But high investment costs pose a challenge, says Associate Partner, FS Advisory
Highlighting the role and impact of digital financial services on rural communities, a study by USAID (United States Agency for International Development) has found that the use of digital tools in the last mile of agricultural value chains could allow agri businesses and farmers to optimise procurement and business performance.

“Almost 70 per cent of our population is based in rural areas, providing a unique opportunity for financial service providers to serve an untapped market,” said Himanshu Bansal, Associate Partner, FS Advisory, at advisory services firm Intellecap, which is part of the impact investment-focussed Aavishkaar-Intellecap Group.

While the opportunity is ripe, Bansal says many tend to find it challenging to serve rural clients, with the high investment costs associated with designing and delivering financial products and services.

Intellecap was selected by international development agency USAID to identify and digitise rural value chains, and to expand acceptance and use of digital payments in a rural setting.

Impediments
Commenting on numerous unsuccessful digitisation initiatives in rural India in the past, Bansal outlined some of the major impediments: the high availability and circulation of cash in the rural economy, less developed rural ecosystem for digital spending, and lack of knowledge about the benefits of utilising digital financial service channels.

However, Bansal added the government’s desire to boost financial inclusion and reduce the use of cash has been fuelling rapid growth in electronic payments in rural India.

Advancements in biometrics have also enabled financial institutions to develop interventions such as Micro ATMs and Kiosk Banking, said Bansal, which are designed specifically keeping the rural customer in mind to increase the adoption of digital financial services (DFS).

Bansal said a step-by-step approach on promoting digitisation was needed in rural India to ensure its sustained usage.

Over 68 percent of India’s population lives in rural areas. There has been a gradual increase in migration from villages to cities primarily for livelihood opportunities, better education, and healthcare facilities, among others. The rising burden on urban cities due to migration emphasises the need to transform villages so that they can meet the critical as well as aspirational needs of the villagers. This can be done using innovative technologies and transforming the service delivery models for villages. Transformed villages are called Smart Villages.

While the phrase ‘Smart Village’ has become a buzzword in policy and rural development discussion, there is no universal definition of such villages. Two things that are common to all Smart Villages are the extensive use of technology and integration of several key interventions in infrastructure and service delivery.

It’s an integrated approach of delivering access to skills and quality basic services including education, e-health, 24×7 power, safe food, among others.

There are numerous initiatives supported by the government, and spearheaded and supported by corporate social responsibility (CSR) initiatives and philanthropic institutions.

The Government of India launched the Shyama Prasad Mukherji Rurban Mission (SPMRM) in 2016, with the objective to spur social, economic and infrastructural development in rural areas. The mission aims at making villages smart and growth centers of the nation. In its first phase, it targeted to develop a cluster of 300 Smart Villages over the next three years across the country. Sansad Adarsh Gram Yojana, which envisages integrated development of selected villages was another step taken by government in this direction.

While the government-led initiatives rely on integration and convergence of the existing central and state government schemes to develop these Smart Villages or clusters, the CSR initiatives are generally more innovative in terms of implementation and use of technologies. For example, smartphone-maker Nokia has launched a Smartpur project which aims to create a sustainable ecosystem where community members can leverage digital tools to bring efficiency in daily lives. It aims to bring transparency in governance, economic prosperity for households and ease of access to various government services and information.

Tata Trusts supports agriculture intervention for tribal communities under its Lakhpati Kisan – Smart Villages program. While these CSR or philanthropic institutions do work closely with government institutions, their model of engagement and the partnership with the government vary significantly.

These initiatives have provided key learnings to empower institutions, build engagement models and frameworks for planning, and developing implementation strategies for Smart Villages.

We suggest learning from the Smart Cities mission, but we also caution that these learnings must be contextualised and synthesised, as Smart Villages are very different from Smart Cities. The latter are more focused on increasing the overall efficiency and improvement in civic infrastructure, while Smart Villages envisage the need of building the facilities from scratch.

