Friday, October 23, 2009

How To Reach A Market Of 3 Billion Poor

Poor and market? Isn't that an oxymoron? Aren't the poor just supposed to live on the charity of others? And isn't the business of selling to them considered suicide?

Well, this blog is a slight diversion before my planned review of Vancouver School District Board candidates. Sort of like an appetizer. But to see the connection, it takes careful connecting of the dots.

I will start with a short story I used to hear from my best friend in college. There was once a private school for the rich, where only the country club crowd sent their kids. But the teachers wanted to show that these children understood the plight of the poor. So they asked them to write an essay to describe a poor family. One little girl wrote "Once upon a time, there was a very poor family. The father was poor, the mother was poor, the children were poor, the butler was poor, the chauffeur was poor, the gardner was poor, the maids were poor....". Well, you get the idea. The "poor" girl, and many like her, had absolutely no concept of poverty.

One of the popular images of the poor is that they are always looking for a handout, living by the good graces of the wealthy. One person from Bangladesh proved them wrong. He is Mohammad Yunus, the winner of the Nobel Peace prize. Now, if you think our President's preemptive award was a long shot, consider this - Mr. Yunus was not a peacenik. He did not broker any agreements between warring nations or religions. He did not take care of sick and dying lepers in the streets of Calcutta. He is a banker and an economist by profession. Why did he not get his Nobel Prize for Economics instead? Was the Nobel committee bonkers to give him the award? I think not. If I recall their rationale correctly, they gave it to him because his actions of empowering the poor to be financially independent and self sufficient were a greater contributor to world peace than someone brokering a peace agreement between two warring factions, only to see it flare up a few years later.

So, now the question comes up - what exactly did he do? First, he started with one of the poorest economies of the world - Bangladesh. Their per capita GDP is about $500 per year, a pittance compared to the US at about $47,000 per year. Second, most of the economy of Bangladesh is still rural and agrarian. The urban employment model has still not reached the masses. Third, the people who run the agrarian economy were self employed farmers and their families. The men do most of the manual labor, the women do the housework and sometimes weave baskets for extra cash. Unfortunately, the people who lent them money to buy the raw materials were unscrupulous loan sharks, which left them with very little after they sold their wares. Enter Mr. Yunus. He set up a new private banking institution called "Grameen Bank" (translates to "Rural Bank" from Bengali). His bankers did not sit in posh, air conditioned buildings waiting for business to come to them. They rode their bicycles from town to town, squatting on raw dirt to do business with housewives who wanted to borrow money, as little as $10 at a time. Yunus somehow must have intuitively felt that the empowered women would return his capital with the above market interest he charged. After all, he was not doing this for charity. He was a businessman. He did not have any market research, because there was none. Even if he paid someone to do it, they would have walked away, thinking he was nuts.

But no one could argue with the results. His on-time capital recovery rate is over 98%, and over 90% of its customers are women. The bank has grown to almost $100 million in revenue, an astonishing sum for a poor country. His model is now being emulated in other Asian nations and in Africa. At the bottom of all this is the faith that everyone has the ability to earn a dignified living, if only the system would allow it. And only someone who lived in that environment could see value in such an enterprise.

Now, you must be wondering - what is the point of all this? Well, I believe that the "New World Order" and the new buzz phrase "21st Century Economy" is going be defined by those who see gold in dirt. There are a lot more people below the poverty level in this world than there are rich. And the traditionally rich, developed economies are aging fast. Even China is aging faster than the other nations in Asia, sans Japan and Korea. And the products that have received a lot of attention lately for sheer value (the Tata Nano, the $2500 "real" car, for example), have come from industrialists and entrepreneurs who saw something no other conventional businessman did. The opportunity that lay behind empowering the poor. And there are products following from other established as well as smaller companies, like a $70 battery powered refrigerator for remote locations. And there are more on the way. Is this profitable? You betcha! Does it improve the standard of living of the dirt poor? Undoubtedly. This is the only scenario I have seen that would make both Adam Smith and Carl Marx happy. Is this a "win-win" scenario or what?

The challenge lies in how we train our young. Not only will they need sharp minds, great math and science skills, prodigious knowledge of history and literature, they will need to learn to empathize with those who need the most support - not by giving them a handout, but by offering a holding hand. To teach them how to fish, not just give them fish. Let them feel that they do have the power to control their own destinies. I read the other day that Princeton university is now offering all their freshmen a chance to live abroad for a year before coming back to their sophomore year. Bravo! We need more universities like that. Then we won't have sheltered, rich school kids writing absurd essays about the poor.

"The meek shall inherit the earth" - J. Christ


1 comment:

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