Chilasa Venture Philanthropy

Solar Entrepreneurs


1 Comment

Young women entrepreneurs light up rural towns

About 70 per cent of India lives in villages with very poor or no electricity supply. Problems with electricity shortages are nothing new, but so far in 2013, Tamil Nadu has experienced the most severe shortage in all of India.  Full of drive and passion, two young women and their friends turned their backs on career opportunities in the big city to start-up a solar panel company in 2012. Their mission is to provide alternative power supply for rural towns and villages with their solar products. I went to meet them to find out more.

Solar Entreprenuer_2

So what does the quintessential college student in India envision for his/her career path? The picture often includes multi-storey buildings where workers sit beneath tubelights, staring at screens in their cubicles. Yanasoundary is not your average engineering graduate. Upon completion of her course in electronic engineering, she and a friend started up a solar panel company. I met with this young entrepreneur at her workshop in Kanchipuram where she’s been manufacturing solar-powered products for a year. “There are a lot of opportunities in the solar power field,” she said. “People in other fields look for work in big companies, but we thought we would do something different and also provide a solution to the electricity crisis. So, using the latest technology, we started our own business”.

I was not only impressed by how innovative these young women are, but also by their decision to remain in their hometown instead of following the masses to a metropolis. And with the frequent power cuts in Tamil Nadu, people are eager to find alternative power sources.

Just now, this local business provides work to 8 people; the team produces small solar panels for household/ day-to-day use (like powering fans or charging phones), lamps, and inverters for storing backup power. Since this is a small-scale business, Yanasoundary manufactures her products upon request. She receives an order, assembles the products, and sells them. Every month, the profits are divided amongst herself and her workers. The majority of profit comes from solar lamp sales. A minimum of 10 lamps are sold monthly and due to the scale of production, profit margins are slim. The plan is to expand the business in order to increase production capacity and revenue as well as to create more job opportunities.

“Last year there was a 25-30% rise in solar market sales from small scale industries and villages”

“We hope to have a 50 person team in the next 1-2 years,” said Yanasoundary. “We never really have cash in our hands because the business is small, but when it grows we will be able to save instead of always reinvesting. There is also a need to hire a sales agent to handle the purchase increase.”

IMG_1073

The market interest is high for solar products, especially in rural towns and villages. However, Yanasoundary and her partners face tough challenges as they seek to grow beyond a micro-enterprise. The path to upscaling the company requires improvements in their production capacity and processes, sourcing of materials, more funds to pay for inventory, hiring a small direct sales team, and better marketing.

What she and her team have accomplished so far has given them a good learning platform. However, they realise they need more help, so Yanasoundary and her colleagues applied to be part of the rural small business accelerator (SBA) programme led by Chilasa and its community-based partner Action for Human Movement (AHM). The purpose of the SBA is to select the most promising micro-enterprises with capable and motivated women entrepreneurs and help them develop into small growing businesses. The programme will give the young entrepreneurs access to growth finance, business mentoring, entrepreneurship training, financial management, organisational development and marketing support– this will be critical to their success. They will also have access to Chilasa’s research and development (R&D) eco-system to help with product development and innovation.  With this kind of support, Yanasoundary believes she and her co-workers have every possibility to light up Tamil Nadu towns in the months and years ahead.

Follow the progress of Yanasoundary and her friends by signing up for our blog. You can also find out more about Chilasa’s pipeline of opportunities and latest news update by clicking here.

Hanna Sarangan 

Sources:

http://articles.timesofindia.indiatimes.com/2013-09-05/india/41799899_1_eastern-and-western-grids-southern-grid-power-demand

http://eco-ventures.in/pdfs/indian_solar_market_potential_anita.pdf

Ashes to Bricks- Impact Investments


Leave a comment

New Analysis of Impact Investments in India

Convergence of patience, purpose and profit is the key message from the Indian Venture Capital and Private Equity Report 2013. The report focuses on the impact investment landscape in India providing empirical data and analysis based on total  investment of $1,303 million in 173 companies. Produced by the Indian Institute of Technology Madras (IITM),  Prof.Thiliai Rajan in his introduction states that the segment is expected to grow during the next few years at an annual pace of 30%.

Below is a summary of the contents, interviews and some highlights from the findings.

