Social enterprises may have to balance between improving the lives of people and earning returns

How do you define a social enterprise? The traditional way of looking at it has been that any venture that positively impacts the under-served is a social enterprise. But then issues arise as quite a few commercial enterprises too positively impact the under-served. Many of these enterprises raise money from committed impact investment firms, which do not always eye their investment from the prism of the return on equity they will get. They are more bothered about the impact that the firms create.

A social stock exchange is being blueprinted that will bring more money to NGOs and for-profit enterprises in development work Aavishkaar Group in conversation with Mumbai Mirror at the Sankalp Global Summit 2019

If you’ve always wanted to engage in some philanthropy but never knew whom to give to, or how, here’s the answer.

India may soon have a social stock exchange – a bourse for the social sector – where donors will be able to contribute to an NGO or a for-profit organisation of their choice that is ‘listed’ on the exchange. A 15-member working group, constituted under the Securities and Exchange Board of India (Sebi), which will regulate this social stock exchange, is currently putting together a blueprint for this. It is likely to submit its plans to both Sebi and the finance ministry for approval this month.

“Almost every Indian who has made money, wants to give back in some way or the other,” says Vineet Rai, founderchairman of the social enterprise Avishkaar, and a member of the working group. “The social stock exchange (SSE) would be a transparent and accountable way of doing this. The idea was proposed by Finance Minister Nirmala Sitharaman in the last Budget because there is a clear need for India to invest significantly more in its own development. Nonprofits have been doing good work for decades, but a new kind of ‘impact’ investing has led to the growth of forprofit social enterprises as well.” So based on guidelines drawn up by Sebi, both NGOs and forprofit organisations that operate in the social space can list themselves on the SSE. This will make it easier for potential donors to find and fund them; but it also brings a level of accountability to the work and finances of these organisations.

The working group, which was constituted in October, has been given the task of creating a framework that will help make the SSE a reality. It has had three meetings so far, and is now getting into the writing of the report, says Rai. Only five countries in the world — UK, Canada, Singapore, Brazil and South Africa – have anything like a social stock exchange. The working group plans to study them and perhaps borrow some best practises. The biggest benefit of the stock exchange is that it will bring more money to the development space.

Aavishkaar Group’s content partnership with Forbes India, one of the most reputed business publication allows our leaders from across the Group to share their ideas, insights and expertise through this yearlong special series.

This is the eighth article as part of this partnership.

Mumbai, Nov 8, Friday: Neha Kumar, Senior Associate, Intellecap , Abhishek Shah, AVP, Intellecap and Himanshu Bansal, Former Associate Partner, Financial Services at Intellecap contributed the eighth story in the Forbes series November Issue as part of our yearlong content partnership with Forbes India.

As a quick recap the first story titled ‘Instant loans: Alternate data to drive next financial inclusion wave’ in this Forbes Series was authored by Atreya Rayaprolu, Co-Founder and CEO Tribe3. The second story titled ‘Smart villages: Driving development through entrepreneurship’ was coauthored by Santosh Kumar Singh, Director, Intellecap and Ankit Gupta, Manager, Intellecap. The third story titled ‘What most women-led enterprises in India have in common’ was coauthored by Urvashi Devidayal, Sankalp Lead India and Prachi Maheshwari, Gender Lead Intellecap. The fourth story titled A Roadmap for Impact Investment In India’ was authored by Vineet Rai, Founder, The Aavishkaar Group. The fifth story titled ‘Overlooked area for Impact: Last Mile connectivity was authored by Vineeth Menon, AVP, Intellecap and the sixth story titled ‘How big data can optimise the Microfinance sector’ was authored by Manoj Nambiar, MD, Arohan. The seventh article was written by Stefanie Bauer , Director, Circular Apparel Innovation Factory (CAIF) Intellecap and Divya Jagasia, Senior Associate Intellecap which was about ‘Is the Indian textile and apparel industry reinventing itself ?’

Titled ‘A ‘Phygital’ model to enable rural banking’ the article from Intellecap Financial Services team, talks about how physical models have not worked in rural banking due to high costs and how India’s rural customers are not yet ready to go completely digital financially. The authors talk about the need for a disruption model that unifies both, or a phygital partnership and could address real pain points of rural customers.

