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Part I: The need to innovate

We live in an era of unprecedented global economic growth and widespread poverty. While poverty rates in many parts of the world, including India and China, have dropped significantly over the past decade, the benefits of economic growth to the most deprived sections of society still remains the "trickle" quoted in old economics textbooks. Fortunately, change is brewing.

Today, efforts in many disparate parts of the world to integrate the poorest of poor, better known as the "bottom of the pyramid" or BoP, are focusing on bringing goods and services to the deprived. And surprisingly, these goods and services have achieved a wide range of levels of sophistication, from savings programs that take advantage of group-based lending models (the most-widely quoted example is the Grameen Bank) to emerging re-insurance programs for micro-health insurers. Many, if not most of these financial programs rely on community savings, in a reversal of the primarily charity-based aid programs of yore. The new mantra today is not just "Give and ye shall receive" but also "Ye shall receive and give", encapsulating that oft-told story of the boot-strapped entrepreneur. In the process, many of the lessons of financial theory of portfolio diversification and risk management are being applied to sustain such services as health insurance and project finance for people who've been limited by the individual income profiles.

Yet many basic services including education, power and medical services have remained outside the scope of the microfinance services for various reasons. Some of these services are based on capital-intensive business models, which are a challenge for limited pools. Schools require buildings and the accompanying infrastructure. Power typically requires transformers, wires for transmission, and not to mention, expensive generators. The challenge is to innovate and adapt these services to the pay-as-you-go business models. The story of CavinKare, which pioneered the "sachet" model of marketing[1] by selling shampoo in the form of small packets, is now legendary among BoP thinkers. While these micro-packaging methods are not replicable everywhere and have been disputed as to their efficacy in boosting consumption, they point to the potential of tailoring business models to cater to the poor. And just as importantly, to tailor them to local circumstances.

There are parts of Africa where a HIV patient can be found in every family of a village. The consequences of contracting HIV are too long to list here. But the particularly nasty aspect of this affliction is the constraint it places on the families and dependents of its victims. Treatment of HIV patients is expensive both in terms of the financial burden it places on their families but also in the time taken to care for them. The latter is time lost on an occupation - an unfortunate double-whammy for these families. To add to their troubles, conventional health insurance programs place severe limitations on HIV treatment costs, thereby rendering them useless for the needs of most of these families.

My friend, Omar, and I are focusing on one such village, Lwala, in Africa. Lwala, in Omar's words, is a:

"village of approximately 1500 people near Lake Victoria in western Kenya. Within an hour’s walk, approximately 3000 additional people live in nearby villages accessible by dirt roads. The majority of the area residents are subsistence farmers….

The official 15% prevalence of HIV in the region is the highest in Kenya (2003 Kenya Demographic and Health Survey). Of the 529 villagers who were tested in 2006, 32% were infected (24% men and 40% women)."

Ordinary microinsurance providers can do little here; most are unwilling to finance the high costs associated with treating HIV patients. Our challenge is to build an insurance program that satisfies the medical needs of both sets of patients, spreads the risk across a large pool of members and is also self-sustainable. That's a difficult gap to close; ordinary medical expenses in Lwala cost less than $0.10 a day at first glance, but HIV treatment is upward of $2 a day.

Among some of my ideas to tackle this idea is to look at the externalities of HIV treatment. An HIV patient who is treated and cared for at a clinic frees up resources for his/her family. Relatives can pursue other occupations to generate revenue for their families. That is not to say that HIV afflicted families can afford HIV treatment any more than non-HIV families. But, their priorities and benefits from insured healthcare are substantially different. Can these families pay meaningfully higher premiums?

Successful treatment of HIV patients can also lead to meaningfully healthy lives. In such cases, the challenge of the model is to create a relationship with patients post-treatment to recover the costs, not unlike the deferred compensation model in labor theory. That challenge is also compounded by the fact that HIV is not curable. There are treatments out there to make the disease more manageable, but many of them cannot be afforded without very deep pockets.

It's a long list of challenges, but the promise of a solution is too great to be ignored. Being able to finance HIV treatment in Lwala would go a long way to getting this community back on its own feet. It could finally break the debilitating nature of the disease.

To learn more about Lwala's clinic initiative, which was started by Milton and Fred Ochieng, fellow Dartmouth graduates, I refer you to Omar's profile of this initiative at Real Medicine's website and the Lwala community clinic initiative website at Vanderbilt University, where Milton currently attends school.

[1] Inappropriately attributed to Hindustan Lever by CK Prahalad.


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