Potential of the “Bottom of the Pyramid”

Aug 25, 2016 Blog  Entrepreneur , SME

5 bottom of the pyramid in article


The bottom of the pyramid is the largest, but poorest socio-economic group in the world. Globally, there are three billion people in this category. Professor C.K. Prahalad proposes that “there are tremendous benefits to multi-national companies who choose to serve these markets in ways responsive to their needs. After all, the poor of today are the middle class of tomorrow.”

The bottom of the pyramid has more power than meets the eye. This crowd is the world’s next big growth engine. Easier access to education will assist a healthy portion of this segment to shift from ‘lower class’ to ‘lower middle class’. This demographic cohort (emerging ‘middle class’) coupled with the thriving entrepreneurial ecosystem will make the life of ‘middle class’ a reality for many by 2030.

One of the deliverables of easier access to education is the World Wide Web. Increasing internet access can boost growth rates in Africa by 92%, according to a 2016 PWC report, which could increase living standards and lift many people out of extreme poverty. South Africa’s National Development Plan (NDP) states that about 11 million jobs (90 %) in SA will be created through SME’s by 2030. Entrepreneurs are very reliant on the internet in order to educate themselves to make informed decisions and complete research in order to benefit their business and daily life.

The problem which many SME’s face in their beginning stages, is access to funding to meet their growing capital needs. To meet the NDP’s forecast, it is estimated that 49000 SME’s need to be established by 2030. To do this is a significant challenge, given the current SME high failure rate (80%). Early stage Fintech businesses do, however, seem to be taking on that challenge and utilizing the internet to provide alternative finance options for SME’s.

RainFin, a Fintech business, was created to offer SME’s an alternative finance option.

A few decades ago, helping a small business owner find an affordable loan was simple. There was only one place to go to borrow money at a fair rate and that was the bank. After the Great Recession though, banks largely pulled out of small business lending. This left small businesses very few options for accessing loans at cost effective rates, especially in their early years of growth. Resulting short term credit alternatives e.g. invoice factoring and merchant cash advances, ended up increasing small businesses’ cash flow problems – a primary contributing factor to the small business failure rate in South Africa.

As at 30 June, RainFin’s first fund closed. The total amount of the first fund was R150 million, of that R147 million was disbursed to SME’s. The criteria that was used to assess the SME loan applications were business turnover and asset value of R1 million or more and trading for 1 year or more. With these funds RainFin has been able to assist businesses to grow and flourish.

This is how RainFin has contributed to the NDP forecast. A detailed report of the performance of the first fund will be released soon.

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