The authors state that rural Banking hasn’t worked in India, just like it hasn’t in the other emerging countries. To decipher this, they dissected the rural ecosystem into three major segments: The male-dominated agricultural value chains; women-dominated allied activities such as dairy, poultry, food processing etc.; and the micro-retailing ecosystem. While micro-finance has served women credit needs to some extent, the agri and micro-retailing value chains have been majorly dependent on the informal money lenders. Despite being better served, the authors opine that, rural women are mostly unbanked, with low formal savings due to inconvenience in visiting remote bank branches, usually 5-10 km out of their localities, along with loss of a day of productive work.

The authors on to say, that about 56 percent of the Indian rural economy comprises small and marginal farmers, who cannot access credit due to fluctuating incomes, farming cycle to EMI cycle misalignment and agricultural uncertainties. Village level micro-enterprises also struggle due to dominance of cash transactions, limited credit history and insufficient financial documents. From a financial institution (FI)’s perspective, high cost of acquisition, constant service support coupled with in-sufficient credit history accentuates the overall complexity in underwriting these segments. Limited experience of micro FI (MFIs) to underwrite individual loans has impeded the graduation of JLG customers to larger ticket individual loans. For micro-retailers, the lack of financial access constrains their SKU holding power and turnover. Consequently, for distributors, this blocks working capital, constraining their growth.

The authors say that while the Banking Correspondent (BC) model, long considered a potential solution for the rural banking ecosystem, has met with moderate success. Low commission rates prevent BC operations from becoming a primary income source for the BC household. Moreover, the enormous pain points of cash management make the success of the model is dependent on merchants with high liquidity.

Moreover New-age Small Finance Banks and Payment Banks have been unsuccessful in fully leveraging the opportunity to offer better banking services to rural customers. Banking licenses were offered to MFIs and other institutions with the hope that these institutions will be able to serve rural customers with holistic solutions, and at the same time, digitise re-payments to improve their own margins. However, the deposit ticket size challenges fixate banks’ focus on non-rural / NTB customer segments through separate banking verticals.

The author go on to state that Phygitisation of the rural ecosystem, is a potential solution to enable rural banking.

Here’s why:

• Cash income is the primary reason for account dormancy and rural cash economy. By digitising the income for the farmers, as well as their business expenses, FIs can look to drive account primacy, which in turn encourages banking behaviour. Partnerships with aggregators such as FPOs, co-operatives etc. or digital agri platforms can facilitate the effort.
• Liquidity of the digital money earned, through trusted entities, is vital to build a sustainable solution. On-boarding trusted value chain players as BCs can drive liquidity of the digital money and allow people to transact frequently. Through this, savings also get a much needed push and travelling to a physical branch is no longer required. Cash can be withdrawn in bite sizes, while the rest is saved automatically. Innovative goal oriented ‘gold savings’ or ‘Diwali savings’ products that leverage local customs and aspirations of rural consumers, can further promote digital savings.
• Phygitisation of the kirana value chain through FMCG/OEM partnerships and enabling digital payments at the merchants, through USSD or a merchant assisted model, can help complete the digital loop, and also enable access to credit for merchants. Retailers can also double up as BCs, adding to their existing incomes. The digital trail capacitates working capital (WC) finance to retailers, thereby improving SKU holding power and turnover.
• The phygital ecosystem data trail can enable access to finance for all key stakeholders. Products such as cattle finance, WC finance and equipment finance can be offered through data-driven scorecard tools created by the banking / MFI players, leading the value chain digitisation effort. Partnership with equipment OEMs can also drive loans against the (semi- perfect) collateral by enabling interest subvention and promoting secondary market for collateral under a buy-back agreement.

The author highlights that globally, such partnership models and digital data usage have already been tried with success stories in Africa and China. The Jaza Dukka model of micro-retailer digitisation covers 17,000 kirana stores. It has resulted in 20 percent growth in inventory and sales. In China, the TaoBao platform hosts more than 5 million businesses, across 2000+ villages. The data trail generated from the use of platform has allowed banks to provide unsecured loans without financial statements or prior credit history.

