The Mirage at the Bottom of the Pyramid

By Shakespeare Walla,

Microfinance Focus, August 2, 2011: Gravity defying, shooting star aged IRRs and other return ratios of Microfinance (MFIs) have led to a lustful gold rush for the mythical Incan fortune to be discovered by doing business at the proverbial BoP (bottom of the pyramid). Everyone is joining the bandwagon, Tier 2 Management Consulting Firms, “Social” Entrepreneurs, “Social” Venture Capitalists, Jhollawalahs, Professionals, all panning for gold across diverse sectors from education, energy, health, housing, sanitation to water etc. This paper’s central premise of argument is the difference between need and demand; demand is when you need something and have enough dollars in your waistcoat pocket to pay for it. Businesses meet demand; non-profits & governments work to fulfill need. Consumption is a reality and the BoP demand is being catered to by small innovative traditional local businessmen and/or through myriad state welfare schemes. Several of these entrepreneurial BoP Ventures love to court the exceptionally illusionary, convenient yet flirting with deceit term “social”. “Social” is a real convenient excuse for a weak business plan and for even weaker expected financial performance of a business or investment. In case the “Social” venture does well, the prefix is quickly dropped (e.g. stock exchange listed MFIs). Business and charity never mix. When business gets mixed with charity, shareholders sulk, governments frown, false hopes dash and a ‘black swan’ event happens e.g. the Andhra Pradesh (India) Microfinance Legislation gets promulgated. There may be tiny, strictly timed and even rarer niches of opportunity leading to supernormal profits for a limited period of time which will get normalized by government action for “usury” or equivalent and entry of large corporate players.  It is nothing but a myth; there is no fortune for entrepreneurs or corporations alike at the proverbial bottom of the socio-economic pyramid.  Non-Profits and State Welfare schemes exist to fulfil need.

India’s Tata Corporation launched the world’s most affordable automobile named Nano, monthly sales are down 90% within two years of launch whereas the sales of two wheeler motorcycles keep touching a new high with every passing quarter; the BoP (Bottom of Pyramid) needs safe four wheeler transport but demands relatively unsafe yet affordable fuel efficient two wheeler motorcycles. The BoP demands state sponsored, heavily subsidized train and bus service.

There is supposedly a demand for telecommunication in rural areas and hence mobile phone manufacturers, telecom corporations moved in to make a kill. The average revenue per user is a shocking $4 per month with zilch loyalty to either corporation. SIM cards are changed regularly with alarming frequently to avail the cheapest plans! There may be a need for subsided telecom but there is little demand.

The BoP has need. When they have dollars in their pocket to pay for the need, it is termed as demand. Corporations and Entrepreneurs always invariably jump in to harvest the demand.

BoP Gold Rushers believe that corporations are naïve to ignore the BoP segment and hence a demand not being met and a resultant arbitrage business opportunity exists. Impossible. Markets are near perfect and hence the demands are usually always met while the needs are fulfilled by grant guzzling non-profits and governments.

Take the case of Solar Rechargeable Lanterns. Ask yourself would you spend $40 on a lantern compared with a $2 handheld non rechargeable flashlight?

We expect the poor to buy these solar lanterns which need a full day of toasting in sun light to flare up. Unlike urban condominium complexes where the solar lanterns can be left to toast in the sun for recharging without the chances of being stolen, the poor residing in slums and huts need to safeguard their asset, the $40 lantern (yeah!). So first we need to give them a house with a balcony or an independent terrace to recharge the lantern. This will mitigate the risk of the lantern getting stolen. Think about it, if you were camping in a third world ‘community camping ground’ would you leave your solar rechargeable lantern on the roof of the tent while you went for a hike in the woods without being worried about the lantern getting stolen.

The poor may be need $40 solar lanterns but they demand non rechargeable pencil battery fired handheld $ 2 flashlights which are sold by large corporations. New award winning entrepreneurs try and ally with MFIs etc to bundle solar lanterns with loans. Unfair, I believe.

Business can never be built on forceful bundling. Imagine if your credit card issuer analyzed your monthly statement, billed and bundled some products and services you’d normally use, wouldn’t you scream.  It’s similar when MFIs abuse their competitive strength and bundle products with microcredit loans. Bundling is unfair and can never be a foundation for building a fair business. The conveniently forgotten Malegam committee recommended that MFI regulation should discourage compulsory bundling of products.

In India, the government guarantees every child between the ages of 6 to 14 years the right to free and compulsory education.  Additionally, incentives are thrown in like midday nutrition meals, free cycles, scholarships and other populist goodies. Moreover, private schools shall admit at least 25% of the children in their schools without any fee. In parallel dozens of unaesthetic concrete monstrosities in the form of unorganized schools exist in each town. These schools are low on form but high on functional value. Given the above mélange of state welfare and private initiative, where is the opportunity for an entrepreneur to start a chain of low cost schools targeting the BoP, moreover when educational institutions cannot distribute dividends and by law can only be strictly non-profit?

