Editor’s Note: Ashish Karamchandani and Harvey Koh’s policy brief on goods, services and jobs for the poor is the subject of this third of six blog posts, from Laurence Chandy and George Ingram, previewing the 2013 Brookings Blum Roundtable.
The growing markets for clean cookstoves, community water, microfinance, cell phones and mobile money vividly demonstrate the potential for new business models to serve the poor in ways that are more sustainable, more scalable and more innovative than traditional government-, donor- or charity-driven solutions that rely on permanent subsidies. Models such as contract farming have successfully integrated the poor into commercially viable supply chains, securing higher incomes for tens of thousands of Africa’s rural households.
The third session of this year’s Brookings Blum Roundtable will explore the barriers to the development and propagation of market-based solutions targeting the base of the pyramid. Our discussion will draw upon the policy brief prepared for this session by Ashish Karamchandani and Harvey Koh of Monitor Deloitte. Its “Inclusive Markets” team has spent over seven years carrying out pioneering research and market-making activities to support this sector.
Ashish and Harvey’s brief offers a reminder of the enormity of the challenge in developing market-based solutions for the poor. They argue that crafting a clever business model, difficult though it may be, is rarely enough. It must go hand in hand with steps to address what they call “ecosystem barriers.” These barriers include assembling value chains often from scratch, educating the customer, and supporting necessary regulatory and policy reform. Given these challenges, it is unsurprising that the development of market-based solutions is a long term endeavor, often ends in failure and generates modest private returns at best.
Among the authors’ recommendations is the need to attract more large corporations to this sector, which bring experience of delivering at scale. They also advocate for more soft capital from donors and philanthropists, both to support early stage businesses and to address ecosystem challenges.
I think blended finance, development finance, is what’s needed, is the future. The U.S. is using a model that was created 40 years ago and I think it’s way past time for modernizing our capabilities.