Beyond Budgeting: The Rural Need For Practical Solutions
Last week the WSJ India portal published an article ” Budget 2010: Will Rural India Get a Fair Deal?” authored by K. Seeta Prabhu, Senior Assistant Country Director, United Nations Development Programme, New Delhi. Villgro Fellow 2010, Jeanne Chen responds to the article on her blog, Crossworlds. The original post is republished, with permission, below.
This article was originally published by the Wall Street Journal on February 24, 2010, “Budget 2010: Will Rural India Get a Fair Deal”. Within the article, Ms. K. Seeta Prabhu of the UNDP in New Delhi raises a number of extremely relevant concerns about the rural poor of India:
- 42% of rural farmers live under the poverty line
- Small acreage farmers compose 84% of total farmers
- Low agricultural productivity
- Lack of permanent shelter
- Lack of electricity and highly inefficient energy usage
- Lack of employment opportunities outside of agriculture
The situation described demands attention. In response, Ms. Prabhu recommends that the government should take action by injecting massive amounts of stimulus money into large public work projects to build crop warehouses and public toilets, to usher in another “Green Revolution”, to incentivize the installation of bio-plant stoves, etc. The litany of public projects that Ms. Prabhu wants the local governments to undertake is daunting. I find no fault with the problems identified and the end objectives cited, but I do doubt the realistic feasibility of the list of public projects. These proposed solutions are in fact not new; they have been discussed by the development community for some time. The problem doesn’t lie in the solution ideas themselves, but in the implementation – what has been coined as the “last mile challenge”. It’s agreed that these solutions need to happen, but how?
In my opinion, the government is not the agent of choice for solving this implementation problem and promoting large public works projects is certainly not going to address the rural poor’s needs. Ms. Prabhu herself points out that past governmental initiatives to create employment have failed:
“The implementation of the National Rural Employment Guarantee Program has offered some succor but due to various constraints, the promised 100 days of employment have been provided only in the state of Rajasthan. In fact, the performance of the program is quite low in the states of Bihar, Orissa and Jharkhand, which have large numbers of the rural poor.”
The NREG program is a perfect example of how the government failed to reach the last mile. A Villgro associate recently visited with farmers in the impoverished state of Assam and asked them why they were not in the NREG program, which could have more than doubled their current annual income (~Rs8,400 or $170USD). The Assamese farmers said that they weren’t aware that such a program existed. The local governments in charge of the NREG hadn’t publicized the program and so, those funds disappear off into a vacuum and failed to reach the rural poor. How then, will more public programs and government projects help the rural poor climb out of poverty?
Instead of encouraging more public works programs, Ms. Prabhu would do better to promote additional funding for the existing social entreprises who have made immense progress in helping the rural poor increase their income. In Out of Poverty, Paul Polak specifically discusses how rural innovations such as the treadle pump have helped increase the crop yield and income of small acreage farmers far more more than the first “Green Revolution”. Millions of rural farmers have used drip irrigation systems, treadle pumps, and other agricultural innovations developed by social enterprises to grow off-season crops which generate more income or to grow crops during the dry seasons.
There are also other entreprises that are addressing the other problems faced by the rural poor. In fact, Villgro has incubated a number of enterprises that address each of the problems cited by Ms. Prabhu. Innovations such as the Venus Burner help to make energy more efficient; the Pin Pulverizer is a small grinder that allows farmers to mill their grains before they spoil; Desicrew and other rural BPOs are creating lasting employment for women and youth. The list of rural innovations that are practical solutions addressing the needs of the poor continues to grow and their impact has been dramatic. Although the implementation is still difficult, social enterprises have devised ingenious methods for distributing and marketing to that last mile. But most importantly, because the profitability and survival of these social enterprises is dependent on the adoption of the product or service, there is a guarantee that these solutions will actually reach the rural poor.
As the rural poor begin to increase their income through growing multiple crops per year (aided by drip irrigation), cost savings on more efficient energy and other activities, they can begin to invest their additional income to build the infrastructures that they value. Education, health, and permanent shelters are the next logical investments that the poor make, but they have to increase their income first in order to get there. If addressing the needs of the rural poor is the aim, Ms. Prabhu would be better served to support budget allocation of funds to existing social enterprises and the development of rural innovations rather than additional government stimulus and public works programs that fail to actually reach that last mile. The rural poor need practical solutions that place chapattis on their plates and rupees in their pockets, not grand social infrastructure schemes and empty government programs. After all, it’s only a fair deal if the rural poor actually benefits from it.
Fact Check: The Who’s Who of Social Investing in India
Outlook Business India has a great re-cap of the “new breed of VC funds looking to invest in social enterprises.” While several of them may not be new to many of us within the sector, this compilation is still a useful list (although by no means comprehensive) of the industry’s movers and shakers.
- Fund size $40 million (approx)
- Fund manager Varun Sahni
- Investment philosophy and focus To support sustainable enterprises providing the poor with critical goods and services at an affordable price. Primary focus on healthcare, housing, water, energy and agriculture
- Companies invested in 12
- Fund-raising strategy Gets philanthropic donations from individuals, institutions and foundations locally and abroad
- Social good Vs financial profit Social impact is crucial for all investments
- Fund size $250 million
- Fund manager Sarath Naru
- Investment philosophy and focus To build profitable businesses that cater to under-served markets. Focuses on meeting India’s domestic needs (primarily rural and semi-urban markets) by backing early-stage / rapid-growth businesses
- Companies invested in Over 50 (including 25 social enterprises)
- Fund-raising strategy Raising capital from institutional investors—Indian commercial banks, insurance companies, foreign developmental financial institutions, foreign family offices—that are commercial returns-oriented
- Social good Vs financial profit Purely returns oriented. The social good is a by-product of the investment strategy
- Fund size $30 million (still raising)
- Fund manager Bamboo Finance
- Investment philosophy and focus To support enterprises that develop innovative solutions that provide the poor with better access to critical goods and services. Invests mostly equity, with some debt. Investments generally range between $1 million to $6 million
- Companies invested in 4
- Fund-raising strategy Targeting high-net-worth individuals and institutional investors
- Social good Vs financial profit Aims to have a significant social impact while earning attractive financial returns
- Fund size $17 million
- Fund managers Vishal Vasishth and Kartik Srivatsa
- Investment philosophy and focus To support entrepreneurs in high-growth sectors like education and training, agriculture and food, healthcare, financial services, basic utilities (waste, water, rural telecom, affordable housing, etc) that are aligned with inclusive growth
- Companies invested in None yet
- Fund-raising strategy Set up by Soros Economic Development Fund, Omidyar Network and Google
- Social good Vs financial profit Focuses on sectors and opportunities where both financial and social returns can be generated simultaneously
Aavishkaar India Micro Venture Capital
- Fund size Rs 60 crore (approx $14 million)
- Fund manager Aavishkaar Venture Management Services
- Investment philosophy and focus To create sustainable change by increasing economic activity at the bottom of the pyramid and boosting the entrepreneurial spirit. Investments to date have focused heavily on the rural and agro technology sectors
- Companies invested in 17
- Fund-raising strategy Raising funds from commercial and social investors. This includes banks, foundations, Nabard (India’s apex rural bank), commercial organisations and retail individual Indian investors
- Social good Vs financial profit Working with portfolio companies to provide services in rural areas as well as under-served regions
- Fund size $12 million
- Fund manager Arun Gore and Brian Cayce
- Investment philosophy and focus To impact whole communities. Invests in the information, communication and technology space to bridge the urban-rural digital gap
- Companies invested in 4
- Fund-raising strategy A not-for-profit fund supported by foundations like Rockdale, Rockefeller and Global Investment Initiative, among others
- Social good Vs financial profit Prioritises opportunities according to market demand and social impact
- Fund size $40 million (additional fund-raising on)
- Fund manager Elevar Equity
- Investment philosophy and focus To create market-based solutions for poverty eradication. Focuses on sectors like healthcare,
- education and information
- Companies invested in 1 (another two in micro-finance ventures)
- Fund-raising strategy Legatum and Omidyar Network are the anchor investors; approaching other investors for additional funding
- Social good Vs financial profit Believes in for-profit business models to achieve scale
Read the entire Outlook Business article here.
Innovation and Gender: Towards Women’s Empowerment and Gender Equality
In a world often designed for and maintained by the majority, the issues that matter most to the minorities are more often than not unattended to. Among the several factors that motivate the development sector, the empowerment of women is ranked high. It has been widely acknowledged that when women are empowered with financial and social independence, there is a perceptible improvement in the health of their children, their access to education and overall household income.
Several generations of social change have lead to the growing empowerment of women in society: the eradication of foot binding in China, the abolishing of sati in India, women’s suffrage in New Zealand. In a world that is constantly evolving, the potential for innovation to improve the lives of poor women has never been bigger. This is the theme of the report published by the International Center for Research on Women, Innovation for Women’s Empowerment and Gender Equality.
