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Martin on Base of the Pyramid
 

Martin on Base of the Pyramid

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Presentation by oikos PhD Fellow Martin Herrndorf on Sustainable Business Models: Base of Pyramid, Micro-Credit and –Insurance. Held during oikos Spring Meeting 2009, Oslo, 28 March 2009

Presentation by oikos PhD Fellow Martin Herrndorf on Sustainable Business Models: Base of Pyramid, Micro-Credit and –Insurance. Held during oikos Spring Meeting 2009, Oslo, 28 March 2009

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    Martin on Base of the Pyramid Martin on Base of the Pyramid Presentation Transcript

    • Sustainable Business Models Base of Pyramid, Micro-Credit and – Insurance o ikos Spring Meeting 2009, Oslo Friday, 28 March 2009 Martin Herrndorf o ikos PhD Fellow, University of St.Gallen m [email_address]
    • Workshop Overview 9:00-9: 20 Presentation 9:20-10:00
      • Group Reading and Discussion
      • Base of the Pyramid (BoP): Business strategies for pro-poor innovation
      • Micro-Finance: Approaches and Recent Developments
      • Micro-Insurance: The Next Revolution?
      10:00-10:30 KeyQuestions Presentation 10:30-10:50 Collection for OpenSpace 10:50-11:00 Feedback on session and outlook
    • Sustainable Business Models Background „ Business cannot succeed in a society that fails” Björn Stigson, World Business Council for Sustainable Development Oslo Conference on Partnerships for Sustainable Development, 28 March 2007
    • Population x Footprint WWF Living Planet Report 2008
    • Population x Footprint WWF Living Planet Report 2008
    • Human Development vs. Footprint Ecological Footprint Human Development Index
    • Environmental issues as cost driver Source: Herrndorf (2006): Greening SMEs in Developing Countries Cost structure of micro-enterprises in Mexico: Costs for material and energy 3.6 as high as salaries paid. Environmental, social and economic synergies!
    • Overview: Three sub-topics
      • Base of the Pyramid (BoP): Business strategies for pro-poor innovation
      • Micro-Finance: Approaches and Recent Developments
      • Micro-Insurance: The Next Revolution?
    • Access to products and services Prahalad, C. K. and Allen L. Hammond. 2002. What Works: Serving the Poor, Profitably. Harvard Business Review 4-11. The poor do not have access to adequate products and services at acceptable prices Business can innovate more adequate products and services cost in poor quarter cost in rich quarter
    • Market Size — One Estimation Hammond, A. L., W. J. Kramer, R. S. Katz, J. T. Tran and C. Walker. 2007. The Next 4 Billion – Market Size and Business Strategy At the Base of the Pyramid . Washington, DC: International Finance Corporate, World Resources Institute.
    • Constraints & Strategies UNDP. 2008. Creating Value for All: Strategies for Doing Business With the Poor . United Nations Development Programme.
    • Base of the Pyramid (BoP) Seelos, Christian and Johanna Mair. 2007. Profitable Business Models and Market Creation in the Context of Deep Poverty: A Strategic View. Academy of Management Perspectives 21
    • Assuring sustainability? Herrndorf, Martin and Burcu Tunçer. forthcoming. Consume More, Use Less: Business Strategies for Sustainable Consumption in Base-of-the-Pyramid Markets . CSCP, SEI, Swedish Ministry of Environment.
    • BoP — A critical perspective Karnani, Aneel. 2009. Romanticizing the Poor. Stanford Social Innovation Review 38-43. ‘ BoP Proposition’ ‘ Reality’ The BOP market size is $13 trillion to $15 trillion. The BOP market size is only $360 billion. The poor have untapped purchasing power. The poor have a low savings rate and little untapped purchasing power. Profit margins in BOP markets are high. BOP markets are not very proitable because customers are price sensitive and the cost of serving them is high, given small transaction sizes and poor infrastructure. Companies can reduce prices dramatically without reducing quality. For most products, the only way to reduce prices significantly is to reduce quality. Single-serve packages increase affordability. Single-serve packages do increase convenience and help poor people manage cash flow. But the only way to increase real affordability is to reduce the price per use. Large multinational corporations should take the lead in the BOP initiative to sell to the poor. Markets for selling to the poor usually do not involve large-scale economies, and so small- to medium-sized local firms are better suited for these opportunities.
