Doing Business with the Poor: 5 Types of Business Models to Consider

By Adi Sudewa

Illustration: A rural micro-entrepreneur
  • Simple
  • Low-risk
  • Offering immediate and steady benefits
  • Responding to clear demand from the community
  • Enterprises selling products that will give benefits only in the long term. Examples: primary or general secondary education, preventive healthcare, sanitation, business management training
  • Enterprises selling risky products. Examples: sales of most new agriculture equipment like drip irrigation

1. “Liquidity” Model

In this model, the enterprise provides liquidity to the poor. Most common business model here is the microfinance model, but there are other less-known liquidity providers for the poor: Education loans, housing loans, and remittance. I would also consider Ergos, a provider of grid of micro warehouses as a liquidity model, because they enable farmers to get financing based on the receipts issued by the warehouse.

2. “Necessities” Model

You might have read the famous book by the late CK Prahalad, “The Fortune at the Bottom of the Pyramid”. The book was published in 2004, well ahead of the surge of microfinance and the rise of impact investing. It advises that corporations can profit from doing business with the BoP (bottom of pyramid, a common term used to address the poor). There are several case studies discussed in the book, but the most often cited one is about Unilever India penetrating the BoP market by offering products with single-serve packaging and super-affordable pricing.

Pricing of necessities products by Unilever India. From the book of CK Prahalad

3. “Aspirational” Model

While most impact enterprises are trying to supply what the poor need, e.g., clean water, education, jobs, I want to argue that it is equally impactful if impact enterprises can provide what the poor want, e.g., “small luxury” products.

Example page from Mapan’s product brochure

4. “Livelihood” Model

This is a dominant model in the portfolio of many impact investors, covering all enterprises who source from the poor. It can be agri/fishery products, craft products like furniture, or even waste from the wastepickers. It is the best business model for the poor as it enables them to achieve a decent income level and, in many cases, through increasing volume and quality, should offer a path out of poverty.

5. “Productivity” Model

This model covers vocational training, provision of agri-input product and agri-equipment, as well as loans for business expansion. It is easy to mistake fake productivity with real productivity potential. For example, training for baking or car repairs is useful only if there is a skill gap in the community. Otherwise it would just produce a glut of skilled workers who compete with one another. The best combination is to pair productivity model with livelihood model, where an offtaker has certain quality standards to be met and the communities must upskill themselves in order to fulfill their demand.

Caveats …

My mental model does not aim to determine which engagement model gives the broadest or deepest impact to the communities. That would be a different topic to be discussed in a different article. It is worth pointing out here that if the poor does not want to engage with you, there will be zero impact, regardless of how well the intention of the entrepreneurs.

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