The high on functional value private schools mushrooming across India providing necessary education at affordable cost. No grant guzzling, no fancy brands, no chains just high on functional value. Produce students who go on to attend the prestigious IITs and IIMs

Try building a commercially attractive education venture targeted at the bottom of pyramid, rest assured the government and civil society will not tolerate parents paying tuition fees towards dividends.

The poor need housing but don’t demand houses. The government regularly builds social housing for the poor; invariably the poor sell out and move back to the slums. The houses BoP Gold Rushers build will invariably be gobbled up by realtors to be sold off at a greasy premium to the intended target clientele.


The government has put together a vast network from auxiliary nursing midwifes to surgeons for treating the BoP, free of cost. In parallel, private options exist from one room quacks to the concrete monstrosities in the name of nursing homes. These are again low on form factor but high on functional value. BoP entrepreneurs argue for building a chain of state of art clinics and hospitals.

Again, the high on functional value mini hospitals mushrooming across India providing necessary medical services at affordable cost. No grant guzzling, no fancy brands, no chains just high on functional value.

Definitely, a Mount Everest sized need for quality healthcare does exist, but there is no demand as the poor need healthcare but cannot pay for it. Business needs demand to flourish and not needs alone.

BoP gold rushers may argue for the need of lavatories; yes the poor have a need for sanitation but no demand. Hygiene levels are different for each socio economic segment of the population. Government welfare programs and grant guzzling non-profits work to fulfil this need.

To quote, Milton Friedman, “that there is one and only one social responsibility of business - to use its resources and  engage in activities designed to increase its profits, so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”

Are Bicycle manufacturer’s social entrepreneurs considering they manufacture the lone poor man’s transport which is healthy, non-polluting and eco-friendly?

Are Oil & Gas companies’ social entrepreneurs, as the fuel pumped, refined and supplied by them is purchased by farmers for firing generators to pump water to irrigate fields?

Are Bottled cola corporations social entrepreneurs as they provide economical momentary ecstasy and joy to poor people?

Is the State Bank of India with 15,000 branches mainly in rural India and making smalls at half the APRs of an MFI not a social enterprise?

If the above corporations aren’t, then why do some ‘holier than thou’ sectors and individuals “screech, scream and yell”, terming themselves “social”; examples galore – Rechargeable Lantern manufacturers etc

All are entrepreneurs, difference is the ones without the prefix “social” toil hard and labour to earn customer delight and meet shareholder aspirations while social entrepreneurs focus least on customer delight and shareholder return but have an unhealthy obsession with scripting and plastering media with unscientific, unproven “impact stories”; enjoy the media attention, the addiction to networking and invariably spend more time inside conference halls “discuss the poor” than on the business.

When business takes the onus to offer market based solutions for common societal problems, Prof. Aneel Karnani (University of Michigan) suggests that “they certainly delay or discourage more-effective measures to enhance social welfare in those cases where profits and the public good are at odds. As society looks to companies to address these problems, the real solutions may be ignored”

Get real, will solar lanterns ever replicate the need and demand for electricity. Everyone needs electricity. However with umpteen impact case studies showcased at every possible forum highlighting the work of a certain social enterprise providing solar lanterns, whatever little effort’s the governments’ were to make for providing grid connectivity  “could” get further delayed.

Same is the case with Microfinance. It’s the job of banks to provide safe and affordable banking to the masses; however with MFIs leeching onto the customer with repeat loans, how, when and where does the bank enter?

Social entrepreneurial venture products are usually always more expensive and are invariably thrust upon the poor.

The term “social” entrepreneur is illusionary and leads to false expectations and in many cases delay real solutions. Once these expectations are not met, they lead to disengagement and frustration. Business and Charity never mix. When business gets mixed with charity, shareholders sulk, governments frown, false hopes dash and a ‘black swan’ event happens e.g. the Andhra Pradesh (India) Microfinance Legislation get promulgated.

Grant guzzling non-profits and governments satisfy need, business meet demand. Majority of the BoP Gold Rush Zones have Atlantic Ocean sized need but Lake Lucerne sized demand. Reality will eventually dawn and the BoP Gold Rush will end.

This BoP Gold rush in the interim will only confuse the government and hence the normal scheduled planned delivery of public welfare goods may get delayed.

Get real.

(Disclaimer: Shakespeare Walla is the author’s pen name. The opinions expressed are solely those of the author and do not necessarily represent opinion of Microfinance Focus. Microfinance Focus does not take any responsibility for correctness of the data presented by contributors.)

Author can be reached at

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Demand at the Bottom of the Pyramid

The Fortune at the bottom of the Pyramid, like any other fortune is not going to come easy. However, as the author has rightly pointed out, there are going to be "Blood Diamond"-like situations where avarice will outweigh all social performance norms. As long as we don't have strong regulation in place, this sector will be ridden with such problems.

