Research Summary

Business and Low Income Sectors: The Creation of Economic and Social Value

by Michael Chu

Description

In the last three decades, innovative commercial solutions have emerged in developing nations focusing on providing effective responses to the hugely underserved needs of low-income populations, both as consumers as well as active participants in productive value chains. Succesful ones have demonstrated the capacity of yielding economic returns equal or superior to those of conventional businesses. Some, such as microfinance, have accomplished this while generating high social value. The implications on global poverty and economic development are significant. The possibility of deploying social impact activities through business models makes it possible to achieve simultaneously and consistently four key characteristics: scale, permanence, continuous efficacy and continuous efficiency. These are the attributes required for meaningful systemic change, implicit in responding effectively to poverty, which can be defined as the exclusion from those goods & services that determine an individual's life-chances. These four characteristics can only be guaranteed through time by commercial industries, operating under intense competition in open markets. In developing countries, where the public sector is particularly challenged as a direct dispenser of goods and services, including in healthcare and education, this affords the private sector a unique role. The analysis of concrete business cases serving low income sectors allows the identification of the key elements of success, the similarities or differences with conventional business practices, the challenges these pose to different types of enterprises, and an understanding (often counterintuitive) of how market mechanisms create or destroy social value.