David Lehr is Senior Advisor, Social Innovations for Mercy Corps and has over fifteen years of experience in international business development focused on software, telecommunications and other technologies. He was a Fellow at Stanford University, holds a Masters from the University of California, San Diego, and a BA from the State University of New York at Albany. Lehr has lived and worked in several countries in Asia and currently consults for a number of non-profits, including Acumen Fund, Gates Foundation, and Mercy Corps, on issues around technology and poverty alleviation.
For this receiver contribution he teamed up with Daniel Greenstadt, an international trade, sustainability and economic development partner at Thomas Associates International, to take a look at the leveraging effects mobile technology can have on the base of the global economic pyramid.

http://www.Mobiles4Development.com

Artwork by Yu Yang

All artworks in this receiver issue are part of a student project by the Central Academy of Fine Arts, Beijing, China

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Four billion of us live at the base of the global economic pyramid. We face staggering challenges related to health, housing, energy, the environment and access to appropriate and emerging technologies. Much of the economic development assistance in emerging economies comes from charity, grants or loans from organizations such as the United Nations, World Bank, the Bill and Melinda Gates Foundation, Asian Development Bank (ADB), United States Agency for International Development (USAID) and a variety of other multilateral, bilateral and NGO agencies. Despite their good work, the myriad problems of poverty continue to plague communities in the developing world.

Today, new models are appearing that recognize not merely the immense need but also the tremendous opportunity that may be waiting at the base of the economic pyramid. A new class of entrepreneurs are seeing the potential to make money for themselves from upcoming technologies while building wealth for their communities with market-based approaches. From local micro-businesses to global commercial giants, a range of profit-motivated enterprises are deploying innovative technologies, novel approaches and communication tools to solve some of the most pressing problems faced by the vast majority of the world's population. Against such an entrepreneurial backdrop, the mobile phone is emerging as an unexpectedly effective and flexible tool. In many impoverished places, opportunity is calling, and those calls are being answered on a rapidly growing scale.

When mobile phone adoption first began to spread beyond just business customers in Europe and the US, it was easy to overlook the potential in other markets and assume that base of pyramid (BOP) residents could neither afford nor make effective use of mobile phones. After all, most of them had never made even a landline phone call, phone rates were extremely high relative to incomes; and without a critical mass of phone users, who were they going to call anyway? As the following examples show, conventional wisdom was wrong and the mobile phone is being adopted and used among these consumers in ways that were impossible to predict even a few years ago. In fact, today, Africa and India have the world's fastest growing subscriber rates, with Latin America and the Middle East not far behind.

Making Markets Transparent

For thousands of years, rural farmers in India were in the hands of middlemen buyers who had exclusive knowledge of crop prices and trends in regional and global markets. With very limited market data, individual farmers were not only helpless to negotiate fair prices for their current crops, but had little basis for deciding which crops to plant to meet future needs.

Today, the mobile phone is changing the agricultural landscape, literally. Recognizing high mobile phone penetration rates in rural areas, and leveraging the power of SMS, Reuters Market Light is providing customized weather and market information to Indian farmers. "We can ask individual farmers what crops and locations they want to know about, and using their phone number to record their preferences we can deliver information anytime and anywhere directly to their phones," noted Mans Olof-Ors, one of RML's co-founders. Armed with such information, farmers can make pricing and crop planting decisions that meet current and emerging market demand. This is a fee-based service that provides a revenue stream to Reuters, raises farm incomes, reduces consumer prices and makes agricultural markets more efficient and sustainable.

Improving Microfinance Operations

One of the big stories in the quest for economic development is the growth of microfinance institutions (MFIs) that offer small loans to entrepreneurs via microcredit. In fact, microfinance has become so widely praised that in 2006 one of the founding fathers of the concept, Muhammad Yunus, was awarded the Nobel Peace Prize. What Professor Yunus helped discover was that small loans often ranging from US$20 to US$100 could be leveraged by poor borrowers very efficiently to start new businesses or expand existing ones. Typically these borrowers were shunned by traditional banks that saw them as too risky, leaving them no place to turn other than to absurdly usurious moneylenders sometimes charging interest as high as 20% per day.

Key to successful microfinance operations is keeping operational costs low. Jamii Bora , one of the largest MFIs in Kenya with over 60 offices and 170,000 borrowers, needed to find a way to better manage their growth and record keeping. Their solution – a GPRS enabled handheld device linked to a central database that provides real-time information to help them administer their loan portfolio, and make real-time decisions regarding loan approvals and client identification. The system has not only improved their ability to service customers, but by collecting information electronically, errors that typically resulted from computerizing handwritten documents have fallen significantly.

Linking Buyers and Sellers

Whether it's selling simple commodities, conducting complex transactions or matching job seekers and employers, stakeholders at the base of the pyramid have had very limited access to emerging technologies that facilitate commerce. While computer and internet access penetration rates remain low, mobile phones are quickly becoming the device of choice in low-income settings.

Looking for a used refrigerator, a new apartment, or a place to sell your cow? For a small fee – less than 3 cents – CellBazaar will take your ad electronically and make it available to the growing number of cell phone users in Bangladesh. Potential buyers can search the database via SMS and can get in touch with sellers directly using their mobiles.

