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  • In recent years, an increasing number of financial institutions have started to serve the bottom-of-the-pyramid markets. Explain the rationale for doing so and illustrate your answer with the critical analysis of the Santander in Brazil

Essays on In recent years, an increasing number of financial institutions have started to serve the bottom-of-the-pyramid markets. Explain the rationale for doing so and illustrate your answer with the critical analysis of the Santander in Brazil Essay

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Bottom-Of-The-Pyramid’ Markets Financial s have started to serve the ‘bottom-of-the-pyramid’ markets The ‘bottom of the pyramid’ is a term which has recently led to a heated debate on its explanation. From the basic terms, the ‘bottom of the pyramid’ market is the majority of poor people of the world who are currently underused by the few rich. With the heated cry of these majority poor, financial institutions have now shifted focus on them. They started as a small number of the institutions but right now, the number is increasing (Prahalad, 2005). The financial institutions want to involve most of the people at the base of the pyramid in development for various reasons.

These reasons vary according to the context in which they are applied. There are various financial institutions in the whole world that are engaging these majority of the population who survive on five dollars, thus making their existence miserable. The Compartamos Bank in Mexico is a nonprofit making financial institution that was founded in 1990. Its main goal is to empower the female entrepreneurs in Mexico through micro financing.

The next stop is the Standard bank of South Africa whose main goal is to bring banking closer to the people of South Africa. It was founded by MrTshabalala. The reasons that highly drive these and other financial institutions of the world to bring their service closer to these people is to apply their business principles they have gained over time to solve most problems which face them. The next reason is the delivery of low cost solutions to their problems. Furthermore, the financial institutions are seeing opportunities at the base of the pyramid.

They also want to bring cooperation between the community of the people at the base andthemselves {the financial institutions} (Boberski, 2006). According to Berger (2013), in the recent past, banks have been employing the composite strategies in order to survive. The composite strategies are aimed at solving societal complex problem such as unequal treatment of people, unequal opportunities ending up with some living in unfortunate areas like slums whereas others living in high end suburb leafy estates. Some of these strategies include shifting most of their interest to the base of the pyramid where majority potential account holders are.

Another financial institution of interest is the Santander of Brazil. Santander is the Brazilian form or unit of the Spain’s Santander. It has adopted the composite strategy whereby its focus is on the slum dwellers of Rio de Janeiro. It is one of the largest non-governmental financial institutions and controlled by a financial group that has world outreach. It is the largest in both the categories of being a non-governmentally owned and owned by a global financial group. It deals in its three main subdivisions of wholesale banking, commercial banking, and asset management as well asinsurance.

Santander has targeted the slums of Sao Paulo and Rio de Janeiro in Brazil so as to link up with Brazil’s base of the pyramid (Beck, 2007) Most of the inhabitants of these slums in Brazil do not operate a bank account and this has made Santander to shift its base to these future account holders, thus increasing its customer grasp in the whole of Brazil. This is due to the study carried out in Brazil that revealed that out of the 84 Million people that comprise the population of Brazil, 50 Million people and who make up majority of the active working force of the economy of Brazil, don’t own a bank account (Enew, 2013) According to the case of Santander, the expansion of its services to include the major occupants of the base of the pyramid is aimed at giving more Brazilians access to banking and other financial services.

The services offered are such like the payment of bills and this is a great relief to the slum inhabitants due to their life being far from the big urban centers and also due to lack of banks in the slums (Beck, 2007).

Santander has it that the monthly income of the account holders in Rio’s Complexo do Alemão slum is not more than US$882, thus making them be eager for loans. This increases the bank’s source of revenue but also there are high risks of default borrowers who might make the bank run at a loss. For those slum dwellers in Brazil who are interested in borrowing from Santander, things have been simplified as the applicant doesn’t need proof of income to qualify for the loan.

All they need is an identification card, an Individual Taxpayer Registry {CPF} and the proof of address. This is also Santander’s way of attracting customers who are willing to borrow and start business or invest in other ventures but they lack the proof of income. Santander action to open a bank in Rio’s most dangerous slum, Complexo do Alemão, was due to its partnership with a non-governmental organization called AfroReggae that mostly provides promotion for the series of actions within the city that played a big role in helping Santander choose its location. London (2011) argues that in Santander’s branch in Complexo do Alemão, there is a specific division that is tasked with receiving customers having interest in the field of microfinance especially micro-credit or the microloans.

This is a market niche for Santander, where it has invested heavily due to the increasing purchasing power of the low-income slum dwellers in the past years. This initiative has had the economy of Brazil stabilizing in that, the national minimum wage has more than just doubled from 2002’s R$200 to 2010’s R$510.

This has also reduced the rate of unemployment and the rate of inflation is now under control. In the year 2012, Santander released US$164.70 million all to the micro-entrepreneurs. This topped that one released between the year 2002 and the year 2009 was US$133.52 million and thus a greater achievement. The increase of more bank accounts has been as a result of an increase in the number of formal jobs in Brazil, which is fuelled by the country’s steady improvement in its economy.

There has been a competition between Santander and Bradesco of which is also a Brazilian bank having interest at the base of the pyramid. This has been a global phenomenon where most of the financial institutions are moving toward (Enew, 2013). To this end, world financial institutions as is the case with Brazil’s Santander have had the taste of the reality at the pyramid’s base, and have known their positive sides. This has led to the trend of gradually shifting their interest towards these markets for various reasons as outlined above.

Within no time, economic empowerment shall have come to these people. Bibliography List Beck, T. D. -K. (2007). Access to and use of banking services across countries. JoFE, 234-266. Beck, T. D. -K. (2007). Finance, inequality and the poor. Journal of Economic Growth, 27-49. Berger, E. N. (2013). Implementing Technologies for Financial Service Innovations in Base of the Pyramid Markets. Journal of Product Innovation Management, 1199-1211. Boberski, V. (2006). Community banking strategies. Steady growth, safe portfolio management, and lasting client relationships. Hoboken/New Jersey: John Wiley & Sons. Coupland, C.

(2006). Corporate social and environmental responsibility in web-based reports: Currency in the banking sector? Critical Perspectives in Accounting, 865–881. Enew, C. W. (2013). Financial Services Marketing. An international guide to principles and practice. Abingondon/Oxon: Elsevier. Hoepner, A. W. (2010). Social, Environmental, Ethical and (SEET) Issues in Banking: . Edward Elgar Publishing. London, T. H. (2011). Next Generation business strategies for the base of the pyramid: New approaches to building in mutual value. Upper Saddle River: NJ: FT Press. Prahalad, C. (2005). The fortune at the bottom of the pyramid: Eradicating poverty through Profits.

Philadelphia: Wharton School Publishing.

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