
demarcate three BoP groups––the “extremely poor” who live on or below $1-a-day, those
earning $1-$3-a-day, and those earning $3-$5-a-day (2011: 2). The World Economic Forum
similarly stratifies the BoP between the “low, middle and top” segments based on poverty
lines and purchasing power (2009: 10-11). Others delineate the BoP according to income
quintiles. Others differentiate the BoP according to poverty and access rather than income.
Rangan et al (2011) categorise three groups that can make up the BoP market and be
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incorporated into the business model in different ways: consumers, co-producers, and clients
(6). For the purposes of this study, the BoP market will be defined by classic stratified
income according to Prahalad and Hart. The bottom tier of the global population is most
closely aligned with the consumer and producer base for and with which shared value is
created and poverty is alleviated through successful businesses models. It should also be
noted that while the group is defined by an income level, it is a diverse demographic defined
by many characteristics beyond income, such as lack of access to markets, high levels of
entrepreneurship, value-conscious consumerism and daily, large institutional and physical
constraints.
What is a ‘BoP’ business?
The second division is among the types of businesses that should operate at the BoP.
Seminal works from Prahalad (2005) and Prahalad and Hart (2000; 2002), as well as those
from World Economic Forum (2009), Porter and Kramer (2011) and Rangan et al (2011)
argue that Multinational Corporations (MNCs) are best suited to serve the BoP market
segment. London (2007) and Lenz and Pinhanez (2012) argue both MNCs and Small and
Medium Enterprises (SMEs) should operate in the BoP market. And London (2007), Lenz
and Pinhanez (2012) and Pervez et al (2013) argue social enterprises that serve the BoP
should also be considered in analysis. For analysis purposes, this work includes MNCs,
national SMEs and social enterprises as BoP businesses. All such business models can
include a central principal of shared value and target multiple poverty indicators if successful.
How should firms interact with the BoP?
The last division in BoP literature is how those in the BoP market should be
integrated into the business model. There are two main schools of thought here: the BoP as
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consumers and the BoP as producers. The BoP as consumers focuses on “selling to the poor”
by incorporating innovative marketing and sales techniques for the unique market. As noted
by London (2007), selling to the poor models “are scalable profit-oriented ventures operating
in the informal economy, catalyzed by external participation and co-created with those at the
BoP, that connect non-local goods and services to BoP markets” (26). The BoP as producers
focuses on incorporating the poor into the value chain as distributors, local entrepreneurs,
staff members or product developers instead of merely consumers. This perspective focuses
on the economic potential of employing folks from the BoP and tapping into their social
networks, intimate knowledge of customer wants and needs, and general usefulness as
employees (London 2007: 26). Both “BoP as consumers” and “BoP as producer” models can
create shared value and alleviate multidimensional capability poverty.
Under what conditions do BoP models ‘work’?
Creating Shared Value
Creating value for both the firm and for society is essential for a BoP business model
to succeed financially and improve livelihoods of the poor. For decades prior to the BoP
approach, companies narrowly defined value creation and favoured short-term, firm-centric
value creation that generated the highest profits rather than long-term value in customers, the
environment, or society at large (Porter and Kramer 2011: 2). The BoP model is one way to
generate more value between both the firm and society; however, it should be noted that other
approaches could also generate shared value, such as public-private partnerships; innovation
of technologies, operating methods, and management approaches; redefining productivity in
the value chain; or building supportive industry clusters at the company’s location (Porter and
Kramer 2011: 5, 8). A BoP model reconceives both products as well as markets (defined by
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relative income tiers). It can also incorporate innovation aforementioned, and therefore how
shared value is created at the BoP is dynamic.
For BoP models to be successful (e.g. to improve the livelihoods of the poor), shared
value must be built into the business model. It cannot be a positive externality of the model or
a happy accident from “selling to the poor”. Porter and Kramer (2011: 10) note BoP models
can easily adopt shared value as a principal tenant of business strategy and as a solution to
society’s largest problems (10). London (2007: 11), Simanis and Hart (2008: 3) claim all BoP
initiatives are established in mutual value creation––if mutual value is not built into the
business model, it is not a BoP initiative. This latter claim is a bit of a stretch—firms can
certainly target Tier 4 customers with a model driven by profits for the firm and new products
for customers without creating shared value. Coca-Cola’s “Micro Distribution Centres”
(MDCs) is a good example of a viable, BoP business model lacking shared value in its
paradigm. The MDCs began distribution at the turn of the century in Ethiopia in response to a
lack of reliable basic infrastructure and a high number of small retailers. Franchised MDCs
are run by local entrepreneurs who receive small shipments of product and then deliver via
4x4 trucks across the uneasy roads to small storefronts. The model focuses on analysing
market demand for Coca-Cola products and solving a distribution problem among BoP
consumers (BCtA 2010: 1-2). Nowhere in its business operations model is shared value a
priority.
