Market-Based Financial Interventions for
Basic Services at the Bottom of the Pyramid:
Key lessons for future action and research
Authors:
Solène Morvant-Roux, Institut de Socioéconomie, University of Geneva
Philip Mader, Institute für Soziologie, University of Basel
Catherine Baron, LEREPS/Institut d’Etudes Politiques, University of Toulouse
In partnership with:
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Acronyms
BOP: Bottom of the Pyramid
CBO: Community-based organization
IDWSSD: International Drinking Water Supply and Sanitation Decade
MFI: Microfinance institution
MFSP: Microfinance-facilitated services provision
NGO: Non-governmental organization
VSLA: Village Savings and Loan Associations
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Table of contents
Executive summary
Workshop Brief and Key Findings
Introduction
PART 1: Framing the issue
The story of microcredit and microfinance
The story of water and basic services (since 1980)
Enter the BOP approach
...how they came together
PART 2: “State of the art” - the BOP basic services microfinance landscape
PART 3: Key findings
Practical lessons and “technical” findings
Larger issues
Conclusion
Main takeaways of the workshop
References
Annex: Participants
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Executive summary
The workshop hosted at the University of Geneva on 19 February 2015 brought
together experts from academia and practice to discuss and gain a fuller understanding
of the proliferation of market-based approaches to expanding access to basic services
using microfinance.
The workshop started by placing the emergence of inclusive markets for basic
services in the context of trends in the microfinance sector and emerging new
development paradigms. While early microcredit schemes were designed to finance the
income-generating activities of unbanked and poor populations, an alternative vision of
microfinance has gained ground since the 2000s. Poor people are supposed to use
financial tools to address multifarious problems in their lives, and microfinance
institutions have expanded the scope of their interventions with a range of new credit
products. Meanwhile, in the ideological vacuum of the early 2000s left by the post-
Washington Consensus, a new development paradigm emerged that emphasises the idea
of expanding markets to the so-called “Bottom of the Pyramid” (BOP). The emergence of
this “BOP model” or “inclusive business model” helped catalyse a convergence of
microfinance with the market-based provision of basic services for the poor. The drive
for market expansion has integrated with new consumer technologies and financial
technologies.
The BOP model explicitly acknowledges poor people as a specific market segment to
target. Microfinance, meanwhile, offers a ready-made solution for creating and
mobilising payment capacity among poor people. Pointing to the failure of previous top-
down approaches’ to deliver infrastructure, the BOP approach invites corporations to
address the “grassroots” level. Microfinance, meanwhile, offers poor people a means to
finance and pay for services.
Microfinance-facilitated models for basic service provision for households at the
"Bottom of the Pyramid" have grown in popularity since roughly the mid-2000s. The
workshop noted that such financial solutions are currently proposed for access to a wide
range of basic services, including education, healthcare, waste management, energy,
water and sanitation. Within this wider trend, a narrower set of "techno-financial"
solutions can be identified, in which financial access is linked to specific technological
innovations.
Empirical research conducted in India, Vietnam and Argentina, presented at the
workshop, highlights that projects linking water and sanitation with microfinance have
been rolled out with great enthusiasm, but have generally fallen far short of their
targets, in many places hardly extending coverage at all. This is primarily for four
interlinked reasons:
1. Firstly, local politics plays a role which is usually neglected in technocratic proposals.
Government officials (at national and local levels) are able to direct resources towards
certain players in the water and sanitation sectors (sometimes for corrupt motives), and
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play a strong role in facilitating or blocking interventions, depending on how their
interests are aligned.
2. Secondly, although the targeting of financial resources (credit and subsidies) at end-
users rather than service providers may (but does not necessarily) lower barriers to
service demand, it does nothing to address supply: the service providers (such as
municipal water companies) do not receive extra funds but are required to serve extra
users.
3. Thirdly, the impact mechanisms of these projects are often inequitable, not only in that
access to an essential service is made dependent on individuals’ capacity to pay
(creditworthiness), so that it is mainly the not-so-poor who stand to benefit, but also
because households which participate fully may receive reduced benefits, for example if
they invest in improved sanitation while neighbours do not, so the environment remains
unsanitary.
4. Fourth, the social values of the beneficiaries are often not aligned with the financially
rational calculations underlying the project design.
From surveying the "state of the art", therefore, we note that very much is being done.
Models combining microfinance with basic services exist in multiple local contexts -
different communities and different institutional contexts with different histories - and
there are multiple types of models which incorporate different financial and physical
technologies. However, the impacts may be far less universally positive than is often
assumed, and therefore need further study. The existing programmes involve a large
diversity of actors, including service providers, microfinance organisations, funders,
social entrepreneurs and public authorities, but the key responsibility of paying for the
service still falls upon the shoulders of individual poor people, which is concerning. This
is in spite of strong evidence that:
- Many poor households already manage a complex web of financial obligations and
high debt burdens.