In their report authors, Anju Malhotra, Jennifer Schulte, Payal Patel and Patti Petesch explore the catalytic effects that innovation and gender role have on each other. Crucially, they ask how and when do innovations create long-term, positive shifts in gender relations? To find answers to their questions, the researchers employ an in-depth look at eight ‘innovations’ across three domains: technology use, social norm change and economic resilience.
Their findings showed how a broad range of innovations resulted in substantial benefits for millions of women, how influential people play an important role in launching or facilitating innovation, and how favorable conditions and timing capitalize on social and economic transformation can cause broad-based shifts in the empowerment of women.
The report identifies seven levers that need to be integrated into technological, economic and social innovation. Their report points to the need to break the mold and require that stakeholders think and act beyond existing, predefined parameters.
Read the entire report, here.
A Fresh Look at Social Innovation: What it is, Why it Matters, and How it Can be Accelerated
When practitioners in the developing sector think of the term ‘social innovation,’ they often think of a business, product or service that is ready to change the lives of millions of the world’s poor. However, it can be argued that social innovation is everywhere – for example the concept behind Wikipedia, or Open University.
In his report Social Innovation: What it is, Why it Matters, and How it Can Be Accelerated, Geoff Mulgan draws us into an in-depth understanding of the term, its usage and its implications to solving global solutions. Mulgan is the director of the Young Foundation, based in the UK. This work is a working paper published by the Skoll Centre for Social Entrepreneurship.
Mulgan beings his by giving us his definition of social innovation: “innovative activities and services that are motivated by the goal of meeting a social need and that are predominantly developed and diffused through organizations whose primary purpose is social.”
The definition distinguishes between social innovation and business innovation (which is generally motivated by profit maximization). The article also focuses its interest more widely on innovations that take the form of replicable programs or organization. For example the use of cognitive behavioral therapy developed in the ‘60s and ‘70s.
The report moves on to address the source of social innovation; the question of who innovates. Mulgan identifies three sources of innovation. The first being innovation through individuals, such as Nobel Laureates Mohammed Yunus and Wangari Mathaai. The second source he identifies is through movements such as feminism, and environmentalism. The third group is organizations, such as the US military which laid down pioneering work for the internet.
Irrespective of its source, the stages of social innovation however remain unchanged. Mulgan takes us through these various stages: identifying need, developing, prototyping and piloting ideas, assessing, then scaling up and diffusing the good ones, and finally learning and evolving.
Mulgan also puts forward the group’s “Connector Difference” theory that distinguishes between social innovation and technological innovation. The theory distinguishes social innovation as most commonly, a combination or hybrids of existing elements, rather than being wholly new. Social innovation also is distinct in that it cuts across organizational, sectoral or disciplinary boundaries, and leaves behind compelling new social relationships. This theory places a critical role on the ‘connectors’ within this eco system – the brokers, entrepreneurs, the money, the institutions, and others who contribute to lasting change.
Finally the report identifies some key essentials necessary to take social innovation forward:
- Develop leadership and structures that suit innovation
- Finance focused on innovation
- Develop public policy frameworks that encourage innovation
- Develop social innovation accelerators, such as incubators
- Share experiences between national and cross-national innovation pools.
- Engage in research to enhance learning.
The full report is available on the Skoll Centre for Social Entrepreneurship website.
Can MFIs Work as a Distribution Channel to Reach the B60?
The story of microfinance has been told several times over. Having proven itself to be a viable industry, the sector has witnessed increased attention from mainstream investors and corporate sector. While investors have been keen to fund the sector, although cautiously, the corporate sector has been looking for new ways to reach the bottom of the pyramid (BoP) market that MFIs cater to.
Several examples exist of such partnerships within India. The most well-known of them being Hindustan Unilever’s partnership with the ACCESS Microfinance Alliance (AMA) for the sale of its Pureit home-use water purifiers. Emami, a leading Indian cosmetics company is currently establishing a partnership with Spandana, one of India’s leading MFIs to engage women entrepreneurs who take their personal care products to previously-untouched markets.
But how effective are MFIs as distribution channels? What sort of products sell best through MFIs? What should MFIs and corporate keep in mind while entering into a partnership? The Monitor Group’s Inclusive Markets team delves into these questions in their latest study, Stretching the Fabric of MFI Networks authored by Nishant Lalwani and Michael Kubzansky.