Therefore, while the Coca-Cola MDCs may be considered a viable, profitable venture,
it is not one that helps improve the livelihoods of the poor consumers. If initiatives consider
social value creation (value outside of the firm) as an output instead of integral to the
business model, the BoP are consumers expected to pay for a product or service, and there are
few or no effects that benefit individuals’ lives such as better education, healthcare or
employment (Sinkovics et al 2014: 698). Successful business models with shared value at the
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centre of strategy will be discussed later (a comparison chart can be found in Table 2), but
such a difference is an integral distinction between firms that serve the BoP market and firms
that improve livelihoods of the people that comprise the BoP.
The importance of creating shared value in BoP markets is that while the firm is
strategizing around value-added activities social value is also incorporated. Social value here
defined as: “an activity that leads to the realisation of any of the … core values of
development” (Sinkovics et al 2014). However, whereas the trio define the “core values” as
“sustenance, self-esteem, and freedom from servitude” (2014: 692), here core development
values are capability creation and deprivation reduction according to Sen (1999), Alkire and
Foster (2011), and Alkire (2005). Such capability creation and deprivation reduction can be
measured by improvements along the MPI index. Social value is easier conceived among
businesses that are not MNCs but start at the BoP (social enterprises, national SMEs,
companies started by BoP entrepreneurs, etc. While more difficult, it is possible for a national
company not native to the BoP market or an MNC to generate social value. This can be done
by incorporating the BoP members as consumers, producers, local entrepreneurs and
employees (Sinkovics et all 2014: 694; London 2007). If initiatives hold shared value as a
central strategy, social value creation will be just as important as profit generation to the
overall business model.
Alleviating Multidimensional Capability Poverty
“The amount of value created or destroyed across these different dimensions will
vary depending on the type of venture” (London 2007: 32) because poverty is
multidimensional. Several theories of poverty exist, but the capability approach is best suited
for firms to describe and measure poverty among BoP consumers and producers. Capability
poverty targeted by the MPI is founded in Sen’s notion of poverty as a set of deprivations that
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constrains and individual’s capabilities to be productive, healthy or other personal measures
of value (1999). The individual-focused approach made measurement difficult until the MPI
was developed, because it highlighted how subjective and relative poverty can be. The MPI,
as aforementioned, is the current leading measurement of multidimensional poverty among
the international development community. Developed at Oxford University, the MPI is now
used as the base standard of poverty measurements created by many multilateral
organisations such as the United Nations, the World Bank and various regional banks. If a
business model can alleviate poverty by targeting several dimensions through one strategy, it
is more likely an individual’s human capabilities will improve and multiple deprivations will
be eliminated.
Alkire (2005) argued a measurement for poverty needs to not only include dimensions
of health, education and income, but also employment, empowerment, physical safety,
freedom from shame, and psychological/subjective wellbeing (1-2). Dimensions of the MPI
can be found in Table 1 (appendix) and include health, education and standards of living,
with indicators across nutrition, child mortality, years of schooling, children enrolled in
school, cooking fuel, and access to toilet, water, electricity, floor and assets (UNDP 2014: 1).
These dimensions work to “identify multiple deprivations at the household level” (UNDP
2014: 9). Improving several of any of these indicators would indicate successful BoP social
value creation previously discussed; combining multi-indicator improvement with profits or
value-added for the business are the true markers of a successful BoP initiative.
As with shared value creation, not all BoP business models will tick one or more
poverty alleviation box (again, see Table 2 for comparison). Some BoP models, while
attempting to include BoP consumers or producers in a specific market or value chain, simply
do not target poverty reduction or multidimensional poverty reduction. For example, take the
case of Sambazon—a U.S. MNC employing indigenous communities in Brazil to harvest acai
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berries for U.S. consumption. The company might be working with individuals at the BoP
and therefore generating employment for some acai pickers or small farmers. But
Sambazon’s business model is mainly collaboration with pre-existing, fair trade certified
small-scale acai suppliers. (Schmidt 2015) The suppliers had pre-established businesses and
therefore would not be considered BoP producers because of their income levels.
