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Category: GIM Blog

GIM delivers a keynote speech at the Sixth World Water Forum: Testing solutions for water products at the BOP must take a multi-product approach, instead of a single product-driven approach

In a keynote presentation at the Japan Water Forum Side Event at the Sixth World Water Forum, Marseille, 14 March 2012, Sahba Sobhani (Growing Inclusive Markets Initiative, UNDP), reflected on the challenge of growing inclusive markets for water products in low income communities, where the challenge is to find strategies that are replicable and scaleable. The session focused on business-based pro-poor approaches on water and sanitation for better sustainability.

Mr. Sobhani said, “research and pilot testing is essential to take into consideration the cultural characteristics and ease of use in water sector products. Awareness building and community mobilization are also necessary cost factors.  He noted that a sector approach testing multiple products can be more beneficial compared to the standard ‘product’ based approach pursued by most companies when entering the BoP market. Sectoral approaches enable comparative benchmark analysis of pro poor impact, demand for the products and business cases. The presentation included findings from a recent UNDP multi product testing undertaken with two Japanese water purification products as part of a Japanese Ministry of Foreign Affairs funded initiative -perhaps one of the first multi-product feasibility studies of its kind.

The BoP business model can apply not only to point of use systems, but also to support the construction of water supply systems for the unserved, in order to sustainably improve public hygiene with safe water supply. The JICA experience with the BoP business experience has so far demonstrated that these businesses are more difficult than other ordinary private water projects because they are small, target low income groups, and are high risk. Therefore, private finance is very limited. Osamu Murata (JICA), explained that this is why JICA is supporting the costs of feasibility studies by private companies that are willing to invest in the BoP business model. JICA will continue to welcome collaborations with other donors, NGOs and private companies.

The session concluded that the BoP business model can be successful in meeting the needs of poor people for improved water service provision at an affordable cost. It can also open up significant new markets for businesses and enable them to make a profit. And finally, the BoP model provides a long term contribution to sustainable poverty reduction by using more energy and resource-efficient technologies, increasing economic activity and creating opportunities. Unserved communities, private companies, and the international development community can all achieve their objectives by working together using the BoP business approach. Work by the Japan Water Forum, JICA and colleagues on the BoP solutions will build on the suggestions made during the Side Event in preparation for further presentation and discussion on this topic during the 7th World Water Forum in Korea.


Beyond microfinance: Can government cash transfers scale up financial access for the poorest?

From Business Fights Poverty, written by Sahba Sobhani and Subathirai Sivakumaran, Growing Inclusive Markets Initiative, UNDP

What next after microcredit?

The last few years of news scandals in the microfinance arena has created a gap in the credibility and viability of providing effective, low-cost and impactful financial services to the poor. Newer studies calculating the impact of microcredit find controversial development impact. SKS Finance’s $347 mn IPO (coming after Compartamos’ record-breaking IPO and profits in 2007 ) was followed by a dramatic stock price fall in 2011, amidst allegations that aggressive lending practices led to increased impoverishment of poor borrowers, and farmer suicides. Increased regulatory burdens in many countries amidst an environment of constrained credit and diminishing grants has squeezed microfinance break-even profitability and limited its scaling.

But one should be careful not to throw the baby out with the bathwater.

What are other successful financial products for the poor?

What the developed world thinks of as formal bank accounts is not what works for the poorest populations. Rather, no-frills bank accounts (that limit transactions and reduce the cost of ‘servicing’), mobile wallets, prepaid debit cards that can be reloaded are all currently enjoying great success in the markets of the poor. Low cost payment systems (a Visa/Mastercard/Amex system for the poor) are using innovative channels and technologies to reach the poor, achieve a volume of transactions and turn a profit. These systems and ‘accounts’ offer the poor the ability to save, transact and build wealth securely and at lower costs than otherwise. A slew of exciting product innovation in commitment savings products, micro-insurance, and others are also being piloted.

How can scale be achieved in introducing these products to the poor?

All of these methods have been used successfully to reach the poor through government to person transfer programs, such as Latin American conditional cash transfer programs, emergency cash transfer programs, government salary payments to low income employees and a variety of other programs. But there is still a way to go in advocating for governments and donors to change the way they do business.

The Consultative Group to Assist the Poor (CGAP) reported in 2009 that over 170 million people are receiving cash transfers from their governments. Yet only one quarter receive these benefits into a financially inclusive bank account. While advances have been made since 2009, the majority of the poor still receive their recurring payments through lining up, and receiving cash envelopes.

It is not only governments who need to transform their practices, but also donors who need to find a third way for official development assistance. In the humanitarian sphere, innovative advances in the disbursement of hundreds of millions of dollars of cash transfers to the disaster or war-affected, annually, have enabled effective financial inclusion through the use of mobile phones, debit cards and bank accounts.

In an upcoming database soon to be published by UNDP, nearly 25% of 168 emergency cash transfer programmes in the last 5 years have used either mobiles, prepaid cards or bank accounts to transfer cash. These practices ensure that money goes directly to the recipient without endemic leakages, and ensure greater aid-effectiveness through increased monitoring ability. In Haiti, in 2012, for the first time in the world, mobile enabled cash transfers are being used by UNDP for a housing repair voucher system to earthquake-affected victims who reside in camps and insecure dwellings.

What is the increased development impact in doing so?

Linking government cash transfer programs to some form of accounts to the poor can provide participants with greater social empowerment, positive psychological impacts, increased investment in human capital, future-oriented outlooks, the ability to weather shocks, and contribute towards the Millennium Development Goals.

