Mumbai, 3rd Dec: Urvashi Devidayal, Sankalp Lead India , Intellecap and Prachi Maheshwari, Gender Lead, Intellecap as part of our yearlong content partnership with Forbes India contribute the third story in the Forbes series.

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 authored by Santosh Kumar Singh, Director, Intellecap and Ankit Gupta, Manager, Intellecap.

Titled ‘What most women-led enterprises in India have in common’ the article by Urvashi and Prachