In 1976, Mohammad Yunus, then a young economics professor in Bangladesh, lent $27 to a group of poor craftsman in a village. Appalled at their economic bondage due to predatory lending, his small gift liberated a whole village. That one act of generosity grew into the Grameen Bank which has lent more that $5.1 billion dollars to 5.3 million of the world’s poor. For many who would think that financing the poor is bad business, consider this, Grameen’s customers have demonstrated a 99% repayment rate and 96% of Grameen’s customers are women, often excluded from economic resources in poor countries.
Yunus’ initial act has now spawned a movement 30 years later with 3,200 microcredit institutions around the world serving 92 million clients.
And for his pioneering work he has been awarded the Nobel Peace Prize.
And Yunus continues to innovate with a project called Struggling Members Program that serves 55,000 beggars. Grameen is also involved in projects to provide village cell phones, solar energy, inexpensive baby formula, low cost eye-care and rural hospitals.
Think about this! These are businesses, not NGO’s, government programs, or not-for-profits.
This phenomena of developing profitable businesses that really serve the world’s poor (and I mean serve them, not take advantage of them) has been documented in C.K. Prahalad’s The Fortune at the Bottom of the Pyramid. Prahalad presents breathtaking innovations in everything from $20 per night Western-style business class hotel rooms in markets where the typical rate is US$250-300 to cardiac care, eye care, and prosthetic devices of world class quality at costs 30, 50, and even 300 times less than the comparable in the U.S. To repeat, these are world class quality, not shabby shoddy makeshift solutions.
For example, Aravind Eye Care is the world’s largest provider of cataract surgery, performing 240,000 surgeries in 2004 and treated 1.6 million outpatients. Their stated goal is to “wipe out needless blindness.” (For you Jim Collins fans, this is quite a BHAG!) They treated more than 60% of their patients for free…and still operated profitably!
In a recent article, The Innovation Sandbox, Prahalad describes the thinking process that has led to such breakthroughs. He points out that you must begin with a simple premise that the poor deserve the same quality of care the rich get. A second premise is that you must rethink the entire business model. Adapting or fine-tuning existing models will not work because of the limiting assumptions behind the models.
The innovative process itself is then defined by four rigorous conditions. Each of these is a severe constraint, any of which would be a severe challenge to a business. However, it is the very fact of dealing with the constraints that unleashes the creativity. Most businesses try to innovate out of what they have, not out of what they don’t have. This closes down opportunities for breakthrough thinking. Remember the old adage that necessity is the mother of invention!
The four conditions outlined by Prahalad, which must be simultaneously met, are:
- The innovation must result in a product or service of world-class quality.
- The innovation must achieve a significant price reduction – at least 90 percent off the cost of a comparable product or service in the West.
- The innovation must be scalable: It must be able to be produced, marketed, and used in many locales and circumstances.
- The innovation must be affordable at the bottom of the economic pyramid, reaching people with the lowest levels of income in any given society.
The constraints have generated business models that break with much of conventional wisdom about how businesses operate. Too often in business we abandon an effort because we don’t think we have the resources. This type of thinking is determined to find a way in spite of the lack of traditional resources.
Will these innovations spread to other parts of the world and even begin to move up the economic pyramid? They are in fact spreading, as can be seen in the example of microcredit. And as to whether it will move upstream, I see some hope for that based on Clay Christensen’s work on disruptive innovation. (The Innovator’s Dilemma). Christensen has shown that disruption to existing businesses and industries does not come from the likely competitors but from businesses that are not even on the competitive radar because they are focused on underserved or unserved customers. These are customers that are ignored or abandoned by the business models of the incumbents. These innovators, over time move upstream and eventually overtake the incumbents, not because of new technology but because of new business models. I can see a day when health care may be more affordable to middle America because of the innovations in India.
These pioneers in South Asia don’t see the poor as a problem, but as a responsibility and an opportunity. For those of us in business trying to operate from a biblical perspective, Mohammad Yunus, Grameen Bank, Aravind Eye Care, and their brethren ought to inspire and challenge us. The challenges in our world are our opportunities to innovate and serve the poor, the needy, the underserved, the unserved all around us. In the West, we tend to think that success means going up the ladder. Maybe we need to stop climbing, and start descending.
Thanks, and congratulations, again, Professor Yunus.