Contents

  1. Social enterprises and impact investments: Overview: Smitha Hari
  2. Impact investments in India: An analysis:  Thillai Rajan A., and Pawan Koserwal
  3. Patterns in the Investor – Investee dyad:  Thillai Rajan A., and Pawan Koserwal
  4. The performance differential: Thillai Rajan A., Pawan Koserwal, and Keerthana Sundar
  5. Institutionalising impact investing: Jessica Seddon

Interviews

  • Democratising entrepreneurship; bringing in change: Vineet Rai
  • Strengthening the impact investing ecosystem: Anurag Agrawal
  • Scale critical for impact: Ronnie Screwvala
  • Sustaining the impact: Anil Sinha
  • Impact through philanthropic grants: Rohini Nilekani 

Highlights from the Key Findings

  • Close to two-thirds of the total impact investment has been in the banking, financial services and insurance segment (BFSI), most of which can be attributed to the micro-finance segment. The other major sectors that account for considerable amount of investment are Agriculture & Healthcare and Non-financial Consumer Services. These three industries account for 90% of the total investments. The trends in impact investment differ markedly when compared to other segments of venture capital investing. For example, BFSI segment accounts for only 24% of the overall VCPE investment. In terms of number of investments, IT&ITES and Manufacturing sector were the top two sectors in the overall VCPE investments.
  • Average investment per deal presents an interesting picture. The average investment per deal in impact investments works out to be $2.82 million. This is much lower than the overall average deal size ($32 million) seen in VCPE investments. This is also lower than the average deal size seen in early stage VCPE investments ($12.6 million).
  • Despite the perception that the target customer segment for social enterprises would generally be in smaller towns, the enterprises themselves are located in the large metropolitan cities. Enterprises in metropolitan cities account for a large chunk of investments, deals, and companies. The average investment per deal in metropolitan city is higher by 43% as compared to the average investment per deal in a non-metropolitan city.

Download the Report by clicking here.

For the latest update on Chilasa’s portfolio, opportunity pipeline, and news click here.

Akash


Leave a comment

Building an Inclusive Rural Economy through Local Manufacturing

According to a recent article in The Hindu, India’s manufacturing sector will need to increase from 16% to 25% in the next 12 years to keep up with economic and social development. This presents a serious challenge to industrialists, multi-national companies sourcing products, and even impact investors. Most acutely, what are the implications for small towns and rural villages? Communities without employment opportunities are condemned to poverty and sending their young talent off to the big cities in search of a better life. The Asian Development Bank predicts “labor mobility will continue from agriculture to manufacturing to take advantage of higher productivity”. In practice this means that jobs in manufacturing must be created on a local level to achieve growth.

My name is Hanna Sarangan, and over the next few months I will be visiting rural businesses to meet the entrepreneurs and people that are transforming their communities by building small growing businesses and creating employment.  I want to explore the challenges facing the entrepreneurs and provide insights on how they are making business work for their communities.

To get started, I visited Akash Eco-Friendly Paper and Boards based in Tamil Nadu.

Akash’s founder, Mr. S. Arokiasamy, arrived in Katchur 30 years ago, when the population was engaged in bonded labour (modern-day slavery). He established a school to liberate the children from a life of being confined to unhealthy working conditions. Today, the school is the area’s leading educational institution in terms of quality and impact— female students are given academic and personal support, which encourages them to stay enrolled (female dropouts are common in public schools). Finishing high school is the paramount component in their eligibility for a broader range of academic and employment options. Then in 2008 the social entrepreneur launched Akash in response to the requests from parents to help with employment opportunities and the perennial difficulties in raising donations to run the school. His purpose was to create employment and a sustainable source of income for the school from the profits of the business.

Akash occupies a 4% share of the local paper market in Chennai. The company sells high quality grey boards that ultimately get manufactured into products such as calendars, notebooks, packing materials, and diaries. There are 18-20 people involved in running the factory at a given time.

Recycled Paper

India’s paper output makes up 1.6% of the world’s paper supply and the demand is growing from a rate of 6% increase to 10% increase per annum. Local paper board manufactures only meet 25% of the demand from local producers. Given that local demand outstrips supply, there is a lot of room for substantial growth in this market.

One reason there is such demand for recycled paper is the savings on cost of raw materials. A senior manager at ITC says, “production costs can be down by about 40% with recycled paper. Cutting down these processes also helps to reduce levels of pollution caused by paper mills.”

IMG_5076

Mr. Arokiasamy has the vision and drive to grow the business four-fold over the next 5 years. His objective is to create 100 jobs and from the profits provide a sustainable source of income to pay for the education of more than 500 children. This is an exciting vision, but tough to execute. So what are the specific challenges facing the social entrepreneur in upscaling the production capacity and growing the business? I identified four main barriers to growth:

  1. Access to affordable financing. High interest rates with short pay back periods prevent the business from moving forward.
  2. Shortage of production capacity to meet demand. His current production lines need renovating and an additional line to be added.
  3. Irregular power supply— the inefficiency caused by frequent power cuts and high cost of running a generator are prohibitive. Options for a renewable energy source rather than relying on the main grid should be explored.
  4. Governance, management and business development capacity. The social entrepreneur recognizes that to take the business further he requires professional support to help strengthen the business in key areas.