One of the key challenges in developing Smart Villages is ensuring their sustainability. This can only be addressed if we build our Smart Village strategy with entrepreneurship at its core. Thankfully, India has one of the most vibrant entrepreneurial ecosystem that is working towards addressing rural development challenges using innovative technologies and business models.

We have enterprises that are addressing healthcare needs (Glocal Healthcare Systems, mHealth, iKure), delivering quality education (Gyanshala, Hippocampus, Avanti), providing decentralised energy solutions (Sun Moksha, Mera Gao Power, Mlinda), transforming agriculture productivity (Ekgaon, Jain Irrigation, Milk Mantra), providing drinking water and sanitation services (Sarvajal, Svadha, Banka Bioloo), creating livelihood opportunities for women (Dharma Life, Frontier Markets, Sudiksha Knowledge Solutions), and so on. The need is to integrate this approach for the Smart Village vision.

The Definition of Insanity: Why Repeating the Same Approach to Enterprise Support is Failing Africa’s SMEs
Africa’s economic growth is driven by small and medium enterprises (SMEs). Yet these businesses face a myriad of challenges, the most pressing often being financing. Despite the fact that small businesses are the backbone of the East African economy, 72 percent of all startup funding went into only three companies in the region in the span of two recent years. And 84 percent of SMEs in Africa indicate access to capital as their main challenge, representing a financing gap of US $140-170 billion.

When asked for their biggest growth challenge, entrepreneurs and support organizations have consistently scored access to capital as the number one bottleneck. As a result, the past years have witnessed an increasing number of actors aiming to fill the capital gap, ranging from philanthropists to impact investors and venture capitalists. Today, India’s entrepreneurial economy has an evolving landscape of financing players providing seed, venture, and growth capital to small and growing businesses.

However, while capital remains critical for enterprise growth, the perception around scaling challenges is changing. An increasing number of founders and enterprise leaders recognize that a critical growth barrier lies within their organization. Finding the right talent, retaining them, strengthening the mid-level management, building the next generation of leaders, and creating a positive culture and working environment are among the core issues that social entrepreneurs and startups struggle with.

India’s Impact Capital Vacuum – And What to Do About It
Editor’s note: This post is part of the NextBillion series, “A Survival Guide for Raising Capital,” – one of several topics we’ll be covering through special series this year. Click here for more details on our 2018 series.

Impact investing is not a new phenomenon in India. It came into existence in the early 2000s alongside the concept of the for-profit social enterprise. From then on, India witnessed a perceptible shift in the willingness of investors to support impact-oriented business models.

In the early years, these impact investors focused on supporting enterprises across the spectrum. However, today most impact investors are primarily channeling capital towards scalable and financially sustainable business models only. Additionally, the majority of this capital has been invested in the financial services sector, due to the maturity the sector has demonstrated.

Unfortunately, other sectors like agriculture, health care and clean energy have not scaled enough, because of their inherent business characteristics and want of longer gestation. Lack of adequate patient capital leaves these impact industries high and dry.

According to a McKinsey report from 2017 titled “Impact Investing: Purpose-driven finance finds its place in India,” impact investments in India have witnessed ~14 percent compound annual growth rate from 2010 to 2016, and are expected to reach US $8 billion by 2025. However, the on-the-ground reality is not so rosy.

The ‘farmer producer organisation’ route is the best way to strengthen aggregation and, thereby, improve farm incomes

In the context of the Indian government’s push to double farm income by 2022, innovative thinking on smallholder farmer empowerment is needed. Collectivisation of small farmers is key to sustained agriculture growth and food security.

Smallholder farmers (SHFs), representing 80 per cent of India’s farming community, are forced to contend with a cycle of low investment, poor productivity, low value addition, weak market orientation and low margins. Decreasing landholdings due to fragmentation coupled with a post-harvest value chain riddled with inefficiencies, causes post-harvest losses (PHL) to stack up throughout the value chain.

