So how exactly do you invest in the Fortune At The Bottom Of The Pyramid?

Written by Gavin Chait From the Davos Summit, to the World Social Forum, to where-ever Bono is burbling on, poverty is hot stuff on the international social circuit.  We are excoriated for ignoring the “Fortunate at the Bottom of the Pyramid” and told, insistently, that we should “Make Poverty Business,” when we're not making poverty history.  Well, how exactly do we do this?

When businesses turn up to hire cheap labour in impoverished countries they are accused by civil society types of exploitation.  When those same cheap goods return from overseas then developed nations demand local protections to exclude those products from their markets.  What is an executive to do?

And how do they even make a wise investment in poor communities in the first place? 

Start with a simpler query:  “How does a wise investor make any investment decision at all?”  It starts with research.  Any private company wishing to invest has a plethora of data to call on, from ratings reports on similar companies, to statistical reports on market trends, to specially hired consultants.  The free flow of finance in capital markets depends on independent and impartial trend analysis and institutional ratings.

Until CK Prahalad came along, the only information on the world’s poorest was that they lived on less than $ 2 a day, were uneducated and needed lots of donations from businesses and individuals in rich countries just to keep them alive.  It took an astonishing leap simply to say, “Hey, that $ 2 is still being spent.”

Investments follow positive information.  Presenting poverty as a basket-case requiring remedial support is only half the story.  The other half is presenting exactly what those same people like to spend the little they have on, and in evaluating the risk of servicing that need.

Prahalad’s book is a good start, and I recommend it whole-heartedly.  It doesn’t have any major solutions for you, but it will help to change your mindset from thinking, “What a disaster,” to “What does that market want?” when you confront the usual images of poverty and neglect.

In “Make Poverty Business” we are told that poor people can make excellent suppliers, employees or customers.  In formal markets there is a wealth of data on product movement, price changes, legislative challenges and all sorts of other data.  Many developing countries are poor precisely because they don’t have the type of open society that allows information to be collected and evaluations and metrics to be generated.

No matter the good intentions, and before a whole bunch of cash is thrown away, it is essential that contextual, impartial analysis be developed with the investor in mind.

Of course there is money to be made by “doing good”; let's just make sure that it isn’t charity.

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