    • The BoP Readings Prahalad, C.K. and S.L. Hart. 2002. The Fortune At the Bottom of the Pyramid. Strategy+Business 26:54-67. Seelos, Christian and Johanna Mair. 2007. Profitable Business Models and Market Creation in the Context of Deep Poverty: A Strategic View. Academy of Management Perspectives 21 Karnani, Aneel. 2009. Romanticizing the Poor. Stanford Social Innovation Review 38-43.
    • Overview: Three sub-topics
      • Base of the Pyramid (BoP): Business strategies for pro-poor innovation
      • Micro-Finance: Approaches and Recent Developments
      • Micro-Insurance: The Next Revolution?
    • Access to financial services
    • Effect on consumption
    • Effect on consumption Khandker, Shahidur R. 2005. Microfinance and Poverty: Evidence Using Panel Data From Bangladesh. The World Bank Economic Review 19:263-286.
    • Effect on poverty Khandker, Shahidur R. 2005. Microfinance and Poverty: Evidence Using Panel Data From Bangladesh. The World Bank Economic Review 19:263-286.
    • Microfinance — a business approach? Akula, Vikram. 2008. Business Basics At the Base of the Pyramid. Harvard Business Review 86:53-57. Akula / SKS approach Traditionally Adopt a profit-oriented approach in order to access commercial capital.
      • Non-profit / low-profit organisations
      • Financially self-sustaining
      • Establish “social businesses” (Yunnus)
      Standardize products, training, and other processes in order to boost capacity — like „Startbucks and McDonalds“.
      • Locally adapted, learn on the ground
      • Process of socialisation, recruit officers from former clients
      • Average training time: 4-6 month (2 month at SKS)
      Use technology to reduce costs and limit errors.
      • Paper-based bookkeeping, local technology
      • SKS: Handhelds, internet-linked, special software
    • Impacts of the Financial Crisis?
      • Microfinance Institutions have been very relatively stable in past crises, but risks exist:
      • General credit restrictions in global economy make re-financing of loan portfolios difficult
        • Or: Micro-Finance Investment Vehicles as a save heaven?
      • Falling exchange rates of local currency against the dollar
      • Withdrawal of local deposits as customers loose trust
      Littlefield, Elizabeth. 2008. Microfinance and the Financial Crisis. In Weblog, ed., Crisis Talk - Emerging Markets and the Financial Crisis . World Bank.
    • The Microfinance Readings Khandker, Shahidur R. 2005. Microfinance and Poverty: Evidence Using Panel Data From Bangladesh. The World Bank Economic Review 19:263-286. Akula, Vikram. 2008. Business Basics At the Base of the Pyramid. Harvard Business Review 86:53-57. Littlefield, Elizabeth. 2008. Microfinance and the Financial Crisis. In Weblog, ed., Crisis Talk - Emerging Markets and the Financial Crisis . World Bank.
    • Overview: Three sub-topics
      • Base of the Pyramid (BoP): Business strategies for pro-poor innovation
      • Micro-Finance: Approaches and Recent Developments
      • Micro-Insurance: The Next Revolution?
    • Micro-Insurance Definition „ Microinsurance is the protection of low-income people against specific perils in exchange for regular premium payments proportionate to the likelihood and cost of the risk involved” Churchill, Craig ed. 2006. Protecting the Poor: A Microinsurance Compendium International Labour Office (ILO), Munich Re Foundation.
    • Micro-Insurance Principles
      • Same general principle as in “normal” insurance
      • But different target group: the poor!
      • Double benefit:
        • New, untapped market for businesses
        • Protection of the poor against risks: Vulnerability
      • Different operational principles
      Churchill, Craig ed. 2006. Protecting the Poor: A Microinsurance Compendium International Labour Office (ILO), Munich Re Foundation.