As per latest estimates by the Associated Chambers of Commerce of India, India loses around ₹92,600 crore ($14.3 billion) on account of PHL.

The answers to the myriad challenges facing SHFs lie in efficient farmer collectivisation, which confers greater bargaining power, better market and price discovery, access to credit and insurance, and sharing of assets and costs.

It encourages private sector interest and builds the ability of farmers to invest in storage, crop protection and value addition infrastructure. Better access to market linkages and information through partnerships enables farmers to reduce demand/supply imbalances and PHL.

But certain challenges limit the efficacy and sustainability of key collectivisation models. There are two predominant SHF collectivisation models in India: farmer producer organisations (FPOs) and agricultural entrepreneurs (AEs) — each with its own benefits and challenges.

An FPO is a legally registered collective of farmers, often having self-help groups (SHGs) as its building blocks and formed with the objective of enhancing farmer incomes. The FPO model can create value across different post-harvest phases, including harvesting, primary processing, storage, secondary processing, and market linkages.

The model ensures that all benefits from value addition are retained by the SHFs. The FPO model faces challenges with respect to community mobilisation, effective decision-making and governance, efficiency of promoting agency, and access to capital.

The AE model is predominantly buyer and intermediary driven, with a strong profit orientation. AEs are usually from the village and work independently or through contracts with companies that provide farmers inputs, equipment or procure produce from farmers.

AEs link farmers with the market, minimising damage to their produce before delivery to buyers. Constraints associated with the AE model include vastly different individual entrepreneur capabilities and lack of capital.
A multi-pronged approach

According to the Department of Agriculture and Cooperation, the FPO has emerged as the “most appropriate institutional form around which to mobilise farmers and build their capacity to collectively leverage their production and marketing strength.” Practitioners estimate that there are over 3,000 FPOs in India, with more likely to be registered in the coming years.

Strengthening FPOs would enhance the robustness of the AE model since vital complementary roles of AEs can be carved out as FPOs become successful. A multi-pronged approach encompassing a series of interventions can significantly strengthen the SHF collectivisation ecosystem in the long run.

Technical support facility: A dedicated technical support facility can help build transition FPOs from a production-oriented model to a more value-addition and agribusiness focussed model. It will offer farmers access to a range of services, including training, sourcing of inputs, mechanisation, value addition, market information and linkages.

For this, it will need to leverage solutions of private sector companies and NGOs.

Level of cash in circulation back to pre-demonetisation levels, finds USAID-Intellecap study
Cash continues to be king in India and still reigns supreme for payments across the country with digital payments having failed to sustain their growth rate after demonetisation. A USAID-Intellecap study has found that the level of cash in circulation is back to its pre-demonetisation levels.

The situation is more intense in rural India, where a preference for cash-only transactions across the rural value chains has been noticed, largely due to the inter-connected nature of the rural economy

“Afer demonetisation in November 2016, the shift of urban consumers and merchants to digital payments was not instant or even streamlined,” said Himanshu Bansal, Project Lead at Intellecap, part of the Aavishkaar-Intellecap Group.

The report is commissioned by USAID and enabled by Intellecap. People battled several fears, he continued, of losing cash to incorrect transactions, and not having enough merchants with the facility to accept digital money. This process was more tedious in rural India, and especially with rural women “who have not been exposed to the level of technology and education as their urban counterparts”.

“The challenge in rural India was significantly accentuated. It was a technological challenge,” Bansal told BusinessLine. “Even as customers in urban India were struggling for cash, the situation was piquant in rural India, where even the likes of Paytm did not have anything during demonetisation. There were no clear merchant distribution networks.”

People in rural India had to visit their bank branches, 15-20 km away, and spend the entire day there to get cash, he said.

Two months later, however, as cash started becoming available, people happily went back to cash transactions.

