Social Impact Investing

Impact Investments:
An emerging asset class
Global Research
29 November 2010
Why the opportunity exists in BoP markets
The BoP population is concentrated in emerging (and often informal) markets.
Serving BoP consumers in these markets requires innovative business models that
deal with challenges unique to this population. For example, cash flow constraints
among the BoP customer base can demand that soap be sold in single-serve packets
rather than in bottles that cost a week’s wages. The lack of skilled workers to execute
vision testing in remote areas demands a business model where the diagnostic
procedure can be executed through simple steps that do not require medical training,
thereby enabling local diagnostics and the consequent sale of eyeglasses 41 . These
unique solutions are designed to address some of the business constraints particular
to the BoP markets in emerging countries, so we refrain from extrapolating these
business models into the developed world.
BoP as consumers: “Underaccessed" market that can use real solutions
If the BoP market opportunity exists, why does it remain outstanding? We believe
there are several reasons why the BoP impact investment marketplace remains
underdeveloped, which we present below before turning to the potential market size.
BoP markets introduce operational challenges to otherwise proven business models
The typical growth trajectory for a business begins with a small endeavor, which
operates locally with local funding. As it grows, it will begin to extend its reach to
regional markets, eventually stretching across its original nation and finally
internationally. In the early stages, business success will depend on the support
mechanisms in place for entrepreneurs, such as access to finance, which historically
have been stronger in developed markets. In the later stages of growth, the business
will rely on the transferability of its products and/or operational processes into new
markets. This can depend on cultural components, but mostly will depend on
whether the cost/revenue model can be successfully applied in the new region. BoP
markets often are more expensive operationally, as external requirements to run the
business can be more difficult to secure, including such things as refrigerated
distribution to transport milk or a consistent stream of electricity to supply hospital
refrigerators. Since these challenges can significantly increase the costs of the
business, it becomes difficult to easily transfer a business model from developed into
BoP markets without making significant changes to the operational design.
Exogenous factors, such as regulatory constraints, import duties and the provision of
government services in the relevant sector can challenge the successful transferability
of a business model from one region to the next. As a result of these barriers to entry,
businesses have yet to build out the geographical scale to address the opportunity that
remains in BoP markets.
Traditional businesses do not target BoP populations as potential customers
One of the reasons that traditional business may not have explored the BoP
marketplace is a perception that poor people are not potential customers. Research
reveals, however, that especially given the low incomes that define BoP populations,
budgeting and money management decisions are critical as households work toward
building better lives. This money management will allocate significant funds toward
the basic needs of households, such as food. However, the research also shows that
BoP households successfully save money or utilize financing to buy products or
services that will facilitate the growth of future household income. In Portfolios of
41 See Emerging Markets, Emerging Models, Monitor Group, March 2009, for more examples.
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