The founder of Shell Foundations says that social enterprises seeking to establish themselves do not have the benefit of much of the infrastructure that many other businesses enjoy. Akash is a good example of this. However, in spite of the hurdles,  Mr. Arokiasamy has proven his model works, and with the right kind of support he has the possibility to fulfill his social and financial impact objectives to benefit the community.

Unsaved Preview Document

Akash is not the kind of enterprise that will hit the headlines of the business news or appeal to venture capitalists, or socially minded investors looking for massive scale or attractive financial returns. However, Mr. Arokiasamy is in a business sector that is growing where demand outstrips supply. He operates his business for the benefit of his community and wants to create success that includes others, not just his own family.

Before my visit was over, I met a young woman called Sarla who is employed by Akash.  The short conversation highlighted the importance of supporting small growing businesses. She graduated from Mr. Arokiasamy’s school and has been working for Akash for five years. She says that without Akash, she would have been forced to leave her family home by going to Chennai to earn a living, or become a farm labourer.

I was impressed by how Akash was doing business. It is an environmentally friendly local initiative that understands the community at its core—a characteristic that will surely help to achieve long term sustainability and help to drive economic growth. Who better to lead the recovery of poverty stricken communities in rural India than local manufacturing business owners like Mr. Arokiasamy?

Akash is a project available for sponsorship through the Chilasa Angel Network.

Manufacturing


Leave a comment

Growth in manufacturing key to prosperity for Developing Nations

Without growth in manufacturing there is only 5% probability of reaching high income status. This is a key message from the latest report by the Asian Development Bank. The report provides compelling statistics arguing that Developing Nations cannot take a shortcut to high-income status. The pathway to prosperity requires heavy investment in growing a vibrant manufacturing base.

“Historically, no economy has reached high income status without reaching at least 18% share of manufacturing in output and employment for a sustained period,” said Changyong Rhee, ADB’s Chief Economist.

There is encouragement  for India and other economies that have bypassed industrialization or are experiencing transition from agriculture into low-quality services, to develop a deeper and broader industrial base.

Click on the link to view the report by ADB. http://buff.ly/16ThUrm

Enjoy the infographic!

adb-infographic-KI-2013

 

Entrepreneur producer


4 Comments

Social entrepreneurship: profiting from the poor or empowering them?

There are two schools of thought among social entrepreneurship practitioners. The first one treats the poor as consumers, while the second model believes that they can be co-producers, clients and even owners. Simply put, one asks the poor to part with their money, and the other puts money into their pockets. Which one of the two is better suited for India and which model has been adopted more? Do we have to choose one over the other? The answers are not simple. Lets look at the two models and understand them better.

Selling to the poor:
Bottom of the pyramid (BoP) theorists believe that targeting the 4 billion people who live on less than $2.50 per day with products and services can benefit them and also be lucrative for sellers. The late management guru C.K Prahalad was the first advocate of this model. In his book ‘The Fortune at the Bottom of the Pyramid’, he referred to the poor as a market segment that was ripe for tapping. The World Resources Institute estimates the size of the market to be a whopping $5 trillion have lead to MNCs like Hindustan Unilever and Groupe Danone devising extensive strategies to address this market.

But do the poor really need sachets of shampoo, fairness creams and TV sets? Prahalad and Allen L. Hammond in a 2004 article published in Foreign Policy, titled ‘Selling to the Poor’ speak about a young woman working as a sweeper who expressed pride and a sense of empowerment in using Fair and Lovely, ( a skin-lightening cream) because she feels, unlike her parents, she has a choice of using the cream and not let her skin suffer. Aneel Karnani, associate professor of strategy at the University of Michigan’s Ross School of Business, has been the most vocal critic of Prahlad’s model. He is opposed to selling things to the poor that they don’t need and can ill-afford. “Although Fair & Lovely is doing well for Unilever, it probably is not doing much good for its purchasers or for society,” states Karnani is his paper ‘Romanticizing the Poor’. “The ads are racist and sexist, and that they entrench women and darker-skinned people’s disempowerment.”