The report highlights four models from India – Hindustan Unilever Water Filters, Moksha-Yug Agarbatti Manufacturing, SKS Mobile Phones, and Emami Personal Care Products. The case studies bring out several interesting findings. For example, Hindustan Unilver which partnered with AMA to sell their water filters found that the cost of distribution was higher than expected, and additionally encountered after-sales service which proved too taxing. It didn’t help that customers didn’t fully understand the utility of an intangible product such as clean drinking water. SKS, which sold mobile phones on credit found they were being blamed for technical glitches and poor service customers received from the mobile phone service provider.
Based on the findings of these four projects, the report goes on to establish four viable models for MFI Channel Expansion. It also offers valuable advice for MFIs and product and service providers. The report concludes that while MFIs have undoubtedly been successful in reaching the B60 (the term used in the report to indicate the bottom 60% of the economic population), one should not assume a “one-size-fits-all” approach, and must careful assess the suitability of a product, the nature of the relationship between the MFI and providers, as well as distribution and sales aspects.
The Report can be downloaded from the Monitor Website.
An Innovative Milk Vending Machine for India’s Dairy Sector
In March 2006, four friends and alumni of the Indian Institute of Technology, Madras connected form different parts of the globe and started talking. Their desire was “to build a product-based company that would solve some real problems of India.” By mid-2007, they were all in Chennai, India and had set up shop as Invention Labs. Since their set up they have engaged in several projects. Recently they made their foray into building the “Milk Tree,” a vending machine for milk sachets.
In this article, Anand Krishnaswamy illustrates how this innovative product has the potential to change the way dairy farmers, co-operatives, suppliers and consumers interact and the positive spin-off for the dairy sector. Anand is a consultant with the Lemelson Foundation’s India Liaison Office in Chennai.
Read the entire article here.
Drip Irrigation: A New Way Forward?
For farmers across the globe, a regular supply of irrigation is perhaps his most important concern. Nations often dispute the flow of down-stream water because of repercussions on their farmlands. Ironically, despite rise in global levels of food production, several millions of people still remain hungry. And part of the reason for this is the lack of resources – including irrigation to grow their own crop.
Drip irrigation provides a simple solution. Innovation in this space is fast growing, and could mean significant increase in output for poor farmers in sub-Saharan Africa, Asia and Latin America. In their article, Drip Irrigation for Small Farmers: A New Initiative to Alleviate Hunger and Poverty, authors Sandra Postel, Paul Polak, Fernando Gonzales and Jack Keller describe their experience with affordable drip irrigation, including its use in India and Nepal. The authors advocate a global initiative to spread low-cost drip irrigation through private microenterprises, with the aim of reducing hunger and increasing incomes.
Read the original article here.
An Invisible Revolution in Rural India
This article first appeared in the Wall Street Journal on January 4th, 2010. It has been published on this blog with the permission of the author, Madhukar Shukla, Professor at XLRI School of Business and Human Resources, Jamshedpur.
Mahua Devi is a petite woman in her early twenties. She cycles through 10 to 12 villages of the Koraput district in Orissa everyday.
“I help these women keep their accounts,” she tells me as we walk towards a group sitting in the shade under a tree.
When she says “these women” she is referring to one of India’s millions of self-help groups, or SHGs. Each group has 15 to 20 women who pool their tiny savings of only 5 rupees to 10 rupees at a time. They use the money to give loans to members for income-generating investments like chickens, seeds or goats. The interest on the loans then adds to their savings pool.
Driving from the nearest city to the village, I don’t see any bank branches. Even if there is a branch, it’s unlikely it would be equipped to open even simple savings accounts for these women, given their meager savings, lack of assets and inability to read or write. For most of the village women the SHG is the only bank they have ever had.
Ms. Devi keeps the accounts for 20 groups, for which she gets a commission of 2% of the value of all the transactions. “On average, I earn about 5,000 rupees per month,” she tells me.
That, I quickly calculate, works out to 250,000 rupees in cash transactions per month – an amazing economic engine, silently working in one of India’s poorest regions.
Self help groups are a transformational phenomenon which has swept the Indian countryside over the last decade and a half. The groups are India’s own social innovation. In a country where almost two-thirds of the population have no access to formal financial services, SHGs are a unique route to financial inclusion, increasing incomes and helping build productive assets among the poor.
Though similar groups were promoted by many non-government organizations in the 1980s the turning point of the SHG movement was a pilot project by the National Bank for Agricultural and Rural Development (NABARD) in the early 1990s.
Despite India’s network of around 30,000 bank branches in rural areas, a majority of the poor still remained outside the fold of the formal banking system. NABARD studies showed this was because existing bank policies, systems and products were not aligned to meet the financial needs and constraints of the poor. What the poor can earn and save varies widely each day. Meanwhile their tiny savings – as little as 50 rupees per month – make providing banking services to them too expensive for banks.