On a final note that authors state that clearly, physical models have not worked in rural banking in the past, due to the cost structures involved and the Indian rural customer is not ready for going completely digital just yet. They stress the need of a disruption model that unifies collaborations through value propositions for both FIs and customers. A phygital model based on unique partnership between Banking, MFI, FMCG, and agricultural sector players provides the needed consolidation and solutions that address the real paint points of the rural customers.

Mumbai, 14th October, 2019: In a significant coverage to the Aavishkaar Group post the US 37 Million (INR 260 crores) investment by Dutch Entrepreneurial Development Bank, Business Standard featured us in a detailed story titled, “Aavishkaar Group to catapult into Asia, Africa with latest capital infusion”.. The story written by Senior Journalist Anjuli Bhargava, talks about how with this infusion Group Founder and Chairman Vineet Rai attempts to make the next leap as the largest impact platform in the two continents.

The detailed article talks about the Aavishkaar Group which today has assets under management of Rs 6,700 crore. With the investment from FMO, Vineet shares how this latest infusion of capital will be used to catapult the impact fund business into a platform for impact investment in Asia and Africa, increase associates stake, capitalise the debt businesses and will help bring in the latest technology and best talent to grow the company.

The journalist opines that to understand the leap that Vineet Rai is attempting to make, one needs to go back in time. The edifice on which the group stands today came up in 2001 with an investment of a mere $100. The company was incorporated based on the belief that if the capital is handed over to the right talent, it can solve many of the problems that low-income communities face.

In 2002, a second block was added to Aavishkaar. If those who have previously not been entrepreneurs have to turn entrepreneurial, they need someone to advise them. Intellecap, the advisory arm of the group, was added to the stable with a capital base of $2,000. The thinking was that you needed intellectual capital as well as financial capital to grow a business.

The business grew and, by 2007, Aavishkaar Capital had closed two of its funds (money was raised to be invested in social enterprises) and begun investing. In 2007, Dubai-based Legatum took a stake in Intellecap with an investment of just over $8 million. At the time, around 2006-08, micro finance itself was in its early stages and social impact companies were virtually unknown in the Indian landscape.

To grow, these companies needed both equity and debt funding. Intellegrow was incubated under the Intellecap umbrella to provide debt lending to small and medium enterprises.

Meanwhile, the group also acquired Kolkata-based Arohan (the NBFC crisis had happened and Arohan was sinking like many others) to provide equity funds to SMEs and subsequently retail micro finance. The gambit worked. Arohan’s Assets Under Management (AUM) has risen from Rs 28 crore at the time of acquisition to Rs 4,800 crore in seven years.

In 2008, aware that few understood the impact eco-system or what it was attempting, the group launched the Sankalp forum to bring together the world’s most promising entrepreneurs, most committed investors, policy makers, government officials, and others under one roof at least once a year.

By 2012, Aavishkaar felt ready to take its Sankalp forum to Nairobi in Africa, another emerging destination for impact finance. “At the time, impact investing was still an alien animal. Advocacy and a deeper understanding of the impact sector was and still is necessary for the space to thrive,” said Vineet.

Three years later, after having raised and invested four funds in social enterprises in India, the group raised the Aavishkaar Frontier fund of $48 million for investment in nine companies in Bangladesh, Indonesia and Sri Lanka. This was the first foray out of Indian shores.

More recently, the group has identified a new yawning gap and launched a fin-tech product – TRIBE – that uses technology to offer small loans to businesses in the informal segment. In general, micro, small and medium enterprises (MSMEs) are not catered to by banks due to the small size of their requirements, the banks’ limited ability to reach them and unproven credit history. Using technology, TRIBE reaches these tiny enterprises, offers them loans of the sizes they require, and collect enough data to assess their credit worthiness. “This helps us take credit calls on these enterprises,” explained Anurag Agrawal, Group Chief Operating Officer. Technology is also used to stay connected with the borrowers and to collect payments when due.

