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Last Updated: Monday, 4 July 2005, 23:38 GMT 00:38 UK
Mutual benefits of profits from poverty

By Peter Day
Presenter, BBC Radio 4 and BBC World Service

Kawangware is a shanty town on the northern edge of Nairobi, the capital of Kenya and home to the biggest slums in East Africa.

Shop owner Dominic Siasamallisi
Mr Siasamallisi was able to borrow to open his shop

This is not the safest place in the world, so take a local to help you through the maze of soggy rubbish-filled lanes, past the improvised shacks and workshops that are an important and vibrant part of the Kenyan economy.

Suddenly, in the middle of something approaching squalor to rich world eyes, here's a supermarket.

A real shop in a town of tiny stallholders, quite well stocked and with a constant flow of local buyers.

Microlending helps

When the owner Dominic Siasamallisi started selling things about five years ago, he did not have anything like a shop, just a basket of one or two household necessities by the side of road.

The K-Rep Group website
K-Rep's ambitions are lofty

Mr Siasamallisi got his start from a private bank called The K-Rep Group, set up by a Nairobi not for profit NGO, or non government organisation, eight years ago.

K-Rep gives tiny microloans to people who are too poor to be of interest to conventional banks, who always demand collateral in the shape of a vehicle or real estate in case the loan is never repaid.

Because the poor have no collateral to pledge, they tend to stay poor. All over the world, poor people are denied the loans that may help them get onto them up the business ladder, like Mr Siasamallisi did.

Efficient initiative

K-Rep is not itself a charity. It charges a market rate of interest and demands repayment of the loan pretty quickly.

But instead of demanding substantial property as collateral, K-Rep follows the Gramin principle made famous by the microcredit bank of the same name in Bangladesh.

It uses the assets of the poor in place of property, in particular poor people's reputation.

K-Rep's lending officers go out into the shanty towns to speak to friends and neighbours of the would be borrower.

Often the loan is extended to a group of people, acting as cross-guarantors.

Illiteracy doesn't faze the bank: somebody else can sign the loan agreement on behalf of the borrower.

And it works; the default rate at K-Rep is only 5%, and as the microbusiness grows by using the first loan, borrowers come back for more, building a borrowing history and employing more of the poor people around them.

Transformed lives

Microlending is now getting serious attention from international institutions who have been too remote to see its life-changing possibilities in the past, and 2005 happens to be the Year of Microcredit.

The Green Card by Safaricom
Safaricom's phone card allows users to transfer funds

It is very worth celebrating, and it isn't charity.

When these banks make profits, they can make more and more loans to the people who throng their branches every day: the poor.

Even in poverty-stricken Africa, big things are happening.

The lives of the poor are also being transformed by mobile phones.

Shopkeepers such as Mr Siasamallisi are text-messaging their suppliers. Hours of travel and the sending of letters or messages are replaced by a phone call. Farmers are getting accurate information about the market price of their crops as they harvest them.

Phone card currency

But it is bigger than just communication.

Safaricom is Kenya's largest mobile phone company, and almost the country's biggest company, more than half owned by the government.

Safaricom has more than two million users, and it is run by a thoughtful South African engineer called Michael Joseph.

Just the other day he unveiled a new service allowing Safaricom subscribers to buy prepaid phone cards which then enable them to transfer any selected amount of surplus minutes to other subscribers, using text messaging.

You can pay a supplier with it, or even create a little bank of phone call credits to sell to others. What Michael Joseph has actually done is to create a new currency --a cyber currency that can be sent anywhere in the country at the press of a button, without needing a bank account or incurring high bank charges. You see what's happened: the mobile phone is multiplying its revolutionary impact on the lives of the poor, giving them facilities once available only to the rich.

Mutual advantage

The sudden creation of a new kind of global mass market - of people, each with tiny buying power, but hundreds of millions of them - this is the subject of a provocative recent book from the revered Indian-born management guru Professor CK Prahalad of the University of Michigan.

CK urges multinational companies to work to make profits by realigning their businesses to make profits by marketing to the poor.

Professor Prahalad thoroughly approves of this new mobile phone company move in Kenya.

Many people think it's repugnant to make profits out of poor people, but having seen Kenyan poverty at work, I don't agree.

What we're seeing is another example of Professor Adam Smith's remarkable invisible hand of capitalism at work.

The naked self interest of the phone company is reaching out to shake hands with the naked self improvement of people hitherto stuck in poverty, to their mutual advantage.

What on earth will happen next?

Work in Progress is the title of this new exploration of the big trends upheaving the world of work as we steam further into the twenty-first century; and it is a work in progress, influenced and defined by my encounters as I report on trends in business and organisations all over the world.


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