Lecture 9 - Four critical challenges in the bop market. The following will be discussed in this chapter: Challenge 2 - Reducing the cost of small, dispersed transactions, challenge 3 - Managing informality risk. | FOUR CRITICAL CHALLENGES IN THE BOP MARKET Addressing the Challenges Challenge 2: Reducing the Cost of Small, Dispersed Transactions Addressing the Challenges The unforgiving arithmetic of small transactions hits the business case for the BOP market directly. A Bolivian shop owner may need only $300 to refurbish her market stall, Addressing the Challenges but if a lender’s break-even minimum loan is $1,000, she won’t get it, especially if her shop is in an outlying town on the sparsely populated altiplano. Addressing the Challenges The revenues from small transactions must be affordable to the client while covering the provider’s costs. The arithmetic of small sizes becomes even more implacable when infrastructure is weak, Addressing the Challenges as in poor urban neighborhoods, or when clients are dispersed, as in mountainous regions. It is only because these challenges are increasingly solvable that inclusive finance is spreading. Addressing the Challenges Simplification of . | FOUR CRITICAL CHALLENGES IN THE BOP MARKET Addressing the Challenges Challenge 2: Reducing the Cost of Small, Dispersed Transactions Addressing the Challenges The unforgiving arithmetic of small transactions hits the business case for the BOP market directly. A Bolivian shop owner may need only $300 to refurbish her market stall, Addressing the Challenges but if a lender’s break-even minimum loan is $1,000, she won’t get it, especially if her shop is in an outlying town on the sparsely populated altiplano. Addressing the Challenges The revenues from small transactions must be affordable to the client while covering the provider’s costs. The arithmetic of small sizes becomes even more implacable when infrastructure is weak, Addressing the Challenges as in poor urban neighborhoods, or when clients are dispersed, as in mountainous regions. It is only because these challenges are increasingly solvable that inclusive finance is spreading. Addressing the Challenges Simplification of products and processes is an important part of the solution, as is hiring a low-cost, high-productivity staff. Microfinance institutions and credit unions have traditionally done both, which put them into the BOP market early on. Addressing the Challenges The most promising new developments are happening at the “last mile,” where providers meet clients face-to-face. At this point technology is making it possible to sidestep bricks and mortar with branchless banking. Addressing the Challenges Successful providers to the BOP must get close to clients because the last mile is costly for clients as well as for providers. Coffee farmers in the highlands of Uganda who had traveled to the market town of Mbale to receive their crop payments in cash because there was no bank branch in the mountains. Addressing the Challenges These farmers faced highway robbery on the narrow mountain road back home, and one or two people from their community had lost their lives during past holdups. Addressing the .