By connecting buyers and sellers, CellBazaar – a spin-off of MIT's Program in Developmental Entrepreneurship – is speeding up the economy and improving market access for small businesses and individuals. Buyers and sellers whose reach had never extended, literally, much beyond earshot now have access to a greatly expanded marketplace, and they are happy to pay for the privilege.

Empowering the Masses

In addition to explicitly commercial ventures, there are broader social applications as well. One example involves voting, or more typically, polling community members about any number of issues via SMS. Actual electoral voting may not be far behind.

Indeed, mobile phones are already being used by citizens to monitor elections : during Nigeria's presidential election in April 2007, the Network of Mobile Election Monitors used SMS to collect real-time information. Volunteers texted their observations to a central server, and their feedback was then shared with various monitoring groups and election authorities.

Though official electoral voting by mobile phone is still in its infancy, governments have already begun to discover the benefits of administering public affairs via the mobile phone. Both Hong Kong and Malta let their residents use mobiles to renew licenses, schedule court appointments, receive exam results, and report on the status of various public facilities. The mobile phone is becoming indispensable to public life.

Financing Change

Do these new business models, social innovations and technology applications represent just a few isolated examples, or are we seeing the dawn of a fresh approach to economic and social development? Like the microfinance borrowers mentioned above, all businesses need access to capital in order to invest and grow. Two phenomena in the world of finance are attracting stakeholder attention. The first is the appearance of new institutions that are bridging the gap between financial markets and social entrepreneurs by investing in ventures that use market forces to drive social change.

Exemplified by social venture funds such as Acumen Fund , philanthropists are beginning to look and behave a lot more like venture capitalists by investing in start-up entrepreneurs who know how to identify need and opportunity in local markets. "By investing in local expertise and identifying previously overlooked opportunities, we've been able to create better options for the poor, and empower them to make their own economic decisions," according to Brian Trelstad, Chief Investment Officer of Acumen Fund.

Traditional venture capitalists, who had previously written off the world's poor as irrelevant – if not antithetical – to the quest for significant return on investment, are taking a fresh look at what is, by any measure, a massive latent market in the form of the world's four billion poor. Recently, the field has witnessed a major event that will undoubtedly breathe new vigor into this debate; the first IPO of a microfinance company. Compartamos , based in Mexico, provides loans primarily to poor customers with little credit history or collateral and earned US$57 million in profits last year. Compartamos' April 2007 IPO placed 30% of the company's stock in the public market and netted it US$407 million.

Accion International, a nonprofit institution that supports microfinance organizations and receives donations from foundations and individuals, had invested US$1 million in Compartamos, an investment that is now estimated to be worth some US$270 million.

As further indication of the impact that these emerging trends are having on the development community, even the traditional, large aid organizations are embracing market-based interventions. USAID and the International Finance Corporation (IFC), part of the World Bank Group, recently began jointly supporting a range of new grassroots business development projects in the developing world. As poverty alleviation has become a primary objective of development efforts, this new collaboration will help to build and maintain democratic states that support improved production techniques designed to create sustainable wealth. As the role and viability of mobile phone communication becomes more evident, we can expect to see greater attention and investment in digital communications as an essential tool for meeting the goals of the widest possible range of stakeholders.

Demand and Supply Finally Meet

Individuals and organizations committed to economic development have long sought sources of funding. Individuals and organizations committed to financial return on investment have long sought new and innovative investment opportunities. Until now, the two groups seldom met in the developing world. As we've seen, the gap has begun to close. From the development perspective, it remains to be seen just how powerful a force market mechanisms will be for solving the abiding problems of the world's poor, but there is no question that market-based approaches are already shedding new light on old challenges.

In a recent blog, Al Hammond, VP for Innovation at World Resources Institute, makes it clear that entrepreneurial investors are unlikely to be any less demanding when it comes to BOP opportunities. "If there is any lesson that our studies here have shown, the essential starting point is a viable business model, grounded in a real understanding of needs, the value proposition as perceived by local people, and evidence of willingness to pay. Only then can technology opportunities really be evaluated."

What this all means for stakeholders on the development side is that traditional pleas for assistance, which may have been focused on social rather than economic outcomes, must be re-tuned to address the bottom line concerns of their new financial partners.

In the case of information and communications technologies (ICT), it is clear that local entrepreneurs as well as multinational corporations are discovering that even in places where individual incomes may be low, BOP consumers are willing to spend on ICT that meets their needs. High BOP demand for ICT in general was illustrated dramatically in a recent World Resources Institute report – The Next Four Billion – which noted that "Except in the very lowest BOP income segment, average ICT spending per household generally exceeds spending on water—and in the upper BOP income segments sometimes exceeds spending on health."

Tomorrow morning, when Aman Grewal wakes up in his rural village in Maharashtra, India, he will check his phone to find the latest crop prices in nearby markets. As he steers his loaded bullock cart to the market, Aman knows that he will get the best price for his wheat. His mobile phone service provider will have collected a small fee, Reuters will have sold some valuable data, Aman will have earned the fair price for his efforts, and one more family at the base of the pyramid will look forward to a better future.

This article was written for receiver

Contact: David Lehr and Daniel Greenstadt

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