Karnani’s criticism maybe valid, however there are several products and services, which the poor can buy to improve lives and boost livelihoods. There are numerous examples of enterprises that have adopted bottom-up innovation to service the poor. Micro-lending company Ujjivan provides micro-credit to the urban poor. Healthcare providers like Aravind Eyecare and Asia Heart Foundation are solving the problem of lack of doctors by providing telemedicine solutions using telecom and web-based technologies.Embrace has developed a baby warmer, at a fraction of the cost compared to similar products, which addresses the problem of 4 million babies dying every year due to cold conditions. Husk Power Systems provides electricity to rural areas that are not on the grid, at affordable costs, using the pay-per-use model and aims to impact 10 million lives in the next five years. Sarvajal, part of the Piramal Foundation, provides clean drinking water through its water ATMs at reasonable costs. Lifespring provides low-cost maternity care to women.

The poor as producers, clients and owners:
Karnani’s acerbic rebuttal to Prahalad’s theory can be found in his paper ‘Fortune at the Bottom of the Pyramid: A Mirage’ where he talks of the poor as producers and owners. India is not new to this idea. Amul, the country’s first social enterprise, is the best example of the model. Started in two villages at Anand, Gujarat, in 1946 as a way to eliminate middle-men, Amul helped India go from a milk-importing country to become the world’s largest producer. Currently it’s a $3.2 billion enterprise that benefits more than 15 million milk producers. Agri-businesses like Amul and traditional sectors like crafts, are other obvious industries where the poor can be engaged as entrepreneurs. Fab India, which connects 80,000 artisans to markets, is a great example of employing artisans who are also shareholders in the enterprise, with more than 26 per cent of the company owned by the employees. rangSutra, a manufacturer of apparel, home furnishing and accessories, also employs more than 2,000 artisans, with more than half of them owning a stake in the company. Krishi Naturals, has a triple impact of social, environmental and financial gains. It improves the income of farmers by promoting organic farming by training them in organic farming and facilitating organic certification and marketing. Social enterprises that put more money into the hands of the poor are not just limited to rural and semi-urban areas. Sampurn(e)arth, for example works with 3,500 waste-pickers, mainly in Mumbai to provide decentralized waste management solutions. Companies like Rural Shores and DesiCrew are encouraging educated rural folks to stay put in villages by offering them white-collar jobs servicing the needs of foreign MNCs and large Indian companies.

India needs 50:50.
According to Intellecap’s report on India’s social enterprise landscape nearly 75 per cent of all social enterprises sell to the poor with only 25 per cent involving the poor is production. This comes as no surprise because entrepreneurs and impact investors have favored the low-hanging fruit of selling to the poor. But for social enterprises to fulfill their full potential and assist India make a dent in tackling its many development problems, the number of companies increasing the size of the poor man’s wallet needs to surge to at least 50 per cent.

However, creating opportunities for the poor is a more complex undertaking than selling shampoo or yogurt to them. They are tougher to set up due to missing market linkages, lack of supply chains, inadequate infrastructure and absence of banking services. Massive investments will be needed, and the only players with that kind of appetite are the government and the private sector. Solar power is an example, where government subsidies and international aid, has given the industry a boost. Along with grants, there’s a need for providing a combination of debt and equity. Small businesses will also require business building assistance and other support services to build and scale.

Clearly, the time to act is now.

micro-credit SHG


2 Comments

Microfinance: no miracle cure for poverty after all?

Microfinance, an idea that first sprung up in the 1970s, earned its most famous proponent, Muhammad Yunus, a Nobel Peace prize in 2006. The idea that giving small loans to poor people and including them financially, could help lift them out of poverty has spread far and wide. The 2007 global financial crisis may have led to a small bump, but microfinance is on the rise: according to the data from the 2012 Microcredit Summit Campaign, the number of households that have availed a microloan has gone up from 7.6 million in 1997 to 137.5 million in 2010. India is no different. The industry continues to pick up after the SKS Microfinance controversy muddied the industry’s potential. According to the latest data from Microfinance Information Exchange, India currently has 31.3 million borrowers, with loans worth $5.1 billion disbursed.

Esther Duflo and Abhijit Banerji authors ‘Poor Economics,’ the much-cited book on understanding poverty, have published the latest verison of their paper ‘The Miracle of Microfinance? Evidence of a Randomized Trial.’ The updated paper was published last month, the other co-authors being Rachel Kinnerster and Cynthia Kinnan. The paper- a result of a research partnership between the Abdul Latif Jameel Poverty Action Lab (J-PAL) and the Center for Microfinance at IFMR- analyzes the impacts of microfinance when introduced in a new market.  52 slums were randomly selected in a Hyderabad neighborhood, for opening of a branch by microfinance company Spandana, while another 52 slums from the same area were left out. The results from this randomized trial were first reported in 2009, and updated in 2010, the latest update continues to throw up some startling results.

