Published: August 2008 – David South Consulting

By David South, Development Challenges, South-South Solutions

Access to basic banking services for the poor is weak at the best of times. Many are openly discriminated against as a ‘bad risk’ by banks, and denied the sort of banking services middle and higher income people take for granted. Yet it is a myth that the poor do not have money or do not wish to save and invest for their future or for business.

The so-called Bottom of the Pyramid (BOP) – the four billion people around the world who live on less than US $2 a day – are being targeted by a wide range of businesses. Indian business consultant and professor CK Prahalad, the man who coined the term BOP, has gone so far as to claim this is a market potentially worth US $13 trillion, while the World Resources Institute puts it at US $5 trillion in its report, The Next 4 Billion.

And contrary to popular perception, the poor do have buying power, as has been documented by Massachusetts Institute of Technology (MIT) professors Abhijit Banerjee and Esther Duflo in their paper “The Economic Lives of the Poor”. Surveying 13 countries, they found those living on less than a dollar a day, the very poor, actually spent 1/3 of their household income on things other than food, including tobacco, alcohol, weddings, funerals, religious festivals, radios and TVs. The researchers also found that the poor increasingly used their spending power to seek out private sector options when the public sector failed to provide adequate services.

India, where 63 percent of the BoP market is rural and 304.11 million people are illiterate (Human Development Report), makes for a particularly tricky market to reach with bank machines: the average transaction is just 100 rupees (£1.25).

But a Madras-based company has come up with the Gramateller – a low-cost, blue-and-white bank machine custom-designed for the poor and illiterate. Vortex received funding of 2 million rupees (US $48,000) from an investment company, Aavishkar, that specializes in micro-venture capital — small sums for new business ideas. The advantage of micro-venture capital funding is its longer payback time: a young company does not get driven out of business by having to pay back the cash before the idea has been realized. Normally, venture capital helps a business to grow quickly but the venture capitalist wants to see an immediate profit on the investment.

Vortex’s chief executive officer, V.Vijay Babu, said: “The idea was conceived by Prof. Jhunjhunwala of IITM (Indian Institute of Technology Madras) in the course of an exploratory project focused on using ICT to deliver modern banking services to rural India.”

“It was found that branch-based banking is too expensive to be extended to remote rural locations where the volume and size of transactions are small. Using conventional ATMs (automatic teller machines) as a channel posed many difficulties because these ATMs were not built to operate in [illiterate] environments. Hence the need for developing an ATM specific to this context.”

Costing just a 10th as much to build as an ordinary cash machine, Gramateller has a fingerprint scanner for the illiterate, and is able to accept dirty and crumpled bank notes. Vortex came up with an ingenious solution to do this, said Babu: “Vortex developed a beltless dispenser design that in many ways mimics the way a human teller would pick and count notes.”

Vortex hopes to massively expand access to cash machines: at present, India has just 30,000 machines, or one for every 43,000 people (the US has a machine for every 1,000 people). These machines are being piloted with India’s biggest private bank, ICICI, and they have garnered interest from Indonesian banks as well.

“We are running pilots for two leading banks with about 10 ATMs,” said Babu. “Though it is still early, the initial response has been very encouraging – rural users find fingerprint authentication intuitive and simple and the ATM convenient and easy to use. A few users also gave feedback that our ATMs look less intimidating, maybe because it is placed in a non-air conditioned room with easy access and also is different in shape from a typical ATM.”

Furthermore the cash machines have taken a beating to see if they are robust enough for rural India: “The ATMs were tested for extended operating cycles under the harshest of environments that would prevail in the rural context — using soiled currencies, operating in non-air conditioned and dusty environments, subjecting the machine to typical fluctuations in line voltages and power outages. User-acceptance was tested by enlisting the participation of rural and semi-urban people to carry out test transactions.”

As for thieves getting their hands on the cash before the poor, Vortex maintains the machines will not become the victim of thieves: each machine will only carry a fifth of the money of city-dwelling bank machines.

Elsewhere in the South, a South African research and analysis company BMI-TechKnowledge (http://www.bmi-t.co.za/) in its latest report identifies a boom in banking services across Africa. In particular, South Africa, Botswana, Namibia, Angola, Mauritius, Tanzania, Kenya, Ghana, Nigeria, Egypt and Morocco – all have seen surges in profit and services as a result of improving banking regulations and political conditions. Maybe future markets for the Gramateller to reach Africa’s poor lie ahead?

Published: August 2008

Resources

Unleashing India’s Innovation: Toward Sustainable and Inclusive Growth, a report by the World Bank.
Website: web.worldbank.org
xigi.net (pronounced ‘ziggy’ as in zeitgeist) is a space for making connections and gathering intelligence within the capital market that invests in good. It’s a social network, tool provider, and online platform for tracking the nature and amount of investment activity in this emerging market also referred to as blended value investing. xigi’s goal is to help this international emerging market to grow through market formation activities that guide and educate a growing wave of new money, while connecting it to the emergent entrepreneurs and deals on the internet.
Website: http://www.xigi.net/
The new report Global Savings, Assets and Financial Inclusion by the Citi Foundation is packed with innovative approaches that are allowing the BoP (bottom of the pyramid) to use their income to build assets and more sustainable livelihoods.
Website: http://www.newamerica.net
NextBillion.net: Hosted by the World Resources Institute, it identifies sustainable business models that address the needs of the world’s poorest citizens.
Websites: http://www.nextbillion.net/ and World Resources Insitute

Development Challenges, South-South Solutions was launched as an e-newsletter in 2006 by UNDP’s South-South Cooperation Unit (now the United Nations Office for South-South Cooperation) based in New York, USA. It led on profiling the rise of the global South as an economic powerhouse and was one of the first regular publications to champion the global South’s innovators, entrepreneurs, and pioneers. It tracked the key trends that are now so profoundly reshaping how development is seen and done. This includes the rapid take-up of mobile phones and information technology in the global South (as profiled in the first issue of magazine Southern Innovator), the move to becoming a majority urban world, a growing global innovator culture, and the plethora of solutions being developed in the global South to tackle its problems and improve living conditions and boost human development. The success of the e-newsletter led to the launch of the magazine Southern Innovator.

This work is licensed under a
Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 License.

ORCID iD: https://orcid.org/0000-0001-5311-1052.

© David South Consulting 2023

Milk Co-operatives Help Hungry Haiti

By David South, Development Challenges, South-South Solutions

SOUTH-SOUTH CASE STUDY

The global food crisis has hit the impoverished Caribbean country of Haiti especially hard. Already suffering from decades of food crises brought on by the collapse of domestic farming, the country has become notorious for its people being reduced to eating cakes made of mud to stave off hunger pains. It is the poorest country of Latin America and the Caribbean and one of the poorest in the world.

Haiti imports some 52 percent of its food, including over 80 percent of its rice. Local food production only covers 43 percent of the country’s demand and food aid supplies only 5 percent of its needs. Of the estimated 9.8 million Haitians, 5.1 million live on less than US $1 a day and 7.6 million on less than US $2 a day. At current prices, one dollar buys only half a meal per day (Source: United Nations Country Team in Haiti).

Haiti’s problems are made worse by a global food crisis. So-called agflation (agricultural inflation) has seen spiralling food prices around the world, which in turn are causing food shortages, hunger and malnutrition. On international commodity markets, food prices have gone up 54 percent over the last year, with cereal prices soaring 92 percent (FAO – World Food Situation). U.N. Secretary General Ban Ki-moon has called for food production to increase 50 percent by 2030 just to meet rising demand – and right now there are 862 million people worldwide who are undernourished (FAO).

In Haiti, most agriculture is done on a small scale by about 700,000 family farmers. Few belong to any production association or mechanism to market and distribute their products, and local produce has been pushed out of the market by imports.

Subsidized U.S. rice began flooding in 30 years ago, becoming so cheap that Haitians began eating it instead of the corn, sweet potatoes, cassava and domestic rice they grew. The U.S. imports drove rice farmers out of business and incited a rural exodus that swelled the slums of the capital, Port-au-Prince. That dependence on imports has caused dangerous food insecurity. Today, the U.S. rice that is the staple of many Haitians’ diet has doubled in price in little more than a year.