The author goes on to say that while Vineet and others argue that the MSME space is severely underfunded, Micro finance loans currently in India are in the range of Rs 2 lakh crore (lent by all MFIs in India) while it is estimated that the MSME market is ten times the size of the micro finance market but the penetration is currently one tenth. In other words, the upside for anyone who gets the model right is staggering. As a regional platform, the group is hoping to offer the full range of services that any enterprise focused on solving development issues might require.

Through Aavishkaar Capital, equity finance can be provided; Arohan (one of the fasting growing verticals) can offer micro loans of any amount; Intellecap can act as an advisor and provide intellectual capital to the enterprise; Sankalp brings all stakeholders together.

What gave the group the confidence to position itself as a regional platform arose from two factors. One, its business grew by leaps and bounds. While the group’s credit-based AUM rose from Rs 234 crore in FY14 to Rs 4,500 crore by FY19, its fee-based business rose from Rs 983 crore to Rs 2,200 crore in the same period. As of now, total AUM is roughly $1 billion. They hope to grow this to $7 billion by 2025.

Two, Aavishkaar was able to prove its basic premise to a large extent: companies can actually solve larger social problems while making money, one of the most controversial aspects of impact investing. The funds have been invested in over 60 companies, primarily in India. The 30-odd exits have resulted in returns of 3.7 times the capital invested. “We have been able to validate that the impact space works on commercial principles,” said Agrawal.

Three investments have been made in the platform as of now. In 2017, the group raised $25 million from Triodos and the Shell foundation. In 2018, it raised a further $33 million through TIAA, the world’s third largest pension fund, again at the holding company level. The latest investment of $37 million has taken Rai and his team and associates’ share in the group down to just over 51 per cent.

“My focus is on scale for now and this latest investment by FMO gives us the opportunity to walk on that path,” said Vineet. From a vision perspective, he says the group wants to work in Asia, Africa and Latin America, although it is yet to make any inroad into Latin America. For expansion into Africa, a team of 25 is now based there. In Indonesia and Bangladesh, it so far only has a few investment managers.

The question the impact sector is asking whether an impact investor can metamorphose itself into a platform for the region, straddling two continents. Sceptics argue that impact and all private equity investment is based on very deep embedded knowledge of the local environment and factors at play.

To invest in an enterprise in another country is one thing but having the local expertise to advise, guide and counsel social enterprises in an environment hitherto alien is easier said than done. So, Aavishkaar has taken on a big challenge. How far it manages to deliver is yet to be seen.

The Aavishkaar Group, one of the largest impact platform across Asia and Africa, has raised Rs 260 crore from FMO, the Netherlands’ entrepreneurial development bank.

The group plans to utilise the investment to strengthen its ownership in its debt platforms and expand its business in Africa and South-East Asia.

Commenting on the investment, Peter van Mierlo, the chief executive officer of FMO said, “With this investment into the group, we hope to help the Aavishkaar Group reduce the vulnerability of India’s, South East Asia’s and Africa’s low-income population. We have seen their enterprise-based development approach work as limited partners in the Aavishkaar capital side and now along with Triodos, Shell Foundation and TIAA/Nuveen we will be part of the journey of the entire Group.”

On the capital raising, Vineet Rai, founder and chairman, Aavishkaar Group said, “As the group strive to unleash the entrepreneurial energy of young minds towards core challenges that the world desires to address; investment participation by FMO and the strategic partnership we intend to build with them would help strengthen our ability to deliver impact sustainably.”

Will use proceeds to further push into Africa and Southeast Asia; Targets AUM of $7 billion by 2025-26

Aavishkaar Group, one of the world’s largest impact investors, has raised $37 million (about Rs 262 crore) in fresh financing from Dutch development finance institution FMO, as the Mumbai-based social capital investor looks to push further into Africa and Southeast Asia.

“We are in the third phase of our consolidation, where we have invited FMO to join as a shareholder in the group, right at the top. This will be a minority stake – about 10%,” Vineet Rai, chief executive of Aavishkaar Group, told ET.

Aavishkaar, which currently manages assets of about $1 billion, received $32 million from Nuveen, the investment management arm of diversified financial services giant Teachers Insurance and Annuity Association, in December last year. ET was the first to report this development.

