emerging markets

Emerging Markets, Emerging Models MARKET-BASED SOLUTIONS TO THE CHALLENGES OF GLOBAL POVERTY Ashish Karamchandani Michael Kubzansky Paul Frandano March 2009

!"#$%"&'(&")*

!"#$%&%'($')*+,-'."$(/"0'10"#2'(3'4'56"746'!'08'/94/'3&0:&3';6(&$/3'/90"#59'4'04$5&'"< '20"-';4247(6(/>'7#(6%($5'4$%';42(/46'3&0:(;&3'='4$%'($/&504/&3'/9&3&'3&0:(;&3' ($'4';#3/"8(?&%'@4>'';"82&/(/(:&'($'/9&(0'56"746'840C&/3A' B9&'!'08'&826">3'"0';"6647"04/&3'@(/9'3"8&'"< '/9&'@"06%D3'-'840C&/($5' 4$%' 20(;($5' 3/04/&5>-' ($$":4/("$-' $4/("$46' 4$%' 0&5("$46' &;"$"8(;' ;"82&/(/(:&$&33-' "054$(?4/("$46' %&3(5$-'4$%';4247(6(/>'7#(6%($5A

FOR MORE INFORMATION PLEASE CONTACT:

Michael Kubzansky [email protected] +1.617.252.2486 Ashish Karamchandani [email protected] +91.22.6658.2000 www.mim.monitor.com www.monitor.com

Emerging Markets, Emerging Models MARKET-BASED SOLUTIONS TO THE CHALLENGES OF GLOBAL POVERTY

Ashish Karamchandani Michael Kubzansky Paul Frandano with the assistance of Victoria Barbary, Anamitra Deb, Davis Dyer, Nishant Lalwani, Varad Pande, and Suchitra Shenoy

Executive Summary ............................................................. 2 Introduction .......................................................................... 8 New Approaches to Low-Income Markets.......................... 16 Business Models That Work .............................................. 34 PAY-PER-USE .................................................................................................. 40 NO FRILLS SERVICE ..........................................................................................47 PARASKILLING ................................................................................................. 55 SHARED CHANNELS .........................................................................................64 CONTRACT PRODUCTION.................................................................................. 77 DEEP PROCUREMENT...................................................................................... 86 DEMAND-LED TRAINING ...................................................................................95

What the Models Teach .................................................... 102 Recommendations and Concluding Thoughts ................... 120 APPENDIX: OVERVIEW OF THE INDIA STUDY .............................................. 131 ACKNOWLEDGEMENTS ............................................................................ 135 NOTES .................................................................................................... 136

Executive Summary Appendix

EMERGING MARKETS, EMERGING MODELS

Executive Summary

THIS REPORT INVESTIGATES “MARKET-BASED SOLUTIONS”! "#!"!$%"&#!'(!)%*+!')(#%!,%#-.-&/!"'!')%!0"#%!(1 !')%!/*(0"*!-&2($%!+3,"$-.4!5&! "*'%,&"'-6%!"&.!2($+*%$%&'!'(!',".-'-(&"*!/(6%,&$%&'!%7+%&.-'8,%#9!"-.9!"&.!+)-: *"&'),(+39!$",;%':0"#%.!#(*8'-(&#!/-6%!*(),"()&?#!!!,%",+#!$9)/(!(*'!#)/&2'#!)6 !#/22'##!$,%!6$"0/&'!)6 !1$&4'(:9$#'%!#)0/("),#! ;"'0%!"15)&($,(!0'##),#!$,%!2),20/#"),#C! D! 8*"0'!(*'!&)0'!)6 !1$&4'(#!",!(*'!2/&&',(!+0)9$0!'2),)1"2!2&"#"#! "#!9'",+!&''.$0/$('%A!1$&4'(:9$#'%!#)0/("),#!",!'1'&+",+!1$&4'(#! *$.'!+','&$('%!&'1$&4$90'!9','!!(#!()!0)3:",2)1'!5')50'!$,%!)6: 6'&!',)&1)/#!5&)1"#'!()!%)!'.',!1)&'!",!(*'!6/(/&'7 D! =*$(! 5&)1"#'! %'5',%#! ),! $%)5(",+! (*'! &"+*(! 9/#",'##! 1)%'0#A! 3*"2*! 1/#(! 9'! ($"0)&'%! ()! (*'! 5$&("2/0$&! '2),)1"2! $,%! #)2"$0! 2),%"("),#!)6 !(*'!5))&7!E/#",'##!1)%'0#!(*$(!6/,2("),!3'00!3*',! %'$0",+!3"(*!$6"!/',(!$,%!1"%%0':",2)1'!2/#()1'&#!$&'!/,0"4'0;!()! 3)&4!$#!3'00!6)&!0)3:",2)1'!1$&4'(#7!

