3. Investment by both parties.
4. Rooted ness in the user community.
5. Links to other organisations.
6. Commitment to sustain and replicate the results.
Prof. C. K. Prahalad has gone a step further saying that the private sector should not stop at just corporate social responsibility but look at the ‘base of the pyramid’(BoP) as an opportunity and see them as entrepreneurs and customers rather than poor people without money. In other words, empower people at the bottom of the socio-economic pyramid rather than giving them government subsidies and public sector schemes.
Bottom of pyramid is the largest but poorest socio-economic group, and is 4 billion strong across the world and surviving on less than $2 a day as defined by Prof. C. K. Prahalad and Stuart. L. Hart.
According to Prahalad, the poor live in high cost economies and the informal economy that serves the poor is an unorganised system that is full of inefficiencies and intermediaries. It is also a long standing myth that the poor don’t have money but that is not true, the aggregate buying power of a community is commercially significant. The key to creating consumer capacity is based on three principles best described as the “three A’s”; Affordability, access and availability.
Prahalad and C.K.Hammond in their book, ‘what works: serving the poor profitably-A private sector strategy for global digital opportunity’, gives two scenarios in which, one is where there is economic stagnation and global chaos reigns with intensifying opposition to global market system. Second is where the developing countries become the new engines of growth, with private investments focused on the BoP markets, assisted by policy reforms, enhancing the underserved/unserved community and creating a new market which proves to be a win-win situation for both the MNC’S as well as the BoP customers. This alleviates poverty in return stabilising developing regions, reducing conflicts et al.
Prahalad and Hammond propounds that MNC’s could make a difference in the future if only they utilise their reach, scale and resources to bring innovative products and services to the poor. To achieve this, the MNC’S need not get involved in social development but only act in their own self-interest thus creating a very sustainable model. The synergy between the needs of the poor and the needs of MNC’S for growth provides immense potential.
GRAMEEN BANK
One such corporation is the Grameen Bank in Bangladesh. It is a micro-finance organisation and community development bank started in Bangladesh that provides small loans to poor people without any collateral.It was founded by Nobel laureate Muhammad Yunus, an economist, in 1976 with just $27/-from his own pocket, is one of the pioneers in the micro-credit lending schemes for the poor, in Bangladesh, now with 6.6 million borrowers of which majority are women.
The main philosophy of Grameen Bank is that no person is poor because they lack the skill but because of the policies and systems in the society. So, micro finance/micro credit (Grameen credit) is a way of empowering them by loaning them the required amount, usually around $200-$1000/-. At a time when loan sharks utilise the poor by charging exorbitant interests, Grameencredits thumb rule is to keep the interest rate as close to the market rate and not the borrowers’ rate when the cash is from for-profit institutes. Generally the loans are given through non-profit organisations or through institutions owned primarily by the borrowers.
Microfinance is a method of reaching the bottom of pyramid by providing small loans to poor people without collateral, thus empowering them. Microfinance was pioneered by Muhammad Yunus in the 1970s, which now has become a competitive market as such.
The Grameen Bank model has proven to be a robust revenue model with it’s
capability for rapid scaling in terms of client outreach and also lesser dependency on donor funds and passing of the actual service charge to the clients while retaining a margin for its own growth.
Borrowings are made on the basis of ‘social collateral’ where the borrower is a part of a five member team. The group oversees that everyone behaves responsibly and none gets into repayment trouble, while the repayment responsibility rests solely on the individual borrower.
As of September 2007, Grameen Bank had 7.31million borrowers of which 97% were women and the repayment rate is greater than 98%.More than half of the Grameen borrowers in Bangladesh have risen from poverty.6
The poor now have access to credit and the business corporations have a new market open to them that is virgin territory, of around 4 billion strong globally. Business corporations rather than handing out cash through charity should include the poor as well as the poorest of the poor as their valued customers, by coming out with innovative products and packaging, which they have with micro-insurance and credit cards.
CONCLUSION :
By empowering the ‘bottom of pyramid’ customers, what effectively is being done is that a new market is being created which demands innovative products and the corporations need to consider this to be their core competency rather than just a make-believe corporate social responsibility.
Innovation in technology is going to spearhead the entry of MNC’S into this sector which would drastically reduce the overheads and also the poor are keen to learn about new technologies as cited by Prof.Prahalad. Ex: ICICI entering microfinance in India, through their online banking system to penetrate the BoP customers, as well as tie-ups with MFI and NGO’S.
In all, corporate social responsibility should be defined as empowering the lowest segment of the community thereby creating a sustainable model for the general betterment of the society as well as a lucrative proposition for the private corporation.
Milton Friedman, 1970, NYTimes magazine.
Harvard Business Review on Corporate Responsibility; ‘The competitive advantage of Corporate Philanthropy’- Michael.E.Porter, Mark.R.Kramer.
Harvard Business Review on Corporate Responsibility; ‘ From spare change to real change’-The social sector as Beta site for business innovation.-Rosabeth. Moss. Kanter
The future at the bottom of the pyramid – By C.K.Prahalad
Morduch, Jonathan. 1999. The Microfinance Promise. Journal of Economic Literature,
37 (4): 1569-1614; Schwab foundation research.