In 2017, Triodos Investment Management, the investment arm of European lender Triodos Bank, and Shell Foundation, chipped in $25 million into the company.

According to Rai, a substantial portion of proceeds from the new round will be used to start building the groundwork to expand its operations in Africa and Southeast Asia, with an added focus on bringing its debt vehicles to the two regions.

“FMO has a very deep network in both regions, and we expect them to play a very clear strategic role in the impact investing space,” Rai said. “We are targeting the next 7-8 years to grow our assets under management from $1 billion today, to $7 billion, or Rs 50,000 crore.”

Founded in 2001, Aavishkaar Group comprises five entities — microfinance institution Arohan; Aavishkaar Capital, which runs a slew of venture capital funds; Intellecap, which undertakes consulting, research, investment banking and social entrepreneurship; fin-tech-focused lender Tribe3, and SME-focused debt finance provider IntelleGrow.

Under its equity investment arm, Aavishkaar Capital, the Group has launched six funds, across India, Africa and Southeast Asia, with an estimated $450 million in assets under management. It is currently in the process of raising its first Africa-focused fund, and its second Southeast Asia fund, both of which have a target corpus of at least $150 million.

“With this investment into the group, we hope to help the Aavishkaar Group reduce the vulnerability of India’s, Southeast Asia’s and Africa’s low-income population… We will work with Aavishkaar to help them build their own institution so that they can focus on what they do well: building companies, backing entrepreneurs and unlocking innovative ideas,” FMO said in a statement.

India continues to be Aavishkaar’s core market, with Asia’s third-largest economy having about 65% of its total AUM. Aavishkaar has undertaken about 68 investments, and recorded 30 exits till date.

Mumbai, 27 August 2019: Innovative startups from India with disruptive sustainability solutions applicable to the fashion supply chain will now have the opportunity to be part of a regional innovation program launched by Fashion for Good, in partnership with Arvind Ltd. and Intellecap.

This year – the fashion industry saw a new perspective on what sustainable fashion means at Lakmé Fashion Week. Delegates at Sustainable Fashion Day – Lakmé Fashion Week witnessed India’s first investor showcase for circular & sustainable fashion enterprises on Sustainable Fashion Day, 22nd of August 2019.

The Circular Changemaker’s Showcase was organized by Intellecap’s Circular Apparel Innovation Factory (CAIF), an industry-led platform launched in partnership with Aditya Birla Fashion & Retail and The DOEN Foundation to drive a circular apparel & textile economy in India, along with the Circular Design Challenge of IMG Reliance and its partners R Elan and UN Environment.

The program – Circular Changemakers – was launched in June 2019, and received over 70 applications from across 21 cities in India. After going through a review by a selection committee and a three-day investment readiness bootcamp, six enterprises pitched their solution to a high level investor panel, comprising of investment funds and business enablers such as Aavishkaar, Asha Impact, Fashion for Good, UN Environment, and corporates such as Mahindra Retail, and H&M Co:Lab.

The innovators include:
Canva Fiber Labs: An alternative fiber and a material science company that uses a proprietary (provisional patented) technology to convert agriculture waste into textile fibers that are environmentally, socially, and economically superior.

Reverse Resources: An enterprise that maps and traces textile leftovers from fabric and garment production to enable data sharing from source of waste to recyclers and build efficiency of waste management and trading through digitalisation and software as a service.

Greensole: An enterprise focused on recycling discarded shoes to comfortable footwear, and keeping the waste away from landfills. Greensole upcycles and retails footwear to further create a self-sustaining venture and works with large corporates to handle their waste footwear.

Saathi Eco Innovations: Saathi has developed a single platform technology to process different kinds of natural fibers into highly absorbent pulp that has multiple use-cases such as a 100% biodegradable and compostable sanitary pad made from banana fiber.

JSP Enviro: A technology company that has created a revolutionary product which conserves & treats effluents/wastewater while maintaining energy efficiency. Their Microbial Fuel Cell innovation is an effluent treatment technology that can generate electricity from processed effluents and treat the water for reuse.