© MONITOR COMPANY GROUP, L.P. 2009

EMERGING MARKETS, EMERGING MODELS

Executive Summary

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

A SELF-HELP GROUP IN ANDHRA PRADESH Village women meet regularly to manage credit and savings for purchases of dairy cows and other income-generating assets.

© MONITOR COMPANY GROUP, L.P. 2009

9

10

EMERGING MARKETS, EMERGING MODELS Introduction

!"#$%&'()'#')#*+,

@%40%/*$#1--$!"'%$'(1*$/%."/'$,"!'41!*$ (+!0/%0*$"& $/%&%/%!,%*$'"$-"#71!,")%$ .%/*"!*$"/$9/"+.*$4*$A'(%$.""/?B$A.""/$ .%".-%?B$A-"#71!,")%$*%9)%!'*?B$-"#7 %!0$)4/=%'*?B$'(%$A:4*%$"& $'(%$.2/4)10?B$ 4!0$)4!2$"'(%/$-""*%-2$*2!"!2)"+*$ 84/14'1"!*5$;%$/%,"9!1C%$%4,($"& $'(%*%$ '%/)*$)42$01*.-%4*%$"/$01*)42$*")%"!%?$ *")%#(%/%?$D+*'$4*$#%$/%,"9!1C%$%4,($ '%/)$1*$'("/"+9(-2$4,,%.'%0E$-"#71!,")%$ .%".-%$*%-&710%!'1&2$4*$A.""/?B$%,"!")1,*$ ./"&%**"/*$%F."+!0$"!$A-"#71!,")%$*%97 )%!'*?B$%,"!")1,$4!0$*",14-$GHI*$/%&%/$ '"$A1)."8%/1*(%0$.%".-%*?B$4!0$*"$"!5$

J+'$"+/$1!'%!'$1*!K'$'"$*4'1*&2$4$*'4!04/0$ "& $."-1'1,4-$,"//%,'!%**5$L(1*$/%."/'$1*$ =%%!-2$,"!,%/!%0$'"$'4=%$-"#71!,")%$ 9/"+.*$*%/1"+*-2$4*$,+*'")%/*$"/$./"0+,7 %/*?$*+..-1%/*?$4!0$#"/=%/*$/4'(%/$'(4!$4*$ :%!%!$,14/1%*$"& $*")%"!%$%-*%K*$-4/9%**%$ "/$4**1*'4!,%5$I+/$(".%$'(/"+9("+'$1*$'"$ )"8%$4#42$&/")$'2.%,4*'*$'"#4/0$4$)"/%$ !+4!,%0$,"!*10%/4'1"!?$:4*%0$"!$04'4$4!0$ 4,'+4-$,"!8%/*4'1"!*$#1'($."'%!'14-$,+*'")7 %/*$4!0$*+..-1%/*$1!$-"#7%!0$)4/=%'*?$"& $'(%$ -18%*$4!0$-18%-1(""0*$"& $.""/$.%".-%$4!0$ '(%$#42*$1!$#(1,($'(%*%$)19('$:%$1)./"8%0$ '(/"+9($)4/=%'7:4*%0$*"-+'1"!*5

!"#$"!%$"& $'(%$)"*'$*+,,%**&+-$!%#$./"0+,'*$"& $1'*$'2.%$1!$3!0145$6!0$1'$1*$)4'%/17 4--2$1)./"81!9$-18%*$"& $'(%$/1*1!9$!+):%/*$"& $-"#71!,")%$.%".-%$#("$:+2$1'5 ;(4'$ 4-)"*'$ (4..%!%0$ '"$ '(%$ # $)# $+4+1+08*8"+# &"0# $+4+6'(+,*(8'$8)"# ,*%+1+,># &"0#&44#1&""+(#). #+..)($,#8"#7+$-++";#?()1#$%8,#1/*%#4&(9+(#48,$#). #8"8$8&$8:+,#&"0# 1)0+4,>#-+#*/$#$%()/9%#$%+#1&"2#$%&$#&(+#8"$+(+,$8"9# We found many examples 7/$# 4&*5# '()18,+# $)# 08,$844# 0)-"# $)# &# .+-# $%&$# %&:+# of market-based approaches %89%#')$+"$8&4; that seemed promising on the surface but upon further !"# &44># -+# 80+"$8!#+0# ,+:+"# 7/,8"+,,# 1)0+4,# $%&$# &(+# investigation proved not to be ,+4.6,/,$&8"8"9# &"0# )..+(# $%+# '()18,+# $)# ,*&4+# 8"# commercially viable or scalable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

&%'$()%"

C1@.)

