Lecture 8 - Four critical challenges in the bop market. After reading this chapter, you should be able to answer the following questions: How can poor people save money if they can barely put food on the table? How can they afford to pay high—or any—interest rates? Aren’t informal entrepreneurs risky customers? Won’t they default and disappear into the slums? Can an illiterate woman learn to use an ATM machine? | FOUR CRITICAL CHALLENGES IN THE BOP MARKET Summary WHO SERVES THE BOP MARKET—AND WHO DOESN’T? Challenges How can poor people save money if they can barely put food on the table? How can they afford to pay high—or any—interest rates?” Challenges “Aren’t informal entrepreneurs risky customers? Won’t they default and disappear into the slums?” “Can an illiterate woman learn to use an ATM machine?” Challenges We sometimes hear questions like these from businesspeople who have little exposure to the clients of the bottom-of-the-pyramid (BOP) market. Challenges While the questions may reveal a lack of sector knowledge, and some verge on the politically incorrect, they are not frivolous. In fact, they address real challenges inherent in making a successful business that serves low-income people. They demand answers. Challenges To surface more potential doubts and hesitations, we can also ask: Challenges What’s different about the low-income market? Do they want the same products as the . | FOUR CRITICAL CHALLENGES IN THE BOP MARKET Summary WHO SERVES THE BOP MARKET—AND WHO DOESN’T? Challenges How can poor people save money if they can barely put food on the table? How can they afford to pay high—or any—interest rates?” Challenges “Aren’t informal entrepreneurs risky customers? Won’t they default and disappear into the slums?” “Can an illiterate woman learn to use an ATM machine?” Challenges We sometimes hear questions like these from businesspeople who have little exposure to the clients of the bottom-of-the-pyramid (BOP) market. Challenges While the questions may reveal a lack of sector knowledge, and some verge on the politically incorrect, they are not frivolous. In fact, they address real challenges inherent in making a successful business that serves low-income people. They demand answers. Challenges To surface more potential doubts and hesitations, we can also ask: Challenges What’s different about the low-income market? Do they want the same products as the middle class? How can we reduce the cost of making small loans and processing tiny transactions? Is technology the solution? Challenges Are low-income clients as risky as we fear? Where exactly do the risks lie? How do microfinance institutions manage risk? Can the private sector use the same techniques? Challenges In the past most private companies had good reasons to avoid serving the BOP market, because they had no good answers to questions like these. No longer. Challenges We know from our experience that good answers exist and that they can be applied effectively if companies adapt their business models to market demands. Challenges Advances in technology, financial innovations, and greater market understanding provide potential solutions to the core challenges of the BOP market. Challenges Above all, success is found in nearly two decades of experience with commercial microfinance and in the experience of private-sector companies that entered the low-income financial market early on.