He went on to add the first signs of resurgence of cash were seen as early as January and February 2017, two months after demonetisation, as cash availability improved across banks.

In February 2017, the volume of transactions using digital channels had significantly decreased compared to December 2016.

The USAID-Intellecap study, shared exclusively with BusinessLine, corroborates this, showing the total volume of digital transactions had fallen by 20 per cent after the initial spike between December 2016 and February 2017.

Rural India
Asked if the entire exercise of Digital India had failed in rural India, Bansal said: “The entire infrastructure of digitisation in rural India is coming together now, with the advent of various digital payment banks such as Airtel and Paytm, who have a huge focus on acquiring rural customers. There is a huge push now to drive that.”

However, he added: “UPI is still a little inconvenient because of the phone factor. Most of the rural customers have feature phones or basic phones, and the only way you can transact is through USSD (Unstructured Supplementary Service Data) platforms, which have not worked in India.

“If it had worked here, then we could have had the same level of impact mPesa had in Kenya. Better USSD penetration would have allowed rural customers to transact freely.”

USSD is a payment mechanism that allows basic feature phones to be used as a platform for money transactions.

“With rapidly evolving technologies and business models, there is need to adopt new and fundamentally different pathways to provide clean, cost-effective, and efficient mobility services” said Arvind Panagariya the former Vice Chairman of NITI Aayog in a 2017 report titled India Leaps Ahead: Transformative mobility solutions for all.

Panagriya’s statement above touches on two intriguing themes, evolving business models and adopting new pathways to provide clean mobility. The statement ..

Solutions must focus on understanding aspirations, industry requirements and standardization across the skill-development value chain

Coupled with a continual increase in voluntary unemployment, the International Labour Organisation expects unemployment in India to be higher in 2018. In a country where 65% of the population is below 35 years, unemployment, especially among youth, can limit the nation’s ability to reap the much-hyped demographic dividend. Recognizing this challenge, a wide range of stakeholders, including the government, companies, civil society organizations, and for-profit enterprises are working either independently or in cohesion to enhance youth employability.

A 2017 Intellecap study, of more than 80 programmes and organizations engaged in youth skilling in India, found that currently four models are used for supporting youth employability in the country. The first model, or the self-employment model, works on the rationale that if youth are trained in a particular skill, they will have the capacity to become micro entrepreneurs. The second model, or the employer-led model, trains youth in specific skills relevant to an enterprise and then absorbs the youth into their own value chain. The third, the placement-led model, provides training to youth and also established linkages with potential employers. Fourth, the market linkage model provides end-to-end support to self-employed youth, assisting them in earning better incomes. The government has also undertaken a structured approach via the establishment of the ministry of skill development and employment and the Pradhan Mantri Kaushal Vikas Yojana.

PAYBACK appoints Rijish Raghavan as its new COO, Rentsher appoints Anubha Verma as its CTO, Intellecap appoints Vikas Bali as the new CEO, Travelur.com names Srinivas Rapthadu to its advisory board, and NiYO appoints Vineet Sethi as new Chief Marketing Officer.

Below is a list of new hiring updates that happened in the ecosystem recently. Read a brief description about all of them:

PAYBACK India Announces Appointment of New COO

PAYBACK, India’s multi-brand loyalty program has announced the appointment of Rijish Raghavan as its new Chief Operating Officer (COO) to oversee PAYBACK’s India operations. Rijish will continue to lead Business Development & Partner Management portfolios, while taking on additional responsibilities that would encompass Business Intelligence and Compliance.

Rijish has over two decades of experience in leadership roles across industries. He believes in taking the organisation to the next level with expansion across new service categories and customer segments.

Prior to PAYBACK, he has worked at renowned companies like American Express and Cox & Kings. He has been instrumental in leading business development and driving growth for PAYBACK in the country for last four years. He holds a Post Graduate Diploma in Business Management from Xavier’s Institute of Management and has a deep understanding of marketing, analytics and technology functions.