Furthermore, as the initiative is generating employment for the suppliers and training to
farmers, standards of living might improve; but, the BoP model would have no direct impact
on any other dimensions of BoP poverty. Sambazon’s development impact success measures
of improving buying power for farmers and their families reflect this.
The company does incorporate environmental sustainability into its business model’s
“triple bottom line” with social, environmental and economic bottom lines (Schmidt 2015).
However, commitment to sustainability, environmental protection and profit generation does
not significantly change the livelihoods of the BoP producers Sambazon works with. The
endeavour by Sambazon is a useful and clearly value-generating pursuit, but it does not
alleviate capability poverty. Capability poverty is the best indicator of poverty alleviation
available for BoP businesses and therefore should be the standard of BoP model ability to
improve livelihoods. There are industries and companies at the BoP that can successfully
alleviate multiple dimensions of capability poverty and generate profits through their
business models. This is done most easily through business models that bring new technology
or seminal services to BoP consumers and producers that have ripple effects to other sectors.
How can BoP models create shared value and alleviate multidimensional poverty?
Financial Services for the BoP: Micro, Entrepreneurial and Mobile Finance
The financial service industry can clearly both create shared value and alleviate
multiple dimensions of capability poverty at the BoP. Several finance models such as
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microfinance, entrepreneurial finance and mobile finance currently serve BoP markets.
Microfinance models now include credit, savings, insurance and payment services
(Jachimowicz 2012: 3). Microcredit businesses loan to or service customers with small
monetary amounts, often under $100 USD. There are many examples of financial services
created specifically for BoP customers, such as Standard Bank of South Africa’s AutoBank
E-centres (Prahalad and Hart 2002: 7); Spandana, Compartamos, SKS Microfinance
(Banerjee and Duflo 2011); Kiva Zip in Kenya (Graber 2014); ICICI Bank in India, Anglo
American’s Anglo Zimele in South Africa, Tribanco in Brazil, ECOM Supplier Finance,
FINO, BASIX, (Jenkins and Ishikawa 2009) and many more. The sector holds opportunity
for MNCs like Anglo American and social enterprises like Kiva alike to get a share of the
BoP market. Financial services are probably the best-suited sector to demonstrate real
improvement for BoP customers.
By accessing credit, improving financial security, making loans available and other
services, BoP customers can pay for and insure education, health services, foodstuffs,
improved water and sanitation and home building materials. In other words, access to
financial services can directly affect every indicator of multidimensional poverty as measured
by the MPI. Moreover, since access to financial services (where available) can be essential to
maintain a certain standard of living, BoP finance customers become lifelong customers,
generating sustainable profits for the firm. Furthermore, as mobile banking (Ciravegna et al
2014: 229) and microcredit (Yunus 1999) have proven, innovations in financial business
models at the BoP can be transferred to more developed markets.
The Grameen Bank mentioned earlier is one of the first microfinance institutions
globally. The bank loans small amounts of money to BoP customers in Bangladeshi villages
(almost all to women) on credit (i.e. with no collateral). Previously, any entrepreneurial
women who sold bamboo stools or processed rice paddies or produced other products had to
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go through credit middlemen to get money to buy supplies at rates of up to 20 percent interest
(Yunus 1999). Through Grameen, the women gain loans with no or low interest rates and the
ability to provide for their families. This endeavour creates value for BoP customers by
providing much-needed credit, albeit in small amounts, as well as financial education and
monetary independence from male heads-of-house. The bank’s loans have a 98 percent
repayment rate, generating economic value for the company, which has been profitable since
1983 (Yunus 1999).
The microfinance model incorporates small loans and most notably does not require
capital for loans (Yunus 1999). By loaning in small amounts not used in traditional banking
to BoP customers not traditionally serviced, the entire model is driven by providing access to
financial services for market segments previously shut out. Grameen’s central model focuses
on serving the BoP in order to generate a profit and provide credit to poor women. Shared
value is integral to Grameen’s model. Moreover, by providing access to credit, groups of
women are able to purchase materials for production, livestock, seeds for crops, agricultural
equipment, and housing materials. The microfinance model stretches into multiple facets of
life and subsequently reduces multiple deprivations.