- Those generically targeted as “poor” are extremely heterogeneous.
- The projects and their modalities are not welcomed everywhere and by everyone in
the same way.
Last but not least, one very worrying trend observed is that current scientific
research on behavioural economics now has a clear political agenda of changing the ways
poor people behave through new incentive structures (See for instance, Karlan & Appel,
2012; and the World Development Report, 2015).
The workshop emphasized how the current focus on private, market-based models of
service provision (involving the individually-paid consumption of goods instead of an
entitlement to basic services) is a political choice, which research on the modalities and
impacts may inform. The future challenge will therefore be to advance an analytically-
independent comprehensive socioeconomic research programme, which succeeds in
generating and integrating two types of studies:
1. Studies which assess and compare the global features of these BOP solutions, and
2. Micro-level studies which focus on the specificity of individual projects and cases and
their local socioeconomic and political contexts.
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Introduction
Few academic studies have examined the connection between microfinance and
access to basic services, despite there being a large body of literature which treats these
two aspects of development separately. But the rise of so-called “Bottom of the Pyramid”
(BOP) models in the field of basic services is leading researchers to take an interest in
these new development models, which are promoted by many different players,
including private foundations and multinational corporations in particular.
Driven by its expressed interest in addressing water supply, the Cartier Charitable
Foundation has shown a keen interest in stimulating discussion among researchers and
practitioners to gain an overview of the existing initiatives which link microfinance with
basic services, together with their potential and challenges. The Cartier Charitable
Foundation funded this workshop to promote the development of a common framework
and help researchers identify the potential and limitations of these new development
models. This workshop therefore served to take stock of the research and practical
action linking microfinance with access to basic services, based on input from
researchers and development professionals, particularly from the NGO sector.
The participants are listed in the Annex.
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PART 1
Framing the issue
The story of microcredit and microfinance
The presentation by Fouad Abdelmoumni highlighted that the microfinance
movement emerged in the 1970s, but developed extensively from the 1990s, when the
aim of providing small loans on a large scale to unbanked people across developing
countries was widely adopted by donors as a way of alleviating poverty. By 2012, the
microfinance sector was thought to have reached almost 200 million families worldwide
(Maes and Reed, 2012). While early microcredit schemes were designed to finance the
income-generating activities of unbanked and poor populations, an alternative vision of
microfinance has gained ground since the 2000s. It makes the case for boosting the
“financial inclusion” of poor people through appropriate financial services for covering
shortfalls in other areas of life, including consumer expenditure, housing expenses and
expenses related to basic services such as water, sanitation and heath, etc. (Collins et al.,
2009). In line with the vision of allowing poor people to use financial tools to address
nearly any problem in their lives, microfinance institutions have expanded the scope of
their interventions through a range of new credit products.
The steady growth of microfinance in terms of the number of branches and clients
reached, together with market concentration, has however led to strong competition
and market saturation, at least in urban and peri-urban areas in some regions of the
world. Given such concentrated market competition, microcredit providers have also
started to proactively engage in what is called “the environmental bottom line” (Allet,
2012). This objective brings interesting added value to the microfinance provider:
“differentiation from competitors, access to new funding sources and expansion of the
client base” (Ibid., p.14). As a result, the microfinance sector’s interest in delivering new
'green' products has also been growing.
The story of water and basic services (since 1980)
Since the 1990s, water issues have been widely discussed at an international level
and a great diversity of actors (including multinational firms, international institutions,
public operators, NGOs and civil society) have been involved in the debate “for or
against privatisation” (McDonald, 2012). For these reasons, the key issues regarding
water services and water access for poor people have been better documented than for
other basic services. Access to water services has also been more problematic
historically and normatively than for other basic services. However, other sectors have
also been studied where BOP approaches are concerned, such as sanitation, energy use
(solar energy, stoves and electricity), and also education and health. During the
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workshop, most of the case studies presented and discussed dealt with water and
sanitation as well as energy.
If one is to place the BOP model in a dynamic perspective, it is essential to identify
the main models that have succeeded one another in the water sector over the past 30
years, as the presentation given by Frederic Naulet (GRET) and the work of scholars
such as Baron (2013) showed.
1980s: The water decade. Water on the global public agenda. The International
Drinking Water Supply and Sanitation Decade (IDWSSD, 1981-1990), coordinated by
the United Nations following the Mar del Plata Conference (Argentina, 1978), promoted
a model of networks to provide safe water and sanitation for all. The plan was to
provide everyone with water on tap by the end of the decade, in keeping with the
implicit principle of a universal right of access to safe drinking water in adequate
amounts to fulfil basic needs. The principle of public service required government
bodies to build and operate a modern water infrastructure, often with donor support.
But this supply-driven approach did little to factor in either local people’s needs or
their ability to manage the new facilities.
