This week, we read about the opportunities national and multinational firms face for expansion to areas populated by individuals who constitute the base of the economic pyramid (BOP). While firms clearly face incentives for serving these areas because of the strong aggregate purchasing power of the peoples who reside in them, it is not easy to create markets in economically depressed regions. To effectively serve low-income areas, capital is needed, and lots of it. Our readings for this week did not seem to offer a clear picture of where this capital was supposed to come from.
It seems that one of the best sources of capital for firms looking to expand to underserved areas is a World-Bank-affiliated multinational institution called the International Finance Corporation (IFC). The IFC facilitates competition in BOP markets and also promotes private-enterprise expansion to indigent regions of the world by investing in private and public entities. The IFC Board of Directors evaluates investment proposals from around the world, and selects those it finds to comport most strongly with its mission.
Recently, a vehicle called “the 8 Miles Fund” submitted a proposal to the IFC. 8 Miles is a private equity fund that provides capital to companies interested in expanding to Sub-Saharan and North Africa. It was incorporated in the U.K. and is sponsored by the Asian investment group CSLA Asia. If the IFC board decides to invest in 8 Miles, it is anticipated that the Fund would facilitate economic integration between Sub-Saharan and North Africa and encourage private investment in these regions. As our readings made clear, many private firms wish to expand to these areas and have tentatively planned to do so. If the IFC were to capitalize the 8 Mile Fund, the tentative plans of a good deal of these firms could come to fruition. Most firms interested in serving BOP regions have innovative ideas but limited resources. By funding institutions like the 8 Mile Fund, the IFC allows these firms to get to market.
As the IFC is a World Bank affiliate, it illustrates the powerful capacity of international institutions to fund private and public entities. Since their initial proliferation midway through the 20th century, international institutions have played a strong capitalizing role. These institutions appear to be a promising answer to the question of where firms desiring to expand to BOP regions can find the necessary resources to do so.
Sources:
http://www.ifc.org/ifcext/about.nsf/Content/Mission
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