Speaking about the program, Stefanie Bauer-Vemuri, Director Circular Apparel Innovation Factory said “The enterprises showcased at Lakmé Fashion Week highlight the variety of innovations that are emerging in India in the sustainable fashion space – from fibres to end-of-use and recycling solutions, all with the potential to make a difference in India’s textile and apparel industry. We are excited to see such a positive response in the industry to join this first ever investor showcase, and are committed to organize more such events in the future that bring the ecosystem together on one platform.”

The showcase was part of a larger effort of the Circular Apparel Innovation Factory (CAIF) and its partners to build the capabilities and the ecosystem needed to transition to a circular textile and apparel industry in India. One of the key ecosystem gaps identified is the limited visibility of innovative solution providers, coupled with limited scaling-support to these enterprises. The Change Makers Program was one response to address critical market barriers and catalyze strategic collaborations, investments, and partnerships among enterprises, corporates, investors, and other industry players.

“We at the Aavishkaar Group pioneered the idea of impact driven sustainable investing in India, Africa, and South East Asia. As we look at the textile sector, and specially the apparel sector from the lens of circular economy and sustainability, we see the need for innovative ideas and startups… to nurture these innovators, we need a flourishing ecosystem in addition to capital. Through Intellecap and CAIF, we hope to contribute to this process and see transformation sweeping through the Indian apparel industry”, said Vineet Rai, Founder, The Aavishkaar Group.

Join India’s first online platform for circular fashion brands, manufacturers, entrepreneurs, investors and enablers: www.circularapparel.co

Technically, MSMEs cannot increase their area of presence due to wide-ranging challenges. But the paradigm is changing with their digital adoption and the rise of e-commerce segment in India.

Indian MSME sector contributes around 45 per cent to the GDP as per MasterCard’s ‘Micro Merchant Market Sizing and Profiling Report.’ This figure is about three times what corporate India contributes. However, this growth engine for the Indian economy needs to be properly oiled for proper functioning, something that is barely the case at present. A recent report by IFC-Intellecap indicates that there is a credit gap of Rs 16.66 lakh crore ($240 billion) in India. The gravity of the situation can only be realized when we consider that the Indian economy is pegged at $2.6 trillion, and government spending is about $400 billion.

The MSME sector, hence, is far from its optimal performance. Still, it seems like the times are changing for the sector and the advent of e-commerce in India needs to be credited for this market development.

At present, there are more than 51 million operational MSME units in India. The sector is spread sporadically throughout the vast expanse of the nation. This alone introduces a number of challenges for the sector. One of the primary challenges faced by the sector, apart from credit availability, is that of connectivity. MSMEs have meagre-to-zero digital integration. This keeps them limited to their area of physical presence. They, moreover, need to arrange and manage their own logistics, even if they are supplying to a region where the incurred costs are relatively higher. These costs could be lowered if they had access to viable channel partnerships, but this is not the case as they fall in the bulging bottom of the business pyramid.

So, technically, MSMEs cannot increase their area of presence due to wide-ranging challenges. But the paradigm is changing with their digital adoption and the rise of e-commerce segment in India — the future of our current retail market. It might be in the form of hyperlocal business, B2C (Business-to-Customer) e-commerce, B2B (Business-to-Business) e-commerce, C2C (Customer-to-Customer) e-commerce, or even a P2P (Peer-to-Peer) business model, eCommerce will be driving every retail transaction in the near future.

Digitized Reach and Payments

The change is already visible on the ground with e-commerce platforms serving as the perfect enabler of the Indian MSME segment. They are helping the MSME segment to reduce its transaction cost, approach larger untapped markets, and avoid intermediaries. Several market vendors still consider the segment as ‘unorganized’ but this leaves massive scope for technological integration to the sector. Hence, it will bring about even better opportunities for the MSME sector, technology integrators, and the market in general.

The use of Information Technology has not only enabled greater consumer participation but has also helped in mass communication along with reduced costs. For instance, a small workshop that manufactures cricket accessories in Meerut can now easily supply its bats, wickets, and other goods to cricket academies in Bangalore. It’s easy to have complete visibility of the end-to-end fulfilment process. The transportation is managed by logistics aggregators who provide complete delivery status via messages and the online platform.