1990s: The Public Private Partnerships (PPPs) decade. The failure of the IDWSSD
prompted new rules in line with the neoliberal standards underlying the Washington
Consensus1. The statement of the so-called “Dublin Conference” (1992)2 and other
1 This is the set of 10 policies that the US government and the international financial institutions based in
the US capital believed were necessary elements of “first stage policy reform” that all countries should adopt to increase economic growth. At its heart is an emphasis on the importance of macroeconomic stability and integration into the international economy - in other words a neo-liberal view of development and globalization.
2 International Conference on Water and the Environment: development issues for the 21st century, Dublin Statement, 26 January 1992, Dublin.
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policy documents (World Bank, 1993) openly promoted the idea of treating water as an
economic good. This principle was reaffirmed at the “Earth Summit” in Rio de Janeiro
(1992).3 Water was no longer viewed as a free good. Instead, its economic and social
cost would have to be paid for (at least in part) by the users. Yet questions remained
unresolved as to how to set an “acceptable price”. Specific measures were taken for the
poor (subsidised connections, increasing block tariffs, etc.). The transition from a
supply-driven approach to a demand-driven approach – based on an evaluation of local
people’s needs and supply diversification – prompted new thinking about the
sustainability of infrastructures. The water sector, it was affirmed, needed to be run
along economic efficiency lines. Water was becoming “commoditised”, with service
management often delegated to private companies through the full privatisation of
PPPs, and price setting was based on the total water cost (production, distribution and
sanitation). This was a key phase in the creation of an emerging water market targeting
the more solvent segments of poor countries’ populations.
2000s: Political resistance to privatisation. During the 2000s, experiences with actual
PPPs led to increasing disappointment with the concept. Many studies have criticised
their achievements in practice (Marin, 2009), as few reached their objectives either in
terms of economic efficiency or of expanding access for the poorest segments of the
population in accordance with the Millennium Development Goals (David McDonald).
PPPs often widened social and territorial inequalities, and in their “classic” form came
under attack in many countries. However, this did not signal the end of the principles of
contract-based, formalised partnership relations. PPPs took on board new groups of
actors in the form of either small private operators previously working in the informal
sector (Baron & Frenoux, 2012) or community-based organisations (CBOs). The
participation of non-governmental organisations and/or private foundations in these
partnerships reflected a “broader” take on the more classic forms of PPPs without
criticism or even discussion of the formation of water markets, which instead were
assumed to be the “natural” form of water distribution. Yet governments and civil
society movements were campaigning for universal access to water and sanitation to
be recognised as a human right, a move that became effective in 2010.4 At the same
time, researchers analysed the “remunicipalisation” processes occurring on many
fronts in the North and in the South (McDonald, 2014). Ultimately, a range of actors
(especially NGOs) came to advocate a return to community-based management. These
approaches, which could be called alternatives to the BOP model, are often presented
as consistent with a view of the resource and the service as a common good (see
Ostrom, 1990 and the presentations of studies by Terry Cannon, Jean-Michel Servet,
Christian Kimmich and Catherine Baron).
Enter the BOP approach
As highlighted by Solène Morvant-Roux, a new development paradigm emphasising
the idea of expanding markets to the so-called “Bottom of the Pyramid” (BOP) emerged
in the ideological vacuum left in the early 2000s by the post-Washington Consensus. In
the year 2000, Peruvian institutional economist Hernando De Soto gained prominence
for highlighting that poor people own significant assets and represent potentially
3 Rio Conference, Rio Declaration on Environment and Development, 13 June 1992, Rio de Janeiro, UN Doc. A/CONF. 151/5/Rev.1. 4 In 2010, the UN General Assembly (Resolution A/RES/64/292) and the Human Rights Council (Resolution A/HRC/15/L.14) recognised the right to safe drinking water and sanitation as a human right.
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powerful entrepreneurs. Following the seminal work of C. K. Prahalad (2004) arguing
that there was a “fortune at the bottom of the pyramid” waiting for corporations willing
to engage the poor as consumers, development actors and scholars started to see the
poor “not as the needy but as potential consumers and a market” (Elyachar, 2012: 110).
The BOP paradigm posits that all the poor’s unmet needs represent highly under-tapped
market opportunities for multinational corporations. Compared to previous market-led
initiatives, the new approach seeks to meet this unsatisfied demand by creating specific
products which better acknowledge that the “poor are special” (Berndt, 2014). At the
same time, studying how to make poor people work better for the market has gained
ground within the new economic orthodoxy of “Behavioural Economics”.
Acknowledging the failure of previous top-down approaches to deliver infrastructure
(roads, railways, water, electricity and gas supply, sewage, telecom, etc.), the BOP
approach instead encourages a shift in global business philosophy, inviting corporations
to address the “grassroots” level. Corporations should not wait for the right physical
infrastructures, but instead accommodate rather than avoid so-called “hostile
environments” (Elyachar, 2012). The thinking behind this moves far beyond the one-
size-fits-all approach of the 1990s and 2000s, proposing that successful and profitable
new business models can find and provide the best-suited solutions for specific contexts
and populations.
