Cash Machines for the Poor

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?

By David South, Development Challenges, South-South Solutions

Published: August 2008

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.  

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Mountain People: Innovative Ways to Help the World’s Most Vulnerable

 

Physically isolated and socially and politically marginalized, mountain dwellers are among the most vulnerable in the world, according to the Food and Agriculture Organization. A disproportionate number of the world’s 840 million chronically undernourished people live in highland areas — about 270 million mountain people lack food security, with 135 million suffering chronic hunger. Large numbers of additional people in lowland areas also depend on mountains.

In October in Rome, more than 60 representatives from mountain countries around the world called for a coherent approach to sustainable agriculture and rural development in the world’s highland areas to address this crisis. First identified as a problem back at the 1992 Earth Summit in Rio, the degradation of mountain eco-systems and the poverty of those living there, has only worsened with increasing conflict and war. Mountain forests are rapidly vanishing across the globe.

Mountains occupy 24 per cent of the earth’s landscape, and are home to 12 per cent of the world’s people; a further 14 per cent live beside mountains. Most are in the Andes, the Hengduan-Himalaya-Hindu Kush system, and a number of African mountains. Many mountain people are from ethnic minorities, and are often frozen out of political or commercial power. Poverty is common: more than 60 per cent of the rural Andean population lives in extreme poverty, and most of the 98 million Chinese considered to be among the world’s “absolute poor”, are ethnic minorities who live in mountains.

Mountains make up a quarter of the world’s landscapes, and mountain watersheds are critical to water supply – up to 80 per cent of the planet’s fresh surface water comes from mountains. Over half of the world’s population depend on mountains for water, food, hydro-electricity, timber and mineral resources (UN University Mountain Programme).

By their way of life, mountain peoples have expertise in small-hold farming, medicinal uses for native plants, and sustainable harvesting of food, fodder and fuel from forests.

In China, the MinYiYuan company has developed a model to help the millions of impoverished Chinese in the countryside who are being left out of the country’s current economic boom. While many are migrating to the cities to work as labourers, mostly women and children are left behind in villages, with few options to support themselves.

Cai Tingfen saw an opportunity to help the ethnic minority population of Liupanshui City in Guizhou Province. Founded in 2005, MinYiYuan bridges the handcraft culture of the region with the bigger national economy. Its model is unique: rather than buying ready-made handicrafts from craftspeople, MinYiYuan sets the design standards for the quality of the raw materials and sources them itself. This avoids problems with inconsistencies and guarantees customers get a reliably high-quality product. The craftspeople use these raw materials to make handcrafts in their homes, and the finished goods are bought back by the company.

The company buys cotton, hemp and Chinese herbs from local farmers, luring them away from livelihoods that cause deforestation. In 2006, the MinYiYuan Folk Art Centre sold 60,000 (batik) wax prints, 8,000 embroideries, and 20,000 ethnic handicrafts. It made 1.13 million yuan (US $149.319). The company is ambitious, and is already looking to building a research and development base to integrate design, manufacturing, packaging and sales.

Another model that is working is in the Philippines. After the Mount Pinatubo volcano eruptions in the early 1990s, the Aetas people of Luzon found their community was buried under ash and stone. Unable to work the land anymore and live off of the fish and wildlife, the Aetas were close to starvation. Many migrated to the cities to look for work: And without many relevant urban skills, most ended up living in squalor.

One by-product of the volcanic explosion was vast quantities of pumice stone, used in the garment industry to produce ‘stone-washed’ denim. Entrepreneurs were soon turning up to gather the stones.

The Asian Institute for Technology helped the Aeta people organize themselves in marketing social enterprises to gather, market and sell the stones to the many garment makers in the Philippines. By forming cooperatives, the Aeta are able to change the power dynamics with the garment companies: where they had to sell very cheaply to middlemen, the cooperatives enable them to charge more and make a liveable income, allowing them to stay in the community and avoid environmentally more harmful ways to make a living.

In Peru, coffee growers in the mountains have banded together as a social enterprise and use market solutions to increase living standards. The Cepicafe brand in the Piura Mountains, promotes its Fair Trade practices to secure higher prices for the growers. It does this by countering the increasing competition in the coffee market and lower world prices for the beans, with better quality coffee grains and bypassing middlemen to access markets directly.

Cepicafe raises the skills of the growers by providing education to increase productivity and quality, while reducing the farms ecological impact. The premium that fair trade is able to get is then used to improve the farmers’ lives with better housing, new clothes, shoes, better diets, and access to medicine.

They have 51 grassroots member organizations, totaling to 4,800 small-scale coffee producers. Over 18 per cent are women. By introducing a business culture and using radio programmes to further spread knowledge, productivity and quality have increased.

Cepicafe’s access to markets in the US and Europe means it can pay between 60 and 80 per cent more than local buyers.

By David South, Development Challenges, South-South Solutions

Published: November 2007

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.  

Follow @SouthSouth1

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