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01/07/2005:

"Profiting from poverty"

When Robert McNamara was president of the World Bank, he visited Dharavi, near Mumbai airport, then, as now, one of the largest slums in the world. Looking at the abject poverty in the shantytown, he broke down, possibly realising the enormity of the task ahead.
For anyone visiting Dharavi, where nearly 1 million people live, the sight isn't pleasant at first glance. There is row upon row of ramshackle huts flanking pipelines and a railway line, all surrounded by an overpowering stench. Open drains, piles of uncleared rubbish, and shacks stretch as far as the eye can see. There is little by way of urban infrastructure.

But such a casual glance would miss the thousands of TV aerials sprouting from those homes, and the motorcycles, and increasingly cars, owned by the people who live there.

For too long, urban squalor and urban poverty have gone together. But there is a thriving economy in Dharavi (just as there is in Soweto, South Africa), consisting of small-scale industries, making plastic products, handicrafts, stationery, garments, tallow, watch strap buckles, WHO-certified surgical equipment, food products and a massive recycling industry.

In spite of municipal neglect, someone, somewhere, provides water, food, electricity, and other essentials. Such products and services are sold without any quality control, and usually at a steeply escalated price.

For example, a cubic metre of clean water costs $1.12 (59p) in Dharavi, but only $0.03 at Warden Road, a posh area of Mumbai. Diarrhoea medication costs $20 in Dharavi, ten times what it costs at Warden Road.

In The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits, C K Prahalad calls this situation the "poverty penalty". But the University of Michigan management lecturer argues that if the poor are treated with dignity, empowered and seen as innovators, there's a fortune to be made.

Dr Prahalad notes that huge potential profits can be made from serving the 4 billion to 5 billion people living on under $2 a day - an economic opportunity he values globally at $13 trillion a year. And making profit from such a market, he says, is not a bad thing.

The poor will gain when they are empowered with choice, as they will be freed from the poverty penalty. Bringing down these premiums can possibly make the market represented by the poor more profitable than the top end.

Take consumer finance in a country where the prevailing lending rate is 12%. Think, then, of a major international bank, lending money at 25% to the poorest sections of the society.

The idea might sound appalling, and contrary to all known examples like the Grameen Bank in Bangladesh and Sewa in India. But Grameen and Sewa do not operate everywhere, and increasingly, commercial banks are getting involved in such markets, trying to reach people untouched by the organised sector.
Full Article: guardian.co.uk

'Usury age-old and age-thick/And liars in public places...'