Aside from a new vision of markets, the BOP paradigm brings a new vision of the poor
and poverty. As Julia Elyachar (2012) has clarified, the poor are no longer seen just as
the needy, but as potential consumers. Expanding this view to basic services has proven
very much in line with the vision of Muhammad Yunus’ social business approach that
“government, as we now know it, should pull out of most things except for law
enforcement, the justice system, national defence, and foreign policy, and let the private
sector, a ‘Grameenised private sector’, a social-consciousness-driven private sector, take
over its other functions” (Yunus, 2003 quoted by Mader, 2011:1). In contrast to past top-
down market approaches in the 1990s, where the poor were supposed to indirectly
benefit from market expansion even if they were not specifically targeted5, BOP models
have tied the provision of basic services to the involvement of targeted populations not
only physically (through free labour or participation in local organisations designed by
donors), but also financially, through specific payment mechanisms.
...how they came together
In a context where water is increasingly treated as an economic good, to be best
supplied through small-scale best-suited solutions for specific contexts, new local
partnerships and new financial solutions have to be mobilised. The emergence of the
“BOP model” helped catalyse the convergence of microfinance with market-based basic
services provision for the poor, by integrating the drive for market expansion with new
consumer technologies and financial technologies.
5 With the use of equalisation systems, such as in the case of subsidised water tariffs.
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The BOP model explicitly acknowledges poor people as a specific market segment to
target. Microfinance, meanwhile, offers a ready-made solution for creating and
mobilising payment capacity among poor people.
At the same time as the BOP model emerged, the microfinance sector expanded from
targeting only entrepreneurs to the more comprehensive objective of “financial
inclusion” of poor people. This willingness to finance a broader range of poor people’s
needs was linked with the necessity to transform needs for water or other basic services
(which are evident) into demand (which is only evident when merged with the ability
and willingness to pay). The 2000s also saw the emergence of broader visions, such as
social entrepreneurship, and tools such as micro-franchising from the orbit of the
microfinance sector, which further accelerated the development of microfinance-
facilitated service provision interventions.
The projects discussed at the workshop represent the intersection of these three
trends:
- the financialisation of basic needs among the poor (financial inclusion)
- the individualisation, fragmentation and privatisation of water access
- the idea of building markets for consumers at the bottom of the pyramid.
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PART 2
“State of the art”: the BOP basic services microfinance landscape
Microfinance-facilitated models for basic service provision (MFSP) for households at
the “Bottom of the Pyramid” have seen growing application since roughly the mid-2000s.
Microfinance and access to financial services have been proposed as potent new
ingredients in recipes for addressing these older, identified developmental problems, in
line with the financial inclusion paradigm which proposes that credit, savings, etc. can
serve to fulfil needs more broadly. As a general trend, financial solutions are proposed in
the context of access to a range of basic services, including education, healthcare, waste
management, energy, water and sanitation. Some of the most internationally-
recognisable current approaches are the microloan-financed Grameen Shakti solar home
systems and Water.org’s “WaterCredit” programme. Within this wider trend, a narrower
set of “techno-financial” solutions can be identified, in which financial access is linked to
specific technological innovations. The workshop discussions and presentations focused
on those models which most concretely integrate finance with service provision models
because they offer specific concretisations of the principle of integrating BOP access to
finance with BOP service provision, while promising to take into account the local
context through technological adaptations.
The organisations which are active as funders and implementers of such
microfinance-facilitated service provision (MFSP) projects have identified a range of
needs among poor populations. As the workshop showed, a particular focus is placed on
electricity, cooking, and water and sanitation. The diversity of technical solutions
seeking to address these needs is bewildering and rapidly growing. Among the solutions
currently most in vogue are micro hydropower plants, household solar photovoltaic
units, energy-efficient cooking stoves, biogas harvesting systems, and household water
pumps, alongside more “traditional” interventions such as individual sanitary latrines or
water taps (often connected through small autonomous networks). However, in addition
to technological interventions, the workshop also highlighted the often extensive work
undertaken by NGOs to create the human “software” of development, such as training
individuals in the use of specific products, recruiting and training salespeople and
supply-chain intermediaries, or building communal capacity. The presentations by Minh
Cuong Le Quan (GRET) and Francois Jung-Rozenfarb (CARE) underscored the different
emphases of organisations in developing such programmes. Specifically, GRET’s focus
often lies on addressing the institutional context, for instance by emphasising technical
assistance and working with local government and national ministries. CARE,
meanwhile, highlighted its work on building up “grassroots” financial systems through
village savings and loan associations (VSLAs).