* Three to four years after the initial expansion (after many of the control slums had started getting credit from Spandana and other MFIs ), the probability of borrowing from an MFI in treatment and comparison slums was the same, but on average households in treatment slums had been borrowing for longer and in larger amounts.

* Consumption was still no different in treatment areas, and the average business was still no more profitable, although we find an increase in profits at the top end.

* We found no changes in any of the development outcomes that are often believed to be affected by microfinance, including health, education, and women’s empowerment.

“The results of this study are largely consistent with those of four other evaluations of similar programs in different contexts,” the authors conclude.

Read the full report here. The 2009 report can be found here.

non-farm sector


Leave a comment

Agriculture, Manufacturing and the sector in between

Roughly 60% of our population is involved with agriculture and if we entertain a vision of less than 10% involved in agriculture, what are the 50% without work going to do?

Many are arguing that manufacturing has to be the future engine of growth, especially when it comes to creating new jobs, and that this is inevitable and cannot be stopped. With this very idea in mind there was a great push in the 80′s and 90′s to create manufacturing jobs in rural and semi-rural areas. However lack of infrastructure like roads, and power along with limited water resources made these units unviable. Later the cost of transporting materials from urban centers to rural areas and back again caused many industries to shut down. This is without taking into account the lack of skilled labour. So though this idea sounds grand it has not worked yet in India.

A recent article says “ India’s structural transformation has been slow and atypical, mainly on account of a low share of manufacturing in the economy and of its disappointing growth and employment performance.”

Another oft repeated argument is about the percentage of the population involved in agriculture in developed countries being well below 10%. Since roughly 60% of our population is involved with agriculture and if we entertain a vision of less than 10% involved in agriculture, what are the 50% without work going to do? For the level of mechanization adopted by developed countries to work in India, the landholding pattern would have to change. There are papers to show that small holders are using resources more efficiently than large farms and therefore their productivity per unit area is higher. When the US % of population figure in agriculture is quoted rarely is the level of subsidy provided to these framers mentioned. Many times the US Government pays farmers not to produce. If Indian agriculture can have the level of subsidies available to US farmers there would be no farmer suicides.

Simply saying “create more jobs in manufacturing” is not a complete answer to a complex problem. In my mind the environmental damage caused by the manufacturing sector is bad enough to warrant a moratorium on this kind of growth.

Creating jobs in manufacturing boil down to this:
a) if the raw materials for manufacturing come from within the rural areas, manufacturing can be a boon
b) products that are useful for local consumption can keep cash flowing within the rural economy
c) if energy, water and other resources are available locally, manufacturing can protect itself from external price shifts
d) if the manufacturing units are designed to be environmentally benign then local population will not suffer

In the 1980s, four out of 10 rural jobs were in the non-farm sector, now it is six out of 10. The rural non-farm sector has emerged as the largest source of new jobs in the Indian economy. 

The Economic and Political Weekly (EPW) paper quoted above says that there is an emerging 3rd sector of employment wedged between agriculture and manufacturing “, the rural non-farm sector has become much more dynamic than the farming sector, both in terms of GDP growth and employment generation. Between 1983 and 2004, rural non-farm GDP has grown at a rate of 7.1%, more than a percentage point faster than non-farm GDP, and 4.5 percentage points faster than agricultural GDP. This faster growth of the non-farm sector started in the decade from 1983 to 1993. In the period 1993-2004, non-agricultural employment growth in rural areas accelerated from 3.5% to 4.8%. In the 1980s, four out of 10 rural jobs were in the non-farm sector, now it is six out of 10. Given the large size of the rural labour force, these numbers mean that the rural non-farm sector has emerged as the largest source of new jobs in the Indian economy.

A better summary of the EPW paper can be read in the Business Line article. click here.

(Photo: © Chilasa)

Joseph Thomas, is Director of Impact, Innovation & Technology at Chilasa Venture Philantrophy. Thomas has 30 years experience in rural technology, agricultural, renewable energy, and social innovation within NGO, business and research sectors in India, South and South East Asia. He is a project consultant to Centre for Social Innovation, Indian Institute of Technology Madras (IITM), a Member of Project Advisory Committee of Universities and Councils Network on Innovation for Inclusive Development in Southeast Asia, Ateneo School of Government, Manila, and member of the Core Advisory Group on Sustainable Agriculture of the United Nations Global Compact.

Follow

Get every new post delivered to your Inbox.

Join 67 other followers