It requires microfinance organizations to transform themselves into enablers of social and economic progress ( When they step beyond the role of being mere providers of micro-credit, there is an opportunity for converting need at the BoP into demand. In such a role MFIs, irrespective of whether they are for-profit or NPOs, will be able to deliver on the promise of social and financial performance.

The Mirage needs to be undone

The statement that Business and Social (or Charity) never mix is correct when we give it thought in the understanding that the author wants the same as we all do, namely to support the fight against poverty.

Let’s take a simple example. At all levels in society and the economy we meet people who work for privately owned commercial companies, for government and on a voluntary basis. It is popular to say that private businesses and their staff work better and harder as their income directly depends on the quality of their work and because otherwise clients will go to a competitor or do the work themselves. Public officials get their salary anyway and benefit from life-long employment, health insurance and pension, so why would they bother providing good quality and why would government colleagues dare to criticize bad quality provided by fellow public officials. Volunteers do a job because they cannot get a proper one for which someone (government or a private commercial employer) wants to pay and volunteers cannot be held accountable for the quality they provide. But does that mean that all these humans working either privately, publicly or as a volunteer do not NEED (“demand”) to be respected, appreciated for the quality of their work? Is it not true that true appreciation of quality work is the men’s best and most reliable reward and has good chances that it will also be well remunerated?

There where I think the fundamental basis lies for finding the best way for supporting the integration of all citizens in a true social democracy (as described in all the UN conventions on the dignity of humans and their civil, political, economic, social and cultural rights) is the coherence that exists between a (wo-)man’s core job and the social effect, the contribution to integration into an inclusive society (and economy) it produces. And the quality of providing that “core job” needs to be ensured through education, training, market regulation, supervision and accountability. Did the person who performed the job train to provide quality services? Did he obtain a recognised quality certificate (diploma), did s/he receive expressions of quality recognisance, is the quality of his/her services monitored effectively and is bad service really sanctioned? A sanction, liability, that the service provider individually thinks is important for his/her career and s/he accepts. Will there really be no more volunteers when beneficiaries demand that volunteer work needs to be of a certain minimum quality standard? And such minimum quality is required for ALL work, from dentists, to public officials, waste management, volunteers, sportsmen, artists.

Since the times of the Great Empires, where the ruling state benefited from stability over huge land masses and many peoples by becoming immensely wealthy, the ruling class and their friends had the opportunity of supporting the “arts”, which included education, philosophy, medicine, science in many different areas, sports, culture. This “enlightenment” has provided humanity, every citizen, the ability to acknowledge the fundamental equality of all people and the fundamental “divine” right of everyone to think for him/her self and determine his/her life. Many religious leaders joined hands with rulers to keep that universal human right from citizens. Such power sharing to keep people ignorant of their rights still dominates the world. Thus all governments officially state that they are democracies defending and promoting the rights of each citizen. And so the lying and hypocrisy commences, leaving many of us in doubt about the simple direct link that indeed exists and should exist, the imperative truth, between democracy and human rights.

Professional business will indeed succeed and grow in a society where an effective public authority monitors quality and market behavior, where it sanctions bad quality and unfair competition. Government provides peace, stability and order in all markets, and ensures quality provision of all existential services there where private business does or cannot (yet). Government needs to pay for those quality services from income received from citizens’ tax payments in an equitable manner from property, income and consumption behavior of the latter. Professionalism in the provision of public services can be ensured with education, market monitoring, competition and sanctioning as well. And also in charity (including Corporate Responsibility Services, CSR) and volunteerism quality and professionalism can be enhanced in many ways.

People demand freedom in society, from all shackles of dictatorship. Poverty, charity and a false sense of democracy are all part of such dictatorship. And as we know freedom does come when dictators are revealed.

Cheers, Peter, Indonesia

Why does the author use a pen name?

How come the author is using a pen name? Is it because this is basically an incoherent rant with no data to back up any of the assertions?

Leave every thing to the

Leave every thing to the markets. They are usually perfect

Social Enterprises will only guzzle precious capital and delay actual impact by the state.

Excellent Article

Excellent piece and but unfortunately will not have anyimpacy o the guilty. Can you make politicians realise their follies....canyou make corrupt cops realise what they are doing is wrong....Leave it to the markets and the customers to bring stability?

I'd be interested in the

I'd be interested in the author's response to this TEDx talk. How do you find the concept of microfranchising? It seems to have the potential of being less social and more realistic, yet actually helping people.;Most-popular

I'd be interested in the

I am not the author however it is very clear in the article that he is addressing the bottom of the pyramid and not the top, which is where TEDx is focused at.

Not always the case. Watch

Not always the case. Watch the video. TEDx covers a much wider range of topics.

I'd be interested to know

I'd be interested to know what the author and those who agree with him think of the following speaker at a recent TEDx event.;Most-popular

Too Good. The theory of the

Too Good.

The theory of the fortune at bottom of pyramid is false.

"social" is an abused term, every one uses it without doing justice to it

keep it up

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