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At present, the research on MFSP consists almost exclusively of grey literature
produced by the implementer or funder organisations themselves, or by hired
consultants, instead of peer-reviewed scholarly articles. Prominent examples from the
water-microfinance linkage include the 2008 report for the Bill & Melinda Gates
Foundation Assessing Microfinance for Water and Sanitation: Exploring Opportunities for
Scaling-Up (Mehta, 2008) and the World Bank’s 2014 paper Tapping the Markets:
Opportunities for Domestic Investments in Water and Sanitation for the Poor (Sy et al.,
2014). This literature promises a host of positive impacts from linking microfinance to
basic service provision, including health and financial benefits for households, a better
poverty focus of projects, enhanced community-building, building new markets, creating
supply chains, cost recovery for service providers, and loan repayment for MFIs.
However, the literature says very little in a systematic, rigorous, critical way, and
independent academic research is still almost universally lacking, as the workshop
emphasised. The grey literature is very diverse and the individual reports are often
difficult to compare, not least as a result of their different formats as case studies,
success stories or policy guidelines. Often, the studies have focused on impacts for the
provider organisations (such as loan repayment or institutional sustainability), while
impacts on the beneficiaries are not systematically measured. An analytical framework
more focused on the household level still needs to be developed.
The workshop brought together all the known independent research on MFSP
programmes. As Nadine Reis and Philip Mader showed with reference to two
complementary case studies from peri-urban Vietnam and India, projects linking water
and sanitation provision with microfinance have been rolled out with great enthusiasm
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but fallen far behind their targets of universal coverage, in many places hardly extending
coverage at all, primarily for four interlinked reasons.
Firstly, local politics plays a role which is usually neglected in the proposals for MFSP:
government officials at national and local levels are able to direct resources towards
certain sectors (sometimes for corrupt motives), and play a strong role in facilitating or
blocking interventions, depending on how their interests are aligned.
Secondly, the direction of financial resources (credit and subsidies) to end-users
rather than service providers may (but does not necessarily) lower barriers for demand
for the service, yet it does nothing to address supply: the service providers, such as
municipal water companies, do not receive extra funds but are required to serve extra
users where the water network is available, depending on specific local contexts.
Thirdly, the impact mechanisms of MFSP projects are inequitable, not only in that
access to the service is made dependent on capacity to pay (creditworthiness), so that it
is therefore mainly the not-so-poor who stand to benefit, but also because households
which participate fully may receive reduced benefits, for example if they invest in
improved sanitation while neighbours do not, so the environment remains unsanitary.
Fourth, the social values of the beneficiaries are often not aligned with the financially
rational calculations of project leaders: they may value latrines as “beautiful toilets”,
symbols of modernity or as housing extensions, but not necessarily as health
improvements, or similarly they may reject paying for water out of social values.
Magdalena Isaurralde’s fieldwork on sanitation in urban Argentina also underscored
the issues arising from beneficiary heterogeneity - where we are dealing with existing
inequalities, and some households already have existing access - and differences
between the values assumed by project implementers and the values held by
beneficiaries. Many households have proven unwilling to go into debt for sanitation,
have lacked awareness of the consequences of inadequate sanitation, or do not see
individual household sanitation as “necessary” or a high priority when they already have
access elsewhere. Crucially, many people targeted by MFSP programmes are already
indebted, and are therefore particularly vulnerable to over indebtedness or hostile to
going further into debt for basic services (Guérin, Morvant-Roux & Villarreal, 2013).
Magdalena Isaurralde noted how such projects may also encounter active resistance,
with credit often being seen as “public assistance” which should not be repaid, or social
conflicts erupting between the beneficiaries and the NGO and service providers.
From surveying the “state of the art”, therefore, we note that very much is being done.
We have multiple local contexts - different communities and different institutional
contexts with different histories - and multiple types of models incorporating different
financial and physical technologies. However, the impacts may not be as universally
positive as is often assumed.
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Part 3
Key findings
Practical lessons and “technical” findings
The workshop highlighted the large scope and diversity of microfinance-facilitated
services provision (MFSP) programmes implemented worldwide to cover various types
of services, while noting that these services present different problems and may require
very different kinds of approaches. Donors, foundations and other development actors
are taking a growing interest in these programmes because of the promise to tackle
several problems simultaneously: a “triple bottom line” approach (financial, social and
environmental benefits). Yet in the water sector in particular, these different aspects are
rarely considered together. For example, it is only rarely that projects promoting the use
of microfinance to set up water services for the poor fully incorporate an environmental
dimension such as conserving the resource.
The many discussions during the workshop raised a number of concerns regarding
the practical implementation of MFSP programmes:
Individualisation: MFSP programmes involve a large diversity of actors, such as
providers, funders, lenders, social entrepreneurs, and public authorities, but the
responsibility still falls upon the shoulders of individual poor people. The decisions and
costs for solving societal problems are placed in the hands of poor individuals. In other
words, households must be able to “recognise, internalise, and capitalise” the benefits
of buying basic services. They must see these benefits, bringing them into their
households and transforming them into money, so they can pay fees and repay loans
(Mader 2011). But these processes are often problematic for households.