ICT for the BoP: Mobile, Broadband and Satellite Technologies
Similar to and often in accordance with the finance industry, BoP business models in
the information and communication technology (ICT) industry can also improve the
livelihoods of the poor in a significant way by creating shared value and alleviating multiple
dimensions of capability poverty. Having access to mobile phones, broadband, or the Internet
is a dynamic experience for any market, but especially for the BoP. Recent innovations in
ICT have revolutionised the services available at low cost thanks to improve ICT
infrastructure, including telecom health services, mobile banking (previously outlined),
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agricultural markets, and informational services for specialized markets such as fishing. As
ICT technology innovates and improves, creating ICT services and infrastructure specifically
for the BoP is easier and easier. As noted by Ciravegna et al (2014), failed states and
subsequent institutional voids made the original telephony technology hard to install and
penetrate BoP markets; but, with satellite and other technologies, over the past decade mobile
users in emerging markets outnumber those in developed markets (228). And unlike many
sectors, “ICT is unique in having an impact beyond the individual user's welfare as a
consumption good,” with ability to also “accelerate growth, create jobs, reduce migration
pressure from rural to urban areas, increase agricultural and industrial productivity, increase
services and access to them, facilitate the diffusion of innovations … [and] strengthen
competitiveness” (Von Braun and Torero 2006: 1).
ICT for the BoP models focus on small incremental payments that are affordable for
customers, ensuring reliable network access is available in the previously underserved area,
and offering value-added services for customers through mobile networks, such as health
care, informational services or banking. The potential for ICT models to incorporate value-
added services such as public health and education services (Von Braun and Torero 2006:6)
creates huge potential for social value generation within the ICT model. Poor basic ICT
infrastructure and room for innovation in business models leave huge potential profits for
firms willing to enter previously underserved or un-served market segments, especially in
rural areas. ICT can “expand markets, increase efficiency, provide better social services and
strengthen informal safety nets” (Von Braun and Torero 2006: 9). Simply by ensuring
payment plans are affordable for BoP consumers (either by micro-instalments or rental
schemes through local entrepreneurs), ICT business models can alleviate multiple
deprivations for consumers across MPI indicators. Health, education, standard of living can
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all improve through the networks ICT models create, services ICT offers, and potential
expansion built into the models themselves.
For instance, ICT Ltd’s e-Choupal network has radically improved the lives of
farmers in India with consequences beyond its intended use. The “e-Choupals” are series of
information centres with Internet connectivity in farming communities operated by a local
farmer. The kiosks were intended to distribute information for crop prices so the BoP farmers
would be able to negotiate better prices daily by having access to sales information for a
variety of possible markets. (Prahalad 2005: 320, 356) Despite having a narrowly defined
purpose (agricultural information) by establishing the connectivity networks, the e-Choupals
were eventually used for checking weather reports, setting grain prices via the Chicago Board
of Trade, helping children with schoolwork, and expanding access to credit and insurance
(Prahalad 2005: 364, 372). This clearly improves multiple poverty indicators among the
population, as it directly affected education and standard of living. The e-Choupals now
include the value-added service of regional brick-and-mortar shops offering everything from
farm equipment to health care (Jenkins and Ishikawa 2009). Apart from generating profits for
ICT, the farmer-operators and the individual farmers who are able to negotiate better crop
prices, e-Choupal also generated large, community-wide social value.
PC-based ICT models are perhaps not as popular as mobile ICT because the
infrastructure is more costly, difficult to install and equally difficult to maintain for successful
service. However, because of the potential access with Internet connectivity, PC-based ICT
models are still a viable option for BoP markets, especially if the focus is on access (i.e.
through a village entrepreneur) and not units sold. With the ability to provide access to
information on a variety of industries and direct improvements in key poverty dimensions
such as education, health or income, ICT business models can be both highly lucrative and
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value-added ventures for firms while generating a wealth of social value for BoP
communities.
A note on finance via ICT: The case of mobile money
As it combines both the financial services and ICT sectors, M-PESA is a unique and
successful example of a business model vastly improving livelihoods of those in the BoP
market. M-PESA revolutionised the global mobile finance industry from its roots in Kenya.
