Musings on market-oriented approaches to International Development
Last week in a visit to low-income farmers in rural Kenya , one farmer recounted that he was only able to yield a limited amount of maize for sale because of no fertilizer. The reason why: “sina pesa.” Swahili for “no money.” Yet, with even the basic required amount of fertilizer, he would have been able to yield two – three times as many bags, and double or triple his income. This story helps to set the background for this post: why most social enterprises are unlikely to be a viable, scalable and independently sustainable vehicle for ensuring access to goods and services for low-income individuals.
Challenge One: Wrong Approach: Top-Down, versus Bottom Up
First, social enterprises often have a penchant for not only failing to ask what good/service the low-income consumer genuinely wants, but also what they are willing to pay for (and how much).
Instead, enterprises often tell low-income consumers what they need, how they will get it (packaging, product design, distribution channels), and how much (and in what way – for example, lump sum) they will pay for it.
Some of the goods and services maybe of questionable value to the consumer. However, many of them unequivocally provide true value to the livelihoods of low-income households, like clean sanitary facilities. With these positive outcomes, there may well be a coherent argument for creating a market for these products.
Yet, low-income consumers – just like rich consumers – will not pay for a product service if they do not like how it looks, how they have to pay for it, or how they purchase the good or service. Surprise, surprise. This outcome holds true even with goods which hold the irrefutable potential to improve the livelihood of a household.
In turn, any enterprise that seeks to be sustainable on the income received from selling the desired goods/service to a low-income consumer runs a significant risk of having to depend on outside resources – grants, donations – to ensure the existence of the organization.
Many argue that the enigmatic outcome of a low-income consumer, with a less than ideal livelihood, being unwilling to pay for a product that will clearly improve their livelihood is evidence of “irraitionality” among this market segment.
Such thinking demonstrates the absence of a more nuanced and intellectually sophisticated understanding of consumer dynamics in the developing world: the second challenge.
Challenge Two: Wrong Enterprise Model for A Web of Challenges
Low-income households are often in the unenviable position of irregular, unpredictable income with regular, possibly high, and frequent or even unexpected expenses. To put it another way, low-income consumers are often surrounded by intricate and dynamic set of restraints, like the farmer highlighted earlier.
As a result, lumpsum payments for goods and services can place an extraordinary burden on households – an often too frequent scenario that has important implications.
For Social Enterprises, which often require steady, predictable cash flows, the risks and variances affecting the flow of income to poor households means unpredictable revenue – an outcome that may lead to the demise of the enterprise.
At the end of the day, these challenges are not entirely insurmountable. It is conceivable that a social enterprise may start off with the consumer, before introducing a product/service. It is conceivable that a social enterprise maybe able to consistently and independently surmount the resource challenges of low-income consumers, while driving financial sustainability.
Yet, what is hard to conceive is that all of the above problems, in addition to the conventional challenges faced by entrepreneurial start-ups, can be achieved by the a significant amount of social enterprises. An amount significant enough to drive scale across markets and economies.
The question, then emerges, what kind of organization could then achieve such an objective?