Informality: The argument behind the BOP model is that markets can be implemented
outside any kind of infrastructure (basic education, collective network, roads, etc.) or
institution (such as ownership). While the conventional provision of water services
(privately- or publicly-owned collective network) implies some formalisation processes
such as the formalization of land rights and home property rights for the targeted
populations, the development of BOP models may avoid such dynamics (positive
externalities).
Politics: Market-based interventions cannot occur in a political vacuum. Local, regional
and national political bodies have conflicting legitimate and illegitimate interests in
MFSP programme implementation. Many studies have shown that conflicts of interest
and corruption are frequent in sectors such as water services, where the financial
stakes are high. Decentralisation and the transfer of water responsibilities to local
government bodies have sometimes been justified by a desire to circumvent central
government, hence the interest shown in the decentralised BOP model. From regulation
to corruption, the State and its officials play a complex and multifaceted role in blocking
or facilitating MFSP programmes, and such dynamics need to be taken into account by
organisations and funders in the planning and implementation process.
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Indebtedness: Many poor households already manage a complex web of financial
obligations and high debt burdens (migration, school, economic activities, social
protection, etc.). Indeed, some scholars have highlighted that poor households are used
to juggling several informal and formal credit sources. Where households use juggling
practices to address cash flow problems, such practices are also used to deal with
solvency problems when repaying. This indicates a high debt burden (Guérin et al.,
2013). In addition, it should also be noted that paying a monthly water bill – usually the
only option provided when households have access to the network – can increase a
household’s vulnerability. Some studies have shown that households may choose to
reduce their expenditure on food or children’s school fees to keep their water supply at
home. Ignoring this issue can lead well-intentioned programme implementers to put
additional financial stress on the poor. This could lead households to reprioritise their
expenditure priorities in a non-beneficial way. In the worst case, households can fall
into debt traps.
Resistance: The projects and their modalities are not welcomed everywhere and by
everyone in the same way. Often, the intended beneficiaries choose not to participate
(self-exclusion). Moreover, some beneficiaries may decide to resist or subvert the
project individually or collectively. There are various examples of this, especially in the
water sector, mainly in urban areas with an organised civil society, such as Latin
American cities. Resistance to this type of model is relatively less organised in Africa
and Asia. The demand hypothesised by promoters cannot always be realised or created,
which can explain low uptake, conflict with NGOs, repayment defiance and non-
payment of bills.
Larger issues
The workshop discussion also underscored a range of broader issues related to the
politics of market-driven development. Markets are social constructs, they are not facts
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of nature but created through societal decisions. They cannot, therefore, be implanted in
every society, in every institutional context or built for every need. Each specific market
is framed by local values and local power relationships. As highlighted by Isabelle
Guérin, markets do not challenge pre-existing social inequalities, but instead often
reproduce and reinforce them6. Various failures to build water markets in developing
countries show that the market model cannot just be reproduced anywhere at any time.
The discussions noted:
Inclusion is a recent major dogma in development. But inclusion doesn’t automatically
translate into equality. The question of inclusion, particularly in markets, is only about
who is inside and who is outside, not about the price they have to pay to be inside –
whether one is considering the financial market or access to basic services. Access to
water on tap, the most “accomplished” illustration of the water “marketization” or
“commodification” and market integration process, exemplifies this market inclusion
process as a factor driving both social and territorial inequalities. We are concerned
about the fact that this specific inclusion discourse obscures more fundamental issues
of inequality which stand in the way of development.
The central actor doesn’t fit the model: one reaction to the finding that poor people do
not fulfil their expected BOP market-specific roles has been to identify “behavioural
anomalies” (Berndt, 2014) of the poor, and change these through new incentive
structures (see for instance the Karlan and Appel book that identifies a clear political
Agenda behind scientific research - Karlan and Appel, 2012). We find this problematic
because, once again, it individualises, decontextualizes and technicalises poverty
without being open to the alternative approaches that we describe below (Laville,
2015).
Note, however, that the “poor” household category is a social construct. As many
studies have shown, those generically targeted as “poor” face an extremely wide
range of situations. This observation, while repeatedly mentioned in different studies
(especially in studies on the so-called “floating class”), appears to be overlooked
when it comes to microfinance and access to basic services. In the case of water, pro-
poor policies generally target this “floating class”, which is supposed to have the
capacity to best become integrated via a decentralised water market at the local
level.
