The Base of the Pyramid in Mexico: Insights from the IDB at BASE Forum 2015
The Base of the Pyramid (BoP) is a broadly used term in social entrepreneurship and economic development literature, but for those who are new to the topic it could be confusing when used alongside other terms such as poverty or inequality. According to the Inter-American Development Bank (IDB) the BoP refers to those whose daily per capita income is 10 USD or less. In Latin America 405 million people live at the Base of the Pyramid, which represents 70% of the total population.
However, not all those at the BoP are poor. The IDB divides it into two groups: “vulnerable” as people who earn more than 4 USD PPP and less than 10 USD PPP, and “poor” as people who earns less than 4 USD PPP. In Latin America 55% are in the vulnerable category and 45% are poor.
Nevertheless, being at the BoP does not mean they are not consumers, they actually represent a huge market of 750billion USD, 170 billion USD alone in Mexico. People at the BoP have unmet needs that the State and the market have not fully satisfied mainly because until now marketing, supply chain and products have not been tailored to their needs.
What do people at the Base of the Pyramid look like in Mexico?
A recent study presented by Opportunities for the Majority in the inaugural conference of the BASE Forum held in Mexico City from June 30th to July 1st revealed that more than 90 million people, which represents 75% of the Mexican population, belong to the Base of the Pyramid, while those in the middle income bracket make up 23.4% and the highest income bracket just 1.1%.
An average Mexican family at the Base of de Pyramid is formed of 4 members and one of them is 12 years old or younger. The head of the household is 43 years old and attended 8 years of school.
Maybe some of the most revealing data about their home is that 61% own it; 21% have a computer whereas 19% have access to internet; 30% have a TV meanwhile 17% have a pay-TV service and 82% have at least one cellphone, 1 out of every 6 of which is a smartphone.
More than half (58%) of the heads of the household, who are the main source of income, receive their payment on a daily (16%) or a weekly (42%) basis; 19% are paid on a biweekly basis which is most common in the formal labour sector in Mexico. Only 3% receive a salary each month and 1 out of every 5 have no fixed frequency.
Expenditure at a glance
An average person of the BoP spends 1,891 USD PPP a year, on food (30.4%) and housing (23.7%) the most important expenditures rising to more than half of the total amount. Moreover, discretional expenditure is very representative (15.8%). Within this group the family spend 111 USD PPP on financial services (5.8%), 73 USD PPP in restaurants (3.8%), 72 USD PPP on IT (3.8%) and 26 USD PPP on recreation (1.4%).
Based on the makeup of the BoP business opportunities are mainly in four sectors: banking, insurance, connectivity and food.
- Banking. Microfinance is very expensive in Mexico, where the interest rate can reach up to 100%. Finance can also be a problem when, as previously stated, income is not received on a regular basis. Data shows that currently 32% of people save money, 48% of which do so in an informal way. 24% use credit, of which half only use informal credit. 74% of the formal credit comes from department store credit cards.
- Insurance is essential in Mexico in both the finance and health sectors. The main reasons for both saving and credit are emergencies as one out of every five people at the BoP have no access to social security. The main purpose of formal saving is also emergencies (26%).
- Connectivity. People at the BoP may acquire IT, but the main reason many do not is not due to cost but a lack of knowledge and training in how to use it. Connectivity is limited for the BoP; few businesses address their needs on this aspect, due to the geography of Mexico companies are focusing on increasing the speed in high density weathier areas than increasing coverage. Of those who have access to the internet 40% go to a cybercafe, 28% in their house and 18% on their cellphone.
- Food. With 30% of their monthly income spent on food and 3.8% of their income on restaurants there is a huge market for catering to their needs in this final area.
With 75% of the Mexican population in this income bracket there is huge potential for business to address the needs of those at the BoP. The quicker business start seeing those at the BoP as clients rather than beneficiaries, the quicker business and society will be able to profit.
Meet some Mexican inclusive businesses already working with the BoP:
- ¡Échale! a tu casa is an enterprise that helps families with finance and skills to construct their own home. Echale is a BCTA member.
- Grupo EOZ creates and sells water purifiers. Instituto EOZ de Tecnologias rurales has created a national network of local promoters to ensure the products are distributed to rural and peri-urban communities at an accessible price.
- Ilumexico is a social enterprise bringing renewable energy to solutions to those without access to electricity. Watch this video of when we met them at BASE Forum.
This blog is a part of our July 2015 series on inclusive business in Latin America and the Caribbean. View the full series for more from practitioners, inclusive businesses and researchers in the region.