Base of the Pyramid: Sustainable Business from the Bottom up

Base of the Pyramid: Sustainable Business from the Bottom up

Martin Fisher and Upendra Bhatt are two of the most important people you've never heard of. And that's fine by them. They would rather be popular among poor Kenyans and Indians than featured in the Western press. What do they do that's so important? They are social entrepreneurs: Fisher's KickStart and Bhatt's Aavishkaar harness the poor's ingenuity and entrepreneurship to build profitable businesses serving basic needs; from efficient irrigation and kerosene stoves to IT-enabled dairy cooperatives, they work with poor communities to generate needed incomes without sacrificing social and environmental considerations along the way.

Fisher and Bhatt are part of a growing BOP (base or bottom of the economic pyramid) movement, whose common call is to alleviate poverty while generating sustainable profits for companies large and small. Poverty alleviation and profit making are rarely considered complementary activities. BOP practitioners -- social entrepreneurs such as Fisher and Bhatt -- seek a middle ground where the private sector's power is brought to bear on persistent social, economic, and environmental problems.

Social entrepreneurs must be grounded in reality. The reality of rural Africa and India is that people need money to send their kids to school, buy medicines, and put food on the table. Poverty alleviation starts with income generation. And pollution-neutral income generation is the building block on which social entrepreneur-led organizations like KickStart and Aavishkaar operate.

Kickstarting the Supply Chain at the Grassroots Level

KickStart (until recently called ApproTec) was founded by Martin Fisher and Nick Moon, former aid workers searching for an alternative to top-down poverty alleviation strategies. Their Kenya-based company develops and promotes technologies that entrepreneurs can use to establish and run profitable small scale enterprises. According to Fisher, "appropriate technology is crucial to the creation of millions of small businesses and jobs."

Those technologies include oilseed presses, a stabilized soil block press for home-building, and a highly successful line of treadle pumps sold under the brand name MoneyMaker. A MoneyMaker pump retails for under $100, and allows a Kenyan farmer to irrigate up to 400 percent more of his land, increasing his yearly income by a factor of ten.

KickStart's success is documented by a stringent monitoring program -- and the company reports that its pumps have created over 29,000 new jobs and $37 million in annual wages and profits to pump operators. "Every person in the world today lives in a cash economy, and their most important need is to make money," notes Fisher.

The developmental benefits of KickStart’s technology are obvious -- so why not make them widely available through government and aid agency programs? Fisher’s quick with a response: "We’ve realized it’s much better to sell things to individual people, using the existing private sector." KickStart prefers a self-sustaining supply chain to handouts, so it helps set up manufacturers and retailers to sell the pump. Their ultimate goal is to get out of Kenya -- leaving behind a robust infrastructure to continue making, selling, and using its technology.

Some critics in the environmental and development communities worry that MoneyMaker pumps threaten scarce sub-Saharan water tables, but the pump is not a well; it draws water only from the top 20 feet below ground, a level replenished by seasonal rains. Furthermore, Fisher notes that "once people get our pumps, they start growing trees. They start having more money, which means more time to get involved in community environmental projects."

"If you get people out of poverty, they will care for their environment more than they would otherwise." Emphasizing sustainable irrigation practices as well as a flourishing supply chain, KickStart exemplifies how poverty alleviation and profit generation can happily co-exist.

Aavishkaar: Funding Budding Entrepreneurs in Rural India

At first glance, the only things coexisting in rural India are poverty and poverty. The patchwork of farming villages throughout rural India is a landscape in which poverty can be passed down from one generation to the next. Aavishkaar’s Upendra Bhatt has a different view: rather than a network of persistent poverty, he sees rural India as a hotbed of innovation.

Unfortunately, many innovations that come out of rural India never reach significant scale. While big businesses have easy access to diverse sources of funds, small entrepreneurs find it extremely difficult to raise money. Capital constraints prevent many promising innovations from making it to the market.

Aavishkaar fills an important role: it is positioned between microfinance and traditional venture capital funds with its promise of equity support to small businesses. According to Bhatt, "we try to create an enabling ecosystem of entrepreneurs, whom no one else is willing to fund." To create such an ecosystem, Bhatt and his partners raised over $1 million to start a "micro-venture capital" firm.

M. Mukundan was one of Aavishkaar’s first investments. Through connections in rural areas, Mukundan had come across locally-developed kerosene stoves and a hyper-efficient irrigation rain gun. Working with local villagers, he developed a business plan to distribute both throughout rural India. Microfinance institutions were interested, but what Mukundan really needed went beyond the $1000 annual loan he was offered.

Aavishkaar stepped in when his loan application was turned down, conducting professional due-diligence and market research studies before taking a 49 percent equity stake in the start-up company. With a sophisticated marketing and distribution plan in place, both the rain gun and kerosene stove are being sold throughout India, saving at least $500,000 in fuel and water costs for the more than 70,000 BOP customers who have purchased them.

Bhatt is the first to acknowledge that "BOP consumerism has its limitations. The solution must enable the BOP to be a producer as well," he says. Another Aavishkaar investment sets up village-level dairy cooperatives with simple computer technologies that could revolutionize the dairy industry in India.

The Dairy Cooperative Societies use computerized scales and milk analyzers to process greater quantities of higher quality milk, while also saving money through reduced staff requirements. For farmers, lines are shorter, less milk is spoiled and payment is quick and accurate. The systems are successfully being used at more than 750 dairy cooperative societies spread throughout the Indian states of Gujarat and Maharashtra.

Aavishkaar responds to the gap between microfinance and formal capital in the Indian system by making profitable investments in rural innovations. It invests exclusively in socially and environmentally responsible firms, since, as Bhatt claims, “any BOP business must be socially and environmentally responsible in order to survive. Period. Unless that business is doing something useful in the community, they’re not BOP.”

The work of Kickstart and Aavishkaar are two small examples of a vital new approach to business and to ecosystem management. Natural resources are still -- and will remain for the foreseeable future -- the primary assets of the rural poor. Proper management of these assets is critical not only to those who rely directly on agricultural land, or forests, or freshwater or oceans, but also of course, to all of us. Social entrepreneurs like Fisher and Bhatt are pioneers, showing us how to live out the promise of sustainability -- providing for today’s needs while protecting the earth’s environment and its capacity to provide for the needs and aspirations of current and future generations. And they are doing it by applying ingenuity and sound business practices that suggest we can be green while catalyzing economic growth for low-income communities at the base of the economic pyramid.

Robert S. Katz is a research analyst with the World Resources Institute. He researches “base of the pyramid” business approaches to poverty, and is an editor of and frequent contributor to the -- Development Through Enterprise Web site and blog. His current research documents unmet human needs in low-income communities and identifies the corresponding market power of the poor.