In this context, CBOs are often presented as an alternative “third way” that is separate
from markets and the state, and ostensibly a better mode of common resource
management7 that is more efficient and more equitable. Of course successful initiatives
6 Guérin et al., 2013.
7 The concept of Common Pool Resource (CPR) refers to Elinor Ostrom, Nobel Prize in Economics in 2009. In her book, Governing the Commons (1990), Ostrom aimed to move beyond the traditional dichotomy between public and market regulation. The third way she identified is based on the capacity of self-organized “communities” to manage the risks linked to the over-exploitation of natural resources. Based on a collection of many case studies carried out in different countries and contexts (particularly institutional and political), Ostrom attempted to identify the conditions for the success of collective action where natural resource management is concerned. She developed an analytical framework based on the study of the shared characteristics of common resources (fishing, water, irrigated areas etc.) at local level. She also formulated different levels of rules (constitutional and operational rules, as well as rules pertaining to collective choice) to analyse the governance of the commons. A number of critical analyses of CPR approaches have been developed, focusing on the ambiguity of “community” (Bakker, 2008; Baron, 2015 ; Petit, Romagny, 2011).
18
for improving access to water exist. However, community-based water management,
implying the participation of community-based organisations and including this
concept of the common good more or less explicitly, has also been criticised in Terry
Cannon’s presentation and his contribution to the IFRC’s World disaster Report (IFRC,
2014) : “The desire for outside agencies to work at community scale is driven by an
admirable commitment to supporting change for people (i.e. people-centred) who are
usually defined as the most vulnerable/ poorest. This shift to a bottom-up approach in the
past 40 years or so (along with participatory rapid/ rural appraisal (PRA) methods and
participatory assessments etc.) is a well-meaning effort to deliver real change to the most
needy. But it normally operates on the basis of trying to achieve this change without
dealing with the fundamental root causes (the transformation required) as to why people
are poor or vulnerable in the first place. In other words, a great deal of “community-
based” activity (by NGOs, supported by donors and international development banks etc.)
fails to take into account the power relations that lead to division and conflict within
communities, and are often precisely the cause of the problems that the outside
organisation is trying to address” 8 (see also Bakker, 2008). Actually, the rules governing
these organisations often come from outside and are laid down as conditions for donor
funding. Local player participation (the population and public stakeholders) can
become a mere directive or ideal which has nothing to do with the concept of
“common”, in the sense of the participation of the people themselves in defining the
attributes and conditions of the good (water) or service (clean water) (Baron, 2015).
The current emphasis on private, market-based models of service provision (which is
to say on individually-paid consumption goods instead of an entitlement to basic
services) is a political choice. But we can question it, and there are alternatives. These
alternatives include remunicipalisation9 and commons-based approaches, as presented
by David McDonald, Christian Kimmich and Jean-Michel Servet. Our assumption is that
market-based models are incompatible with commons-based governance, and can even
become a threat to the underlying commons since private competitive usage is the
opposite of cooperation.
The future challenge will be to advance an analytically independent, comprehensive
research programme that succeeds in systematically studying the global features of BOP
solutions, while simultaneously paying sufficient attention to the specificity of individual
projects and cases.
8 IDS webpage: http://vulnerabilityandpoverty.blogspot.ch/2014/04/why-do-we-pretend-there-is-
community.html 9 ‘Remunicipalisation’ is commonly defined as a process by which a municipality takes back ownership and management of a water service that was previously run by a private company. In practice, however, the process is not always, or only on a municipal scale, with cases of regional or national water services that have been made public once again. There are also growing demands for more ‘social control’ of water services from community groups, NGOs and labour organizations, with demands for autonomous forms of water governance or the co-production of water services by non-state actors. It is also the case that many state water operators have been transformed by the practices and ideologies of ‘new public management’ that favour the creation of arm’s-length public corporations operating on commercial principles such as full cost recovery and profit optimization. With this in mind, a more expansive definition could be as follows: Remunicipalisation refers to water services previously majority owned or operated by a private firm that have been transferred in whole or in large part back to a municipal or national government, state agency and/or non-state organization such as an NGO, labour union or community association, operated on a profit or not-for-profit basis. (Pigeon, McDonald, Hoedeman, Kishimoto, 2012).
19
Given that there has been little scholarly analysis to date of experiences with MFSP
(and water in particular), original studies will need to be designed and implemented.
These studies should proceed from a detailed analysis of case studies in countries with
different institutional, social and financial set-ups. The definition of a conceptual
framework to understand the potential and limitations of the different models (BOP
model and alternatives identified in different settings) will form the next step in our
collective work.
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Conclusion
The deployment of microloans in the provision of basic services to low-income
populations has a history arising from changes in water sector policy, the development
of microfinance intervention and the idea of there being a distinct class of “Bottom of the
Pyramid” consumers. A wide range of interventions is being implemented at the
intersection of basic services, microfinance and the BOP sector. Particular focus areas
are energy, cooking, water and sanitation. Donors are presently enthusiastic about using
microfinance to facilitate BOP-specific solutions to the problem of access to basic
services. But far too little is as yet is known about the impacts, and a number of issues
and possible limiting factors have emerged strongly from the few independent studies
carried out.
