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"Pay with Service" Model for Businesses Serving Urban Poor

"...the need for housing by the growing population will force firms and entrepreneurs to use new business models to provide very low cost housing. Informal settlers occupying idle or vacant lands in the city can be assisted by providing low cost housing infrastructure. Tenants are now being involved in the construction of housing facilities, reducing labor costs. Volunteerism and active involvement of the community is seen as part of the solution to Asia’s housing problems. Some social entrepreneurs such as the Gawad Kalinga project in the Philippines have already proven the success of this business model.

"Third, a new model of pricing the product/service is emerging. This model: “Pay with service” may offer an effective strategy to sell products and services at low cost by using the services of the customers as part of the payment, thereby reducing total operating costs. Accommodation costs can be offset by cleaning services contributed by tenants in hotels and dormitories (Pier One Seafarers’ Dormitory, 2010). This makes the products/service affordable to the BOP by using labor component as part of the payment."

"Early Indicators:

- Exponential growth of new business based on the concept of social entrepreneurship helping the marginalized sector through their business involvement
- Increasing number of young people discovering the opportunity to help in job generation by putting up business that will cater to the need of the poor sectors
- Exponential growth of non-government organizations that aims to help in the development and growth of small and medium enterprises.
- Emergence of intermediary agencies to support social enterprises, e.g. Impact Investment Exchange Asia (IIX). Such platforms are a real indicator of how financial markets are taking social entrepreneurship seriously.

Implications from Noviscape:

"The next ten years will witness emergence of products and services offered in new ways, with affordable price points. The operational side of the business model will require greater participation of customers in marketing and logistics, allowing prices to be kept low. A new way of thinking in earning profit through social involvement is emerging. As big firms worry about how they will live up to their commitment to corporate social responsibility to assure sustainability, small entrepreneurs are already starting their businesses based on the premise of social commitment for sustainable business. This is the new playing field for business in the next decade."

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Sources:

Noviscape, June 2011, page 7: http://newsletters.clearsignals.org/Noviscape_June2011#page=7

Asian Development Bank (2008) Government Poverty Reduction Programs. Chapter 7 from Poverty in the Philippines retrieved from www.adb.org/Document/BooksPoverty-in-the-Philippines/chapter7.pdf on August 8, 2008.
Choe, K & Laquian (2008) City Cluster Development: Toward an Urban-Led Development Strategy for Asia.
Gawad Kalinga: http://www.gk1world.com/
Impact Investment Exchange Asia (IIX): http://www.asiaiix.com/
Pier One Seafarers’ Dormitory in the Philippines (2010). Retrieved from http://proxied.changemakers.net/journal/300606/displayhousing1.cfm-ID=96 on April 28, 2010.
Pralahad, C.K., and Allen Hammond (2002) Serving the World’s Poor Profitably. Harvard Business Review, Vol. 80 No. 9.
United Nations Development Program (2008) Creating Value for All: Strategies for doing business with the poor.
UN DESA (2009) July 2009 estimate by the Population Division of the United Nations Department of Economic and Social Affairs.