Social Impact Investing

Impact Investments:
An emerging asset class
Global Research
29 November 2010
Appendix VI: Notes on market sizing
Population data from the World Resources Institute
The work done by the WRI in The Next 4 Billion has proven invaluable to us in
identifying target markets for our business case studies. By having divided the BoP
population into income brackets of $500, the WRI study allows us to count how
many people or households fall within the population that can afford our case study’s
product or service.
Per capita income brackets and affordability
The starting points are the per capita income brackets defined by the WRI in $500
increments of 2002 international dollars (PPP). The 2002 numbers are used for ease
of reference as they are nicely rounded figures; in our work, we use the 2005 figures
also provided to avoid having to deflate our financials by too many years (since the
more we do that, the more we assume a constant state of nature outside inflation).
The affordability test is then also applied in 2005 PPP terms, for comparability.
However, when it comes to calculating the actual business financials – e.g. potential
revenues and profits – the current USD equivalent is presented, since this is an actual
figure that can exist in the marketplace as opposed to the more theoretical PPP
numbers.
The per capita income data is referenced by the WRI to be calculated using the
methodology presented in Worlds Apart: Measuring Global and International
Inequality, by Branko Milanovic 118 , Lead Economist in the World Bank research
group. The methodology constructs an income distribution for each country, which
then gives the income distribution for the BoP segment of the population. This gives
the number of people in each income bracket, which we use in some of our sector
analysis. Other sector analyses, though, require the per household income brackets,
for which we explain the calculation next.
Translating from per capita to household income brackets
One of the sectors where we consider the household income is the housing sector,
since a home is a purchase made by the earning members of the household together.
In the case of housing, we had used a case study based in India, so we illustrate the
calculation made using India as an example in Table 29 and Table 30. First, in Table
29, we calculate an average number of people per household – 5.3, from the WRI
data – and multiply that number by the economic activity rate for India, which is
69% according to the UN Statistics Division, giving an average number of earners
per household of 3.7 people. Then, in Table 30 we translate the per capita income
brackets by multiplying the incomes by the number of earners per household.
118 Worlds Apart: Measuring Global and International Inequality, B Milanovic, Princeton
University Press, 2005.
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