The development community has tended to focus on meeting the needs of the poorest of the poor—the 1 billion people with incomes below $1 a day in local purchasing power. But a much larger segment of the low income population—the 4 billion people of the BOP, all with incomes well below any Western poverty line—both deserves attention and is the appropriate focus of a market-oriented approach.
The starting point for this argument is not the BOP’s poverty. Instead, it is the fact that BOP population segments for the most part are not integrated into the global market economy and do not benefit from it. They also share other characteristics:
- Significant unmet needs. Most people in the BOP have no bank account and no access to modern financial services. Most do not own a phone. Many live in informal settlements, with no formal title to their dwelling. And many lack access to water and sanitation services, electricity, and basic health care.
- Dependence on informal or subsistence livelihoods. Most in the BOP lack good access to markets to sell their labor, handicrafts, or crops and have no choice but to sell to local employers or to middlemen who exploit them. As subsistence and small-scale farmers and fishermen, they are uniquely vulnerable to destruction of the natural resources they depend on but are powerless to protect (World Resources Institute and others 2005). In effect, informality and subsistence are poverty traps.
- Impacted by a BOP penalty. Many in the BOP, and perhaps most, pay higher prices for basic goods and services than do wealthier consumers—either in cash or in the effort they must expend to obtain them—and they often receive lower quality as well. This high cost of being poor is widely shared: it is not just the very poor who often pay more for the transportation to reach a distant hospital or clinic than for the treatment, or who face exorbitant fees for loans or for transfers of remittances from relatives abroad.
Addressing the unmet needs of the BOP is essential to raising welfare, productivity, and income—to enabling BOP households to find their own route out of poverty. Engaging the BOP in the formal economy must be a critical part of any wealth-generating and inclusive growth strategy. And eliminating BOP penalties will increase effective income for the BOP. Moreover, to the extent that unmet needs, informality traps, and BOP penalties arise from inefficient or monopolistic markets or lack of attention and investment, addressing these barriers may also create significant market opportunities for businesses.
Perhaps most important, it is the entire BOP and not just the very poor who constitute the low-income market—and it is the entire market that must be analyzed and addressed for private sector strategies to be effective, even if there are segments of that market for which market-based solutions are not available or not sufficient.