Jan 2006 Editorial

Something to think about - January 2006
Dharavi's basic facts (Part III of IV) - By Gaurang Damani

The Payoff for Investing in Poor Countries
Excerpt from Harvard Business Review ("Serving the World's Poor, Profitably"). C.K. Prahalad and Allen Hammond dispel common myths and suggest creative ways to tap an overlooked market.

The reluctance of Multinationals to invest in the world’s poor is easy to understand. Companies assume that people with such low incomes have little to spend on goods and services and that what they do spend goes to basic needs like food and shelter. They also assume that various barriers to commerce—corruption, illiteracy, inadequate infrastructure, currency fluctuations, bureaucratic red tape—make it impossible to do business profitably in these regions.

But such assumptions reflect a narrow and largely outdated view of the developing world. The fact is, many multinationals already successfully do business in developing countries (although most currently focus on selling to the small upper-middle-class segments of these markets), and their experience shows that the barriers to commerce—although real—are much lower than is typically thought. Moreover, several positive trends in developing countries—from political reform, to a growing openness to investment, to the development of low-cost wireless communication networks—are reducing the barriers further while also providing businesses with greater access to even the poorest city slums and rural areas. Indeed, once the misperceptions are wiped away, the enormous economic potential that lies at the bottom of the pyramid becomes clear.

The slums of cities like Mumbai already have distinct ecosystems, with retail shops, small businesses, schools, clinics, and moneylenders. Although there are few reliable estimates of the value of commercial transactions in slums, business activity appears to be thriving. Dharavi—covering an area of just 435 acres — boasts scores of businesses ranging from leather, textiles, plastic recycling, and surgical sutures to gold jewelry, illicit liquor, detergents, and groceries. The scale of the businesses varies from one-person operations to bigger, well-recognized producers of brand-name products. Dharavi generates an estimated $450 million in manufacturing revenues, or about $1 million per acre of land. The seeds of a vibrant commercial sector have been sown.

It's also incorrect to assume that the poor are too concerned with fulfilling their basic needs to "waste" money on nonessential goods. In fact, the poor often do buy "luxury" items. That's because buying a house in Mumbai, for most people at the bottom of the pyramid, is not a realistic option. Neither is getting access to running water. They accept that reality, and rather than saving, they spend their income on things they can get now that improve the quality of their lives.

Another big misperception about developing markets is that the goods sold there are incredibly cheap and, hence, there's no room for a new competitor to come in and turn a profit. In fact, throughout the developing world, urban slum dwellers pay, for instance, between four and 100 times as much for drinking water as middle- and upper-class families. Food also costs 20-30% more in the poorest communities since there is no access to bulk discount stores. On the service side of the economy, local moneylenders charge interest of 10 percent to 15 percent per day, with annual rates running as high as 2,000 percent. Even the lucky small-scale entrepreneurs who get loans from nonprofit microfinance institutions pay between 40 percent and 70 percent interest per year—rates that are illegal in most developed countries.

Clearly, costs could be dramatically reduced if the poor could benefit from the scope, scale, and supply-chain efficiencies of large enterprises, as their middle-class counterparts do. This pattern is common around the world, even in developed countries. For instance, a similar, if less exaggerated, disparity exists between the inner-city poor and the suburban rich in the US!

36.76% Tamil-speaking	(50% from Tirunelveli; 25%+ from Salem, rest from Ramnathpuram, S. Arcot, N. Arcot, Kanyakumari, Madurai, Coimbatore).
33.36% Maharashtrians	(20% Ratnagiri; 19.24% Satara; 6% Kolis; rest from Sangli, Solapur, Kolhapur, Pune).
Kolis	Kolis, the original residents of Dharavi, are only about 2% of its total population, and are equally Hindu and Christian. Their income is from government jobs, liquor making and renting out their space.
10% UP muslims	(33% from Azamgarh, 33% Basti, rest from Gonda, Faridabad)
Gondhali Samaj (4000 families), Gulburga, Karnataka	This is a nomadic tribe (NT - classified as OBC) are mostly iliterate and backward and involved as bartwanwalis. Local merchants then buy the merchandise. Originally from Gulburga, but speak Kannada and Marathi
2000 Kumbharwada Gujaratis families	Had relocated from Saurashtra in 1932 to escape the drought. First to South Mumbai, then Sion and finally Dharavi (about 22 acres).
Kerala	Dharavi Keralites are Hindus, Muslims and Christians.
Rajasthan	Marwaris (and Gujaratis) involved in paper re-cycling and gold business.
15,000 Biharis muslims	Un-registered as voters, so exact numbers unknown. Total muslim population is estimated at about 33% of Dharavi
Valmikis from Haryana	Residents of MLC – Matunga Labour camp (not Dharavi)

Tamils	1. Adi Dravidas (SC from Tirunelveli) 2. Nadars (relatively progressive today) 3. Thevars (5,000 families) – OBC from Ramnathpuram and Tirunelveli. Tamils are involved in food industry like chikki, mysore pak, idli batter and even white collar jobs.
Maharashtrians	Konchikoris are NT’s. They are money lenders, broom-makers and sweepers. They are originally from Solapur, moved from Wadala to Jasmin Mills compound (MLC), then to Kumbarwada and finally to Transit camp.
UP Muslims	More visible due to their shop/ business ownership. By sub-caste they are Berelvis and Deobandhis, both of whom fight over the Badi masjid. The Muslim residents are mainly engaged in the work of tanning leather and manufacturing and selling leather goods.
Bihari Muslims and Bengalis	They are involved in embroidery and zardozi work. Bengalis are from West Bengal and Bangladesh.