On the other hand, the cash woes of the MSME units are eliminated through channel partnerships with digital lending platforms. Since cash transactions govern a majority of transactions in India (and will continue to do so in the near future), some market players are even providing features such as Early COD that ensures quick remittance for an MSME irrespective of the complications involved in the process. This ultimately minimizes the locked-in capital of MSMEs and enables them to operate with superior efficiency.

Today, the integration of ICT (Information and Communication Technology) is completely changing the relationship between the organizations, consumers, and those who act as mediators between the organizations and the consumers. With ever-increasing technological adoption in the MSME sector, India is gradually traversing towards its ultramodern future. Perhaps, greasing the ‘growth engine’ and fueling it for the long haul.

Intellecap’s content partnership with Next Billion, one of the largest online publications from the ecosystem, will enable a host of authors from India and Africa to share their ideas, insights and expertise through this yearlong special series which began in 2018.

Ankur Seth, Engagement Manager and Neha Kumar, Senior Associate, Intellecap India, as part of our yearlong content partnership with Next Billion contribute the fifth story in the series.

As a quick recap the first story in this Next Billion Series was on ‘India’s Impact Capital Vacuum’ which was authored by Intellecap’s Gagandeep Bakshi and Sameer Gaud, and the second story was ‘The Definition of Insanity: Why Repeating the Same Approach to Enterprise Support is Failing Africa’s SMEs’ which was authored by Intellecap Africa’s Mercy Mangeni and Joshua Murima. The third article by Rajat Chabba, VP Intellecap India and Sheena Raikundalia, Lead, Intellecap Africa was around ‘Inexpensive Impact: The Case for Frugal Innovations’. The fourth article by Santosh Singh, Associate Partner and Ankit Gupta, Manager, Intellecap India was titled  ‘Building an Ecosystem to Save an Ecosystem: How Facilitating Climate Finance for MSME’s can fight Global Climate Change’

Titled ‘Bringing Digital Financial Inclusion to Women: The Impact of an Integrated Ecosystem Approach’ the fifth article talks about how despite global initiatives aimed at catalyzing formal banking and increasing the usage of digital channels, almost 1 billion women still remain excluded from the global financial economy.

Sharing data more closer to home, the authors opine how close to 14% of total establishments in India are managed by women, and that these businesses provide employment to roughly 13.5 million people. But while the Indian economy has grown at an accelerated pace in the past decade, the workforce participation of women has seen a decline from 35% in 2005 to 26% in 2018.  The authors state further that this clearly indicates that either the growth in the economic empowerment of women has not been in sync with the economic growth of the country, or women are not included in the formal economy, despite performing many economic activities, and how global statistics reveal a similar issue, with 56% of the unbanked being women and just 41% of women being part of the work force.

The authors highlight that while there have been a slew of global initiatives introduced to integrate women into the formal economy, the fact is that the comprehensive financial inclusion of women is still a distant dream. They state the compelling example that just having a bank account is not sufficient to consider women financially included, since In India, almost half of all accounts are dormant and don’t provide the real benefits that digital financial services (DFS) can bring, such as access to credit, reductions in cash risk due to the use of mobile money transfers and savings, increases in disposable income, and better personal financial management.

The authors go on to talk about the barriers to women’s financial inclusion , shedding light on the fact that in India this is more so, since traditionally, women in rural communities are highly reliant on men to make financial decisions for the household. They also state that women in India are also held back by the psychological barriers they face while accessing DFS. These barriers include reluctance to own a mobile phone, self-doubt while using a smartphone, hesitation in attending training events due to the unequal gender ratio at the training centers, and a broader fear of technology. These obstacles are amplified by the absence of a local support system, in the form of female change agents or women support groups led by more progressive members of the community.

The foundation for financial inclusion, they highlight, stands on three pillars – access, trust and comfort. But this foundation cannot be built through a single government policy or a development agency in isolation. Instead, it will entail a range of partnerships across technology, banking, the rural-focused private sector and government departments. This is where rural value chains can create an integrated digital financial ecosystem for women. Unless women reliably find value in using their bank accounts, no initiative can spur their financial inclusion.