    • Micro-Insurance Principles Micro-Insurance Product Design (Example: Health)
      • Product manufacturing
      • Define benefit package
      • Identify providers
      • Pricing for sustainability
      • Controls for fraud, moral hazard, adverse selection
      • Product sales
      • Information provision
      • Underwriting
      • Product servicing
      • Assistance with claims
      • Manage relationship with care providers
      • Long-term relationship with clients
      • Product servicing
      • Maintenance of long-term stability
      • Financial management
      • Risk monitoring & management (reinsurance)
      Churchill, Craig ed. 2006. Protecting the Poor: A Microinsurance Compendium International Labour Office (ILO), Munich Re Foundation.
    • Operational Principles Churchill, Craig ed. 2006. Protecting the Poor: A Microinsurance Compendium International Labour Office (ILO), Munich Re Foundation. Principles Key Question Relevant to the risks of low-income households What do we know about the risks the poor face? As inclusive as possible
          • How can we reach the greatest number of poor people?
      Affordable premiums
          • How much can the poor pay, when, in which form?
      Grouping for efficiencies
          • How can we overcome transaction costs in rural markets?
      Clearly defined and simple rules and restrictions
          • How can everybody (even illiterates) understand the product offer?
      Easily accessible claims documentation requirements
          • How can the poor claim insurance payments quickly?
      Strategies to overcome the wariness of customers
          • How can ignorance of insurance as a principle be overcome?
    • Involvement of large insurers Michael Anthony, Allianz SE, Presentation at Utopia Conference, Berlin Explain insurances and risks covered to the heads of village. To raise understanding and awareness about micro-insurances mass rallies are being held by Care and local NGO. Village officials explain and discuss with its members the concept of insurance. During these awareness campaigns a puppet theatre and microinsurance song are shown to explain insurance. 1 2 3 4
    • Involvement of large insurers Why get involved as a large insurer? Churchill, Craig ed. 2006. Protecting the Poor: A Microinsurance Compendium International Labour Office (ILO), Munich Re Foundation. Internal factors External factors
      • Corporate social responsibility
      • Risk diversification
      • Securing or growing revenue
      • Push for new markets and innovative products
      • Growing competition in traditional markets
      • Shrinking margins in traditional markets
      • Regulatory requirements
      • Political and activist pressure
      • Liberalization of previously closed markets
    • The Micro-Insurance Readings Brown, W. 2001. Microinsurance - the Risks, Perils and Opportunities. Small Enterprise Development 12:11-24. Kuper, Andrew. 2008. From Microfinance Into Microinsurance: Insurers Should Think Small to Tap Into One of Their Biggest Opportunities for Growth: Serving Poor People. Forbes.com Insurance Price, Michelle. 2008. Small Fortunes. The Banker { Churchill, Craig ed. 2006. Protecting the Poor: A Microinsurance Compendium International Labour Office (ILO), Munich Re Foundation. }
    • Please split up!
      • Distribute texts and cross-read — focus on relevant information!
      • Go through text with others that had the same reading — What is unclear? Where do you have questions?
      • Start a group sub-discussion — you build on the following questions:
        • What are the key approaches you can identify in the readings?
        • Which limitations or potential problems can you identify ?
        • What are debates or open questions?
    • Back together
      • What do I want to chew on?
        • / idea / topic
        • / open issue / question / debate
    • Good Bye Thanks!
    • Sustainable Business Models Base of Pyramid, Micro-Credit and – Insurance o ikos Spring Meeting 2009, Oslo Friday, 28 March 2009 Martin Herrndorf o ikos PhD Fellow, University of St.Gallen m [email_address]