“The problem is that Haiti doesn’t have the land to give every peasant family enough to allow them to make a living,” said Bernard Etheart, head of the National Institute for Agrarian Reform. Etheart estimates that if all arable land was planted, each farmer would have no more than half a hectare, or 1.25 acres.

A cooperative of dairy farmers is doing its bit to revive domestic production of milk products and reduce the crippling costs of importing milk for Haiti. Importing 85,000 tonnes of milk from Europe and the United States costs Haiti US $40 million a year. A walk through the capital, Port-au-Prince, will reveal how much milk is imported in one form or another: tiny cans of evaporated milk are sold in the street markets, while the wealthy can buy powdered and long-life milk in the air conditioned supermarkets of the upscale neighbourhood of Petionville.

Dairy production in Haiti was in decline for 20 years until, in 2002, the country ceased to produce any milk at all. The urgent need for milk in Haiti is shown in the average consumption: per child, only 110 ml is consumed per day. In Uruguay, for example, it is 520 ml a day (190 litres per head of population per year).

Lèt Agogo (Creole for Unlimited Milk) is a cooperative using small-scale farmers to bring milk to the hungry. Founded by the NGO Veterimed six years ago, it now has a network of 13 dairies across the island.

Lèt Agogo is hoping to get Haiti’s milk production up to 145,000 tons a year from the current 45,000 tons. So far, the product’s single biggest client is the Haitian government. It buys bottles of sterilized milk below cost and distributes them to 130,000 school children in 44 government-funded schools. Dr. Michel Chancy told the Miami Herald that the government would like to expand the distribution to 800 schools.

“Haiti is a country where we consume a lot of milk,” said Chancy, a veterinarian and one of the visionaries behind Lèt Agogo. “After rice, milk is the second-largest import.”

At present, Haiti has 500,000 dairy cows out of more than a million head of cattle. The problem came down to marketing and distributing the dairy products. With no structure in place, few farmers bothered milking their animals. But by the end of 2007, 600 farmers had joined the network and 400 producers in dairy product making and grass pasture management. In 2007, they turned 540,000 litres into yoghurt and sterilised milk that can stay on the shelf for six to nine months without refrigeration. Made from sterilized milk, the yogurt comes in 280 ml bottles and sells in stores throughout the country and has a shelf life of nine months.

The farmers have seen their income almost double, from 4 (US 10 cents) to 8 (US 20 cents) gourdes per litre, from 10 (US 25 cents) to 12 (US 30 cents) gourdes per litre.

Farmers walk to processing centres with their litres of milk and receive US $2.20 for each US gallon (4.55 litres).

“The milk is here,” Chancy said, but the lack of roads and electricity in the country pose huge challenges. “The problem is transporting it.”

Haiti’s president, Rene Preval, has cited Lèt Agogo as an excellent example of how Haiti can recover its domestic food production capability. The scheme won a US $10,000 first prize in the W.K. Kellogg Foundation and Economic Commission for Latin America and the Caribbean Experiences in Social Innovation Award.

Lèt Agogo believes it will take 100 dairies throughout Haiti’s rugged terrain to truly take over the import market, and would cost US $10 million to set up. ”Normally in five to ten years, a dairy would pay for itself. But you need the investments,” Chancy said.

“It’s not the production of milk that is important here… It’s accomplishing it together,” said Philippe Mathieu, from Oxfam International in Quebec, Canada, who is working on helping the brand produce cheese, noting that Haiti is at a difficult crossroads with today’s global price hikes. “The goal is to show Haitians there is a way to do things — a way to construct something collectively.

“Haitian peasants have always taken care of their cattle; tying them, feeding them and giving them water to drink,” Mathieu said. ”The cow has always been their bank book, something they could sell for money during hard times. Now it has become a revenue source for them.”

Published: August 2008

Resources

A series of videos showing how Lèt Agogo works.
Website: http://www.veterimed.org.ht/
An interactive map showing how the world food crisis is affecting countries.
Website: http://www.ft.com
The Tiviski Dairy in Mauritania is Africa’s first camel milk dairy helping semi-nomadic herders.
Website: http://www.growinginclusivemarkets.org
Growing Inclusive Markets, a new web portal from UNDP packed with case studies, heat maps and strategies on how to use markets to help the poor.
Website: http://www.growinginclusivemarkets.org/