For example, a new and exciting randomized control trial in Niger in 2011 found that the mobile delivery mechanism (called zap) strongly reduced the variable distribution costs for the implementing agency, as well as program recipients’ costs of obtaining the cash transfer.  The zap approach also resulted in additional benefits: households in zap villages used their cash transfer to purchase a more diverse set of goods, had higher diet diversity, depleted fewer assets and grew more types of crops, especially marginal cash crops grown by women.

It’s not just about opening bank accounts for the poor.

The answer is not to open more ‘traditional’ bank accounts for the poor. Shortsighted pushes to expand financial services to the poor have resulted in distorted incentives and many dormant bank accounts. The last mile still has to be accomplished. Ensuring that the poor receive access to a suite of saving, wealth-building and cheaper transactional methods necessitates efficient pro-poor payment systems. This means not only using low-cost technology, but finding the appropriate distribution agents and points of service that allow the poor to effectively use mobile phones/prepaid cards/basic bank accounts effectively and frequently.

In case studies written by the Growing Inclusive Markets initiative at UNDP, examples of A Little World in India, MAP International in Uganda and GiroNil in Egypt show promising private sector providers who have begun innovating low cost payment systems (like Visa or Mastercard in the developed world) that use innovative technologies such as mobile transmission, RFID chips and offline capabilities to lower the cost of transacting electronically for the poor. Partnerships with state postal institutions in Egypt ensure an extension of low cost payment possibilities to the poor. Working with the rural employment guarantee scheme in India (NREGA) allows ALW to achieve volume in payments (and open 4 million accounts for the poor) and therefore achieve profitability quicker.

There is great momentum, knowledge building, implementation of pilots and attempts to scale the universe of safe, effective and transparent financial services of the poor. Credit is only one cog in the wheel. What is even more essential is the overlooked but critical factor of access to pro-poor accounts (whatever form they take) and cheap and effective transactional methods. To accelerate the adoption of these systems and achieve scale, governments and donors need to change their own practices. It is only then that financial services for the poor will achieve its great promise of contributing to the eradication of poverty.


WashingtonMajor changes in the multilateral landscape have paved the way for new partnerships and a concrete, recognized role for the private sector in development, UNDP Assistant Administrator for External Relations and Advocacy Sigrid Kaag said here.

“The geopolitical and multilateral landscapes have changed, creating new opportunities to partner and co-create,” Kaag told a panel discussion at the Center for Strategic and International Studies (CSIS) Feb. 24. “The development experiences and approaches coming from emerging economies provide new examples and new insights.”

“Meaningful, equitable, inclusive growth requires the active engagement of all partners, and the private sector is critical to job-rich economic growth,” she said. “In many countries, the private sector shares its expertise, access to technology, and innovative practices and tested business models.”

“UNDP’s experience in working with the private sector, in growing inclusive markets, has given us ample experience to build on and apply in our work with all development partners,” she said, citing “tremendous momentum” for accelerating progress toward the anti-poverty Millennium Development Goals (MDGs).

UNDP draws on its legitimacy, neutrality, and global reach to further promote trilateral cooperation and private sector engagement, she said, adding that the agency seeks to foster inclusive markets with jobs and services for the poor, predictable economic bases, and good governance.

‘Revolution in development’

In 2005, UNDP, the US Agency for International Development (USAID), and Government of France launched a study of the role of the private sector in development, Daniel Runde, director of the CSIS Project on Prosperity and Development, said.

The resulting report, “Creating Value for All,” was published in 2008, launched in more than 50 countries, and translated into seven languages. It also prompted UNDP’s “Growing Inclusive Markets” initiative.

“You have something [here] that has caused a real revolution in development,” Runde said. “Having the UN say that private sector-led development is important really means something, because the UN can reach folks other people can’t.”

The Growing Inclusive Markets initiative comprises 28 business schools in developing countries along with other partners to build and share knowledge related to private sector effectiveness among low-income populations and to develop capacity. UNDP also hosts a multi-partner initiative, the Business Call to Action(BCtA), which challenges companies to develop innovative business models with commercial and development outcomes.

Emerging economies play a key role

The 34-member Organisation for Economic Cooperation and Development (OECD) now includes Mexico, Chile, Israel, the Republic of Korea, and Turkey. Such emerging economies are now partners in shaping and implementing development policy, Kaag said.

Middle-income countries with growing economies are clear in their demand for cutting-edge knowledge and tested expertise to develop equitably and create opportunities for the present and future, she said. “The Arab Spring has taught us a number of valuable lessons in this respect. Employment and employability remain driving forces in society,” she said.

In March 2011, UNDP and the Government of Turkey opened the Istanbul International Center for Private Sector in Development. The Istanbul center supports inclusive, competitive markets and business models that engage poor people into value chains as producers, employees, consumers, and entrepreneurs, with the end goal of economic development.

Opening the center, UNDP Administrator Helen Clark cited “outstanding examples of inclusive approaches in Turkey and other countries in the broad UNDP region of transition in Europe and Central Asia,” such as a textile industry entrepreneur who invested in poorer regions.

“Through lower labor costs, and with government incentives, this business became profitable and generated new jobs and opportunities, especially for local women,” Clark said. “The private sector itself has a critical role to play in fostering inclusive growth.”

UNDP has meanwhile signed new partnership agreements with Brazil, China, Turkey, Mexico, and South Africa, committing to work together to support other developing countries to meet development challenges.