Given that we live in a world where almost four billion people live on less than $2 a day, there has been a surprising lack of curiosity over the years about how they live and how they manage their money. There has been a great deal of prescribing of strategies and campaigns to ‘lift people out of poverty’, but little practical research that starts from the personal experience of those four billion people.
The late C.K. Prahalad began thinking about this question in 1995. He wondered why half a century of grand campaigns had not eradicated poverty. He concluded that it was because those campaigns approached the ‘poor’ as if they were victims who needed aid, rather than actors who could co-create change with governments, corporations and NGOS. Looking at the poor as victims denied them dignity, and also obscured the fact that there was a lot of money to be made at the bottom of the pyramid by companies who understood BOP consumers, he said.
He pointed out that BOP consumers usually bought goods daily, because they were paid or earned money daily. Thus they bought in small amounts – one reason why individual packages of many kinds of goods were selling so well in India. They usually shopped in the evening, after the work day ended, and at shops near them because they had no transportation. They respected quality of workmanship, because items they bought had to last for a long time. They often paid far more than the rich for essential items – in his survey of two neighbourhoods in India, for goods ranging from water to diarrhea medicine. And while many lived in poorly maintained homes, they had televisions and stereos and other items more commonly regarded as luxuries – because they were not able to get title to their land and home, and so it was not sensible for them to invest in fixing up a house that they might be evicted from.
His picture of how the poor lived was so dramatically different from the conventional picture, and his ideas about how to address their situation were so different from those of the conventional developmental economists, that for almost five years, no publisher would publish his book. Instead, his ideas circulated on the internet, where they caught the attention of corporations. Slowly corporations began to develop strategies to reach BOP consumers, and this often required them to do a great deal of ‘on the ground’ research. Groups of corporate staff began to spend time living in poor neighbourhoods, finding out how people lived, so they would know how to market to them.
Thus did the picture of the poor as people who were living hand to mouth and barely surviving begin to change. Corporations began to see them as consumers who were conscious of both price and quality, and who used shrewd strategies to spend the money they did have. The picture changed further in 2009, when a quartet of economists published Portfolios of the Poor – How the World’s Poor Live on $2 a Day.
Their book was researched collaboratively with families in Bangladesh, India and South Africa. They tracked the cash that came into these households on a daily basis and observed how the families managed this money. The most surprising observation was that the picture looked a lot different if you looked at cash management on a daily basis, rather than just the overall monthly or yearly picture. The strategies that people used – saving, borrowing, investing – were as sophisticated (possibly even more so) as the strategies used by most middle income families in North America or Europe. The only difference was in the amount of money involved.
The power of empowerment
I was thinking about these two ground-breaking pieces of research as I was listening to Paul Collier’s 2008 TED Talk about aiding the world’s poorest billion people by improving governance. He was talking about how governments can better manage the money that is flowing in from natural resource development. Yet most people who govern those states know little, practically speaking, about the lives of most poor people in their countries. Thus they are not equipped to design strategies to ‘co-create’ change that will benefit poor people in their countries, to use Prahalad’s term.
Organizations like the Grameen Bank, and BRAC, on the other hand, work so effectively because they start from an understanding of the people they work with. They understand that their needs are interconnected – education, work, and health – and they deliver programs that help people co-create change – individually, as groups, and then as communities. The brilliant Orangi pilot project in Pakistan got poor people to invest in installing piped sewers and water on land they didn’t even own by showing them how much money it cost them not to have these services. Thus, because it was in their interest, they themselves paid for a system that would have cost their government millions, borrowed from foreign banks.
Prahalad began doing his research before mobile phone use began to soar in the ‘developing’ world. Now, mobile phones have given BOP consumers power – power to see where to get the best prices for their crops or fish; power to transfer small amounts of money from village to village; power to learn about services to which they are entitled; power to access banking even outside big cities; and power to hold officials accountable. Mobile phones have given the ‘poor’ a way to access the dignity that Prahalad saw had been denied to them in the past.
Five years ago, the BBC’s Paul Mason made a trip around Kenya to investigate the impact of mobile phones. He noted that for people living in a country with good roads, the internet, and democracy, it was difficult to grasp how much change was being created. “‘How big a change have cellphones made to Africa?’ I shout the question at Isis Nyong’o, over the throbbing bassline of a Kenyan ragga track. She tells me calmly: ‘It’s had about the same effect as a democratic change of leadership.'”
- Portfolios of the Poor: How the World’s Poor Live on $2 a Day, by Daryl Collins, Jonathan Morduch, Stuart Rutherford, and Orlanda Ruthven. Published by Princeton University Press, Princeton and Oxford, 2009.
- The Fortune at the Bottom of the Pyramid – Eradicating Poverty through Profits, by C.K. Prahalad. Published by Wharton School Publishing, Upper Saddle River, NJ, 2006.
- The Bottom Bilion: Why the Poorest Coutnries are Failing and What Can Be Done About It, by Paul Collier. Published by Oxford University Press, 2007.
- Kenya in crisis. Paul Mason, BBC Newsnight business correspondent. January 8, 2007.