By using mobile phone technology, banking became available to the BoP consumer. “M-
PESA allows users to deposit money into an account linked to their cell phones and then use
the cell phone to send money to other people's accounts and to make payments” (Banerjee
and Duflo 2011: 189). The innovative model to move all money to mobile has been so
successful “that M-PESA has begun to be implemented in Uganda, Tanzania, Rwanda, and
Afghanistan, and it is considered an example to be emulated across the developing world”
(Ciravegna et al 2014: 229). This endeavour was so successful because in the Kenyan BoP
market, traditional banking models did not work, small sum transfers were easy,
technological innovations reduced prices of handsets, minutes and SIM cards, and the BoP
consumers’ needs were built into the business model from the beginning (Ciravegna et al
2014: 229). As with microfinance and PC ICT, M-PESA and mobile banking combines the
benefits of each to have a wide-ranging impact on the lives of BoP customers. The market is
lucrative throughout the value chain (from operating MNCs like Vodafone to entrepreneurs
selling handsets or minutes) and mobile phone access opens up a wide variety of services to
improve livelihoods of the poor such as health care, credit, education, etc.
What lessons and limits exist at the BoP?
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As demonstrated by both the financial services and ICT sectors, improving the
livelihoods of the poor through BoP business models is possible. However, not all BoP
business models are capable of having a lasting impact and improving livelihoods. In order
for this to occur, business models must incorporate creative and competitive strategy that
generates mutual value for both the firm and society. This shared value cannot be a positive
externality of the model, but rather must be central in order for shared value to be generated.
Moreover, to have a lasting impact on the livelihoods of the poor, the BoP model must target
multiple dimensions of capability poverty and reduce deprivations as an outcome. Without
reducing multiple deprivations, the ability for one business model or one industry to create
large impact at the BoP is severely reduced. However, if firms can successfully achieve both
of these markers, as Grameen Bank, ICT’s e-Choupal, or M-PESA have, they can have a
lasting impact on the livelihoods of millions of poor globally. This is the true potential of
BoP markets—to improve the lives of millions while generating value for firms and
economic profits along value chains.
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Table 1: Levels of the Multidimensional Poverty Index
Table and all information has been taken from UNDP 2014.
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*Value activities for firms from Porter (1980: 39-41).** Dimensions according to Multidimensional Poverty Index (MPI) (UNDP 2014). Cases from: Yunus 1999, Prahalad 2005, UNDP 2010, Ciravegna et al 2013, UNDP 2015,
Table 2: Sample BoP Firms and Projects, Value Creation and Poverty Alleviation
Company Original Country of Operation
Business Model Firm Value Created*
Social Value Created
Dimensions of Poverty Alleviated**
Successfully improved poor’s livelihoods
Coca-Cola Ethiopia Micro Distribution Centres (MDCs) with small shipments sent to local distributors, product shipped via truck to small local retailers
Inbound logistics, outbound logistics, marketing and sales, service, firm infrastructure
Economic opportunity, entrepreneurship, access to Coca-Cola products
Assets No
Sambazon Brazil Sustainable cooperative of acai suppliers, sustainability education for small farmers, fair trade certification
Marketing and sales, procurement
Economic opportunity, environmental sustainability
Assets No
Grameen Bank
Bangladesh Microloans with no capital collateral; women-principal group lending mechanisms
Operations, marketing and sales, service, firm infrastructure
Economic opportunity, access to basic services, access to credit, risk management, community trust
Assets, nutrition, child mortality, years of schooling, children enrolled in school, cooking fuel, access to toilet, access to water, access to electricity, flooring
Yes
ICT Ltd.’s E-Choupal
India Network of PCs and Internet connectivity operated by local sanchalak, with crop weighing by farmers
Operations, outbound logistics, marketing and sales, service, technology development, human resource management, firm infrastructure
Economic opportunity, knowledge of the world, access to credit, better connected social networks, insurance and risk management
Assets, nutrition, years of schooling, children enrolled in school, cooking fuel, access to toilet, access to water, access to electricity
Yes
SafariCom’s M-Pesa
Kenya Mobile phone money payments and transfers via text message, deposits via local entrepreneurs’ shops
Profit, operations, outbound logistics, marketing and sales, service, technology development
Access to information and basic public services, access to credit, risk management
Assets, nutrition, child mortality, years of schooling, children enrolled in school, cooking fuel, access to toilet, access to water, access to electricity, flooring
Yes
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Alkire, S. (May 2007) “Working Paper Number 00 – “The Missing Dimensions of Poverty Data: An Introduction”. Oxford Poverty and Human Development Initiative. Oxford: Oxford Department of International Development and Queen Elizabeth House.
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