The authors then go on to talk about a model for digitizing financial access for women, and speak about how Intellecap has digitized over 800 women across 30 villages in India by building an integrated digital financial ecosystem for them, following the approach outlined above.

Getting into the details, the authors share details of how this was accomplished by implementing integrated rural digital financial ecosystem pilots for women-dominant agriculture value chains, including dairy, poultry and food processing, across selected geographies in India. The pilots have demonstrated success on several primary metrics such as income, savings and productive time for smallholder women farmers. As secondary gains, these women have built higher awareness of digital channels of transactions, and gained more financial independence through better control over their income and expenses.

Speaking also about the dairy value chain digitization pilot, they present data of how 36% of financially excluded women in the pilot villages were included in the formal economy, and 80% of the participating women dairy farmers also reported an increase in savings. Through the pilot for the food and beverages value chain, 75% of self-help groups for women entrepreneurs improved sales in their businesses through market linkages using digital platforms.

The authors end with how this unique value propositions of the pilot partners – which ranged from rural value chain aggregators to payment/commercial banks and lending fintechs – have ensured that these pilots continue to scale. The integrated ecosystem model endeavors to first establish the roots of digital financial services deployments, and then branch out in phases. It therefore presents the most sustainable way to replicate digitization across varied value chains, both formal and informal, enabling comprehensive inclusion for women across geographies.

MoooFarm’s face-recognition solution may end insurance fraud, stray menace

One cow does not look very different from another. This opens up opportunities for insurance fraud in rural areas, and leads to cattle menace in cities, with no way of readily identifying the true owners of the animals that are left to roam free.

But this is set to change, with use of facial-recognition technology for cattle.

Agri-tech start-up MoooFarm has launched a solution for facial recognition of cattle that has won a $30,000 prize from a World Bank group entity in the Data Analytics category.

The technology is expected to reduce, if not end, frauds in cattle insurance and identify the true owners of stray cattle.

According to a study by the Institute for Financial Research and Management, up to 80 per cent of cattle insurance claims are fraudulent.

While currently ear-tags are used to connect the cattle with the owner, MoooFarm uses the facial recognition technology.

High accuracy

“Using this technology, MoooFarm has tested the facial-recognition model with 95.7 per cent accuracy. We are aiming at achieving 100 per cent accuracy in six months. With such accuracy levels, our software will eliminate fraud,” Param Preet Singh, MoooFarm’s co-founder, told BusinessLine.

Through its app, MoooFarm collects geography-specific data for each farm and cattlehead with details of breed, yield, critical events such as successful calving and heat symptoms, as also concurrence of a disease and antibiotics given. By leveraging data analytics, it identifies unique patterns and assists in predicting each cattlehead’s mortality rate.

This record is compared with other cattleheads of the same breed to allow for accurate valuation of its market price, giving a true basis for calculating the sum assured and premium, which will encourage farmers to insure their cattle.

Low insurance rates

According to the latest census, India has over 30 crore milch cattle. “But,” Singh says, “the number of cattle insured in the country is less than 9 per cent. The cost of cattle insurance is 4 per cent of the cattle value. Of this cost, the government foots 50 per cent. However, in terms of volume, cattle insurance accounts for a meagre 1 per cent of insurance companies’ incomes. That doesn’t justify the high cost of entering the rural livestock market.

“However, using our technology and app, if cattle insurance spreads in the country, benefiting both the farmer and the insurance companies, the latter may take a re-look at this 4 per cent figure, going forward.”

MoooFarm, which provides last-mile connectivity solutions to small dairy farmers, said that in the coming weeks, this technology will reach far-flung small-holder farmers via its mobile app and network of village-level entrepreneurs.

Innovation contest

The World Bank group’s Global Index Insurance Facility had hosted the Agriculture Insuretech Innovation Challenge in association with Sankalp Forum, an initiative of Intellecap Advisory Services. A total of 106 applications from 16 countries were received; 21 finalists presented their innovative business propositions.

On the use of the prize money, Singh said: “MoooFarm plans to use it to develop more such technologies to disrupt the dairy industry and bring about a white tech revolution in India.”