The workshop showed that projects must take into account the politics of basic
service provision, the individualisation created by microfinance-facilitated BOP models,
the existing indebtedness of many of the beneficiaries, and the potential for resistance.
21
Main takeaways of the workshop Key learning 1 In line with the vision of allowing poor people to use financial tools to address nearly any problem in their lives, microfinance institutions have expanded the scope of their interventions through a range of new credit products. Key learning 2 The emergence of the “BOP model” helped catalyse the convergence of microfinance with market-based basic services provision for the poor, by integrating the drive for market expansion with new consumer technologies and financial technologies. The BOP model explicitly acknowledges poor people as a specific market segment to target. Microfinance, meanwhile, offers a ready-made solution for creating and mobilising payment capacity among poor people. Key learning 3 Financial solutions are proposed in the context of access to a range of basic services, including education, healthcare, waste management, energy, water and sanitation. Within this wider trend, a narrower set of “techno-financial” solutions can be identified, in which financial access is linked to specific technological innovations. Key learning 4 Projects linking water and sanitation provision with microfinance have been rolled out with great enthusiasm but fallen far behind their targets of universal coverage for four interlinked reasons: (1) Local politics plays a role which is usually neglected. (2) The service providers do not receive extra funds, but are required to serve extra users. (3) The impact mechanisms are inequitable. (4) The social values of the beneficiaries are often not aligned with the financially rational calculations of project leaders. Key learning 5 From surveying the “state of the art”, we find many projects being piloted in multiple local contexts (different communities and different institutional contexts with different histories), deploying multiple types of models incorporating different financial and physical technologies. However, the impacts may not be as universally positive as is often assumed. Key learning 6 Microfinance-facilitated services provision programmes (MFSP) involve a large diversity of actors, such as providers, funders, lenders, social entrepreneurs, and public authorities, but the responsibility still falls upon the shoulders of individual poor people. Many poor households already manage a complex web of financial obligations and high debt burdens. The projects and their modalities are not welcomed everywhere and by everyone in the same way. Key learning 7 Markets do not challenge pre-existing social inequalities, but instead often reproduce and reinforce them. Various failures to build water markets in developing countries show that the market model cannot just be reproduced anywhere at any time. Key learning 8 As many studies have shown, those generically targeted as “poor” face an extremely wide range
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of situations. This observation, while repeatedly mentioned in different studies appears to be overlooked when it comes to microfinance and access to basic services. Key learning 9 The current emphasis on private, market-based models of service provision (which is to say on individually-paid consumption goods instead of an entitlement to basic services) is a political choice. Key learning 10 The future challenge will be to advance an analytically independent, comprehensive research programme that succeeds in systematically studying the global features of these BOP solutions, while simultaneously paying sufficient attention to the specificity of individual projects and cases.
Photos credits:
Cover: © CARE/Cyril le Tourneur
p. 8: © Cartier Charitable Foundation. Photographer: Andrea Borgarello
p. 13: © Cartier Charitable Foundation. Photographer: Andrea Borgarello
p. 16 © CARE/Cyril le Tourneur
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Annex Participants
Mr. Fouad ABDELMOUMNI, Consultant, former CEO Al Amana. Mrs. Irene AMODEI, Cartier Charitable Foundation, Geneva. Prof. Catherine BARON, LEREPS-Sciences Po Toulouse, University of Toulouse. Dr. Milford BATEMAN, UNCTAD. Ms. Sylvie BLATTER, ILO, Geneva Dr. Terry CANNON, Institute of Development Studies. Mr. Minh CUONG LE QUAN, GRET, Paris. Dr. François FALL, LEREPS, University of Toulouse. Mr. Robert FRASER, Senior Officer, IFRC, Geneva. Dr. Isabelle GUERIN, IRD-CESSMA-Paris 7. Ms. Magdalena ISAURRALDE, EHESS, Paris. Mr. François JUNG-ROZENFARB, CARE, Geneva. Ms. Paula Korth, ILO, Geneva. Prof. David McDONALD, Queen’s University. Dr. Philip MADER, Institute Für Soziologie, University of Basel. Dr. Solène MORVANT-ROUX, CIGEV, University of Geneva. Mr. Frédéric NAULET, GRET, Paris. Dr. Nadine REIS, University of Bonn. Prof. Jean-Michel SERVET, The Graduate Institute, Geneva. Mrs. Florence TEMPLE-BOYER, Program Manager, Cartier Charitable Foundation, Geneva. Mrs. Pascale de la FREGONNIERE, Director, Cartier Charitable Foundation, Geneva. Dr. Silvia HOSTETTLER, Deputy, Codev-EPFL. Dr. Pascal VAN GRIETHUYSEN, UNRISD, Geneva. Dr. Esuna DUGAROVA, UNRISD, Geneva.