4,$"% >+"#8%'>"%! )'! 9%))%3! "#$%&! +(.! "#$%"#*''.&0! G*%&%! 6+(! 9%! +")%3(+)#$%&! '3! &7>>"%2%()&! )'!)*%!)3+.#)#'(+"!+>>3'+6*%&!'5 !.'2%&)#6!+(.!5'3%#3'*#"; +()*3'>#6! 5'7(.+)#'(&8! +(.! ')*%3! ('(;3%&%()!3%>'3)0!1%!>"/!+&4!)*+)!)*%!3%+.%3!6'(&#.%3!3%6%()!*#&)'3/!#(! )*#(4#("%!)'!9%))%3!"#$%&!+(.! "#$%"#*''.&8!+&!'>>'&%.!)'!>3'$#.#('$%3)/!.%6"#(%.!53'2!-K!>%36%()!)'!JR!

GRINDING FLOUR Among low-income families, food preparation is often laborious and time-consuming. Today, market-based solutions offer better ways to simplify traditional chores like cooking or securing clean water.

© MONITOR COMPANY GROUP, L.P. 2009

17

18

EMERGING MARKETS, EMERGING MODELS New Approaches to Low-Income Markets

!"#$"%&'()*+"),-#."&/0#12"%)"$3%3,1$)4#35&+)36 )0"2"73!1%4/$38% ):;-7)!32"#&9)1=)!"#+-!=)&+")4#"-&"=&)"$3%3,1$)=8$$"==) =&3#9)36 )&+"),30"#%)"#-') ?"735)5")366"#)"210"%$")&+-&)=8>=&-%&1-&"=)&+")!#3,1=")36 ),-#."&/>-="0)=378&13%=') @3#)"A-,!7"B)="2"#-7)>8=1%"==),30"7=)+"7!)!-#&1$1!-&1%4)=8!!71"#=)&3)#"-71C")!3=1&12") 1%$3,")"66"$&=)36 )DE)&3)FE)!"#$"%&)!"#)9"-#)G)1%$3,")&+-&)1=)%3&)-)#"=87&)36 )#"01=/
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

© MONITOR COMPANY GROUP, L.P. 2009

EMERGING MARKETS, EMERGING MODELS

New Approaches to Low-Income Markets

19

!"#$%&'(")%*+),-.&/,0)+"0*+&1%+2-,("-+3/0"04/"-+4#/)/)

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�"-% '5$+%.)%/$)4/55(%,#1):-),%'-%:+*@)*-#+*'5% @#)3$%+4 %):+*+&#:%,)@)5+6&)*-%8%#*9 :5/,#*0%-")%1)$6):-#@)%1+5)$%+4 %-")% 0+@)1*&)*-%'*,%61#@'-)%$):-+1$%#*%:1)'-9 #*0%01+3-"%-"'-%':-/'55(%1),/:)$%6+@)1-(% +@)1'55;%6/-$%-")%6++1%+*%'%6'-"%-+%#&9 61+@),%5#@)5#"++,$;%'*,%")56$%61+&+-)% $/$-'#*'.5)%,)@)5+6&)*-B% F+1)+@)1;%0+@)1*&)*-$%3#55%.)%$-1'66),% 4+1%1)@)*/)$%'*,%$/*2%#*%"/0)%,)!%:#-$B% !")%:+55):-#@)%'.#5#-(%+4 %-")%&+$-%61+

© MONITOR COMPANY GROUP, L.P. 2009

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�"-% -"/$%.)%+4 %01)'-%/$)%#*%-")%:/11)*-%05+.'5% ):+*+&#:%)*@#1+*&)*-B

20

EMERGING MARKETS, EMERGING MODELS New Approaches to Low-Income Markets

The Poor as Economic Actors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

© MONITOR COMPANY GROUP, L.P. 2009

21

22

EMERGING MARKETS, EMERGING MODELS New Approaches to Low-Income Markets

!" #$%&%'()**)+,-"."/%+0"123'"4&%)+"%+5"6/7*80"'698+5%&0:'9;88*" ,&%5" )+'46%5"8= "98**6,6"56,&66";8*56&'"=8