Articles

Profit by helping the poor
Financial Times; May 2, 2001 By Peter Knight

Make money from poorpeople and get globalisation working for the greater good of mankind. That is the message from the United Nations, which wants companies to turn the 60 per cent of the world outside the economic system into consumers.

The UN fears that unless the excluded are included, the widening gap between rich and poor will destabilise the world's economy and its social systems. Big business is being urged to revise its commercial model, which has traditionally excluded the very poor because they do not have enough cash to buy consumer goods and cannot borrow because they are considered a bad credit risk.

Instead of seeing only risk with this group, companies are being urged to be more creative and imagine the commercial possibilities presented by the poor: find ways to provide them with goods and services and you will line your own pockets at the same time as doing good.

Some pioneering companies are doing exactly that. Unilever, the detergents-to-food giant, has reformulated some of its products in emerging economies to make them more affordable. Detergent and shampoo, for example, are now available in small sachets that sell for as little as half a rupee in India. This has made good-quality products available to the poor and turned a profit for the company.

Grameen, a Bangladeshi bank set up to help the deprived, has shown that the poor are more diligent at paying off their debts than the rich. Such lending - financed mainly by donors and governments - is now practised in both the developed and developing world.

Jacques Attali, the French banker and former president of the European Bank for Reconstruction and Development, has set up PlaNet Finance, an online link for micro-credit lenders. The idea is to share information on reducing the cost of transactions, with the possibility of bundling lots of small loans into a product that can be sold to commercial lenders.

Such lenders, especially retail banks, have largely ignored the poor, both in the developed and developing world. That is beginning to change, with financial institutions discovering that they can turn a profit if they keep costs low. In India, for example, Citibank offers banking facilities to customers in Bangalore who have to keep a minimum Dollars 25 (Pounds 17.50) deposit. In South Africa, Standard Bank, which used to cater exclusively to businesses and the wealthy, now offers a fast-expanding group of customers so-called micro-banking - simple, low-cost services.

Also in South Africa, Eskom, the state-owned electricity utility, offers pay-as-you-go tokens, which have helped it meet its remit to make electricity more widely available to the nation. One innovative scheme, run with Shell, provides solar electricity to remote villages for no more than the cost of using candles or kerosene.

Other companies are working on products such as water-purification systems, refrigeration and shared-use mobile phones - commercial solutions for real needs that are both appropriate and affordable.

In India, Arvind Mills, the world's fifth-largest denim manufacturer, has cleverly developed a project with a network of street-tailors to win a large slice of the market for jeans. Its Ruf and Tuf jean kits can be assembled by the buyer at a cost of Dollars 6 rather than up to Dollars 60 for a branded pair.

Those who are opposed to using markets to bring about social change are horrified by the idea of using consumerism to eradicate poverty. They argue that putting the poor of the south on to the same trajectory as the developed north will only worsen the world's economic and environmental problems.

Their scepticism is shared by many in business but for different reasons. Most business people, it seems, cannot think beyond the traditional model of chasing the big margins and leaving often unscrupulous companies to deal with the poor.

Both might have their points but both are wrong. Those who glibly reject the idea of spreading consumerism in favour of, presumably, some form of aid, have clearly never experienced the social deprivation caused by economic mismanagement and corruption.

Wrong, too, is the notion that the liberation of the poor will have an adverse effect on the environment. The rationale is that poor people have little to lose and will quite happily destroy their immediate surroundings if it means they will be able to eat that day.

But it is also true that much of the destruction of the rainforest, for example, is not by cattle ranchers but peasant farmers clearing farmland and collecting firewood. Richer people think much longer term and generally appreciate their environment, doing much more to protect it.

There are problems associated with packaging consumer products into ever smaller units. While this increases access to useful products, packaging may add to the problem of litter and waste. But surely these problems could be overcome if business spared some of its brainpower to manage the full lifecycle of its products, rather than only the more profitable parts.

Another concern is that the world's financial system is intrinsically unstable (witness the Mexican meltdown and the Asian contagion). Bringing the deprived into what is seen as a dysfunctional economic system, it is argued, exposes the very people you are trying to help to even greater risk. That might be true for those few who live in perfect harmony with nature but it means very little to the 1bn people who scratch a living on less than Dollars 1 a day - surely they would be happy to take the risk for the promise of a better life.

But the important criticism should be of the inability of business to think creatively to define its social responsibilities. It has, for example, taken government-backed banks and foundations to demonstrate the benefits and possibilities of microcredit. Much now depends on how business lives up to its claim of being socially responsible. The poor everywhere have always provided a rich seam for exploitation. The hope is that through commercial self-interest and the need to demonstrate its social responsibility to its influential customers in the developed world, business will not only be responsible but imaginative in its approach to the poor.

The writer is director of Environmental Context, a London-based consultancy specialising in sustainable development and communications.

© The Financial Times Limited