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:

2

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

3

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

4

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

5

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.

6

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.

7

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

8

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.

9

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.

10

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.

11

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.

12

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).

13

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

14

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.

15

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.

16

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

17

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.

20

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

22

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

23

References

AfDB, 2011, The Middle of the Pyramid: Dynamics of the Middle Class in Africa, April 20.

Allet M. (2012). "Why do microfinance institutions go green?", Working Papers CEB 12-015, ULB -- Université Libre de Bruxelles.

Bakker K. (2008). “The Ambiguity of Community: Debating Alternatives to Private Sector Provision of Urban Water Supply”, Water Alternatives 1(2), 236-252.

Banerjee A, Duflo E. (2011). Poor economics: a radical rethinking of the way to fight against poverty, New York: Public affairs.

Baron C., Petit O., Romagny B., (2011). « Le courant des « Common-Pool Resources »: un bilan critique », in T. Dahou, M. Elloumi, F. Molle, M. Gassab et B. Romagny B. (dir.), Pouvoirs, Sociétés et Nature au Sud de la Méditerranée, Paris/Tunis, Éditions INRAT/IRD/Karthala, 29-51.

Baron C., Frenoux C., (2012). « Ville néolibérale et accès à l’eau au Sud: changer ou aménager le modèle ? », Regards sur la ville, Paris, Economica-Anthropos, 2012, 111-142.

Baron C. (2015). « Gestion de l’accès à l’eau en Afrique et participation: A la recherche du commun », Revue Les Possibles, No. 5, January 2015.

Berndt C. (2014). “Behavioral economics, experimentalism and the marketization of development”, paper presented at 26th SASE annual meeting, “The institutional foundations of capitalism”, Chicago, July, 10-12, 2014.

Collins, D., Morduch, J., Rutherford S. and Ruthven O. (2009). Portfolios of the Poor – How the World’s Poor Live on $2 a Day, Princeton: Princeton Univ. Press

Elyachar J. (2012). “Next Practices: Knowledge, Infrastructure, and Public Goods at the Bottom of the Pyramid”, Public Culture, 24 (166): 109-129

Guérin I., Morvant-Roux S. & Villarreal M. (2013). Microfinance, indebtedness and over-indebtedness: juggling with money, London: Routledge, 336 pages.

Guérin I. D’Espallier B. Venkatasubramanian G. The social regulation of markets. Why microcredit fails to promote jobs in rural South India, Development and Change, 46(6), November 2015, forthcoming.

IFRC (2014). World Disasters Report. Focus on Culture and Risk. IFRC, Geneva. https://www.ifrc.org/Global/Documents/Secretariat/201410/WDR%202014.pdf

Karlan D. & Appel J., (2012). More than good intentions. Improving the Ways the World's Poor Borrow, Save, Farm, Learn, and Stay Healthy, Plume, 2012.

Laville J.-L., Le marché pour les pauvres. Histoire et actualité d’une domination sociale en Europe et en Amérique latine, in Hillenkamp I & Servet J.-M.(dir.), Le Marché Autrement. Marchés Réels et Marché fantasmé, Paris: Classiques Garnier, 2015.

Mader P. (2011). “Making the Poor Pay for Public Goods via Microfinance: Economic and Political Pitfalls in the Case of Water and Sanitation”, MPIfG Discussion Paper 11/14

Maes J. P, Reed L. R. (2012). State of the Microcredit Summit Campaign Report. Report 2012, Washington: Microcredit Summit Campaign.

Marin P., (2009). “Public-Private Partnerships for urban water utilities. A review of experiences in Developing countries”, Trends and Policy options, n°8,The World Bank. https://openknowledge.worldbank.org/bitstream/handle/10986/2703/53017.pdf?sequence=6

McDonald (dir.), (2014). Rethinking Corporatization and Public Services in the Global South, London & New York, Zed Press

McDonald, DA and G Ruiters. 2012. Alternatives to Privatization: Public Options for Essential Services in the Global South, Routledge, New York. www.municipalservicesproject.org

Metha M. (2008). “Assessing microfinance for Water and Sanitation: Exploring Opportunities for Scaling Up for Meeting the Millennium Development Goals”. New York: United Nations Commission on Sustainable Development.

Morvant-Roux S., Guérin I., Roesch M., Moisseron J-Y., (2014). ”Adding value to randomization with qualitative analysis: the case of microcredit in rural Morocco”, World Development, Vol. 56, pp. 302–312.

24

Ostrom E. (1990). Governing the Commons. The Evolution of Institutions for Collective Action, Cambridge, Cambridge University Press, 1990.

Pigeon M., McDonald DA, Hoedeman O. and Kishimoto S., (dir.), (2012). Remunicipalisation. Putting Water Back into Public Hands, Amsterdam, MSP/CEO, March.

Sy J., Warner R. & Jamieson J. (2014). Tapping the Markets: Opportunities for Domestic Investments in Water and Sanitation for the Poor. Washington, DC: World Bank. © World Bank. https://openknowledge.worldbank.org/handle/10986/16538 License: CC BY 3.0 IGO.

Word Bank (2015). The World Development Report 2015: Mind, Society, and Behavior. Washington, DC: World Bank. © World Bank.

25

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.