To bridge this gap, NABARD and a group of NGOs started a pilot project o 500 groups of women to be used a vehicle for financial intermediation through its SHG-Bank Linkage Program. Typically, these were informal groups of up to 20 women, who would meet regularly and pool their savings.
After saving for six months and proving the group had developed the required fiscal discipline through consistent savings, on-time loan payments and maintaining records the group becomes eligible to be “linked” to the local bank branch. The innovation here was that the group, rather than the individuals in it, could open an account with the bank and use that account to save and take loans.
The pilot was a remarkable success and within a year more than half of the first groups had become eligible for the bank-linkage. Even more impressive was the fact that 90% of the loan payments were on time and there were no defaults. The success of this pilot project sparked the SHG movement which has been an unparalleled, albeit under-reported, revolution in financial inclusion.
The number of bank-linked SHGs crossed 10,000 in five years. By 2004, there were more than one million groups with their own bank accounts. By the year ended this March, the number of groups had grown to about 4.7 million, touching 59 million rural families through their members. Meanwhile, the average loan size per group has increased from 1,137 rupees in 1992 to 74,000 rupees this year. That shows the women’s rising capacity to manage, utilize and pay back loans.
So is everything fine with the SHG movement? Not entirely.
According to one 2006 study (EDA Rural Systems and Andhra Pradesh Mahila Abhivruddhi Society’s ” Self Help Groups in India: A Study of the Light and Shades” ) the groups still suffer from many inadequacies. For instance, the study found that a large proportion of SHG members remained poor even after being in the groups for seven years. Another report (Access Development Services’ “Microfinance in India: The State of the Sector Report 2009″ ) underlined the popularity of SHGs has so far been a regional phenomenon tilted towards the southern and eastern states of India.
In spite of such inadequacies, however, self help groups have emerged as a critical vehicle for creating social equity and empowerment.
I once sat with women from three SHGs in the community hall of Madanpur in Haryana. The women had assembled for a workshop on “legal literacy” organized by a Delhi NGO. There was jubilation in the air and the village women were talking animatedly.
“We got the license of the local liquor shop stopped yesterday,” one of the members told me with glee. “It was a drain on us because the men-folk would squander away their earnings, spoil their health, and often physically abuse us. This time we protested and kept the liquor license from being renewed.”
The self help groups have gone beyond financial inclusion and become a platform to provide a voice to a marginalized section of society. Some SHGs have become forums for women to discuss everything from health and sanitation to legal rights and human trafficking. They are also being used to promote education and skill building. The groups are so respected now that they have been called upon to implement government and donor-driven programs such as the mid-day meal program for school children and HIV/AIDS awareness campaigns.
Between 2006 and 2008, more than 600,000 new self help groups were linked to banks. Assuming an average group size of around 13 or 14 members, that means more than 400 women are joining a SHG every hour!
Now if that’s not a revolution, then what is?
Science and Technology in Civil Society
The following article has been contributed by Professor C. Shambu Prasad, Associate Professor at Xavier Institute of Management, Bhubaneswar.
The role of civil society in influencing public opinion towards more democratic and developmental approaches is now well-recognised in diverse fields such as health, education, livelihoods, issues relating to disadvantaged social groups and the environment. Yet, science and technology in India is predominantly seen as the preserve of the state, and more recently the market. In the linear model of innovation, civil society is seen at best as having a role in extension or the delivery of technology produced elsewhere. This paper, a study of science in civil society, questions this assumption through the case study of the work of a
civil society-led initiative in spirulina algal technology. It highlights the need for an institutional transformation of the scientific establishment into learning organisations if they are to focus on development with a pro-poor or human face.
Read the entire article here.
Making your money count: The Case for Community Investing and Social Venture Capital
For several investors today investing responsibly has become a de facto mantra. Further some investors are interested in investing in ways that are socially responsible – i.e, the creation of some social and environmental impact. Investing to reduce poverty in the developing world has also gained considerable traction in recent years. But how do these conscious investors track their investment dollars to ensure that they fulfill their intensions? Socially Responsible Investing (SRI) provides the answer, say authors Jon Daigle, Carrie Hall, Rania Jamal, et al., in their article “Poverty Alleviation through Socially Responsible Investment: Case Studies of Community Investing and Social Venture Capital,” In their article the authors point to four methods of engaging in SRI – screening, shareholder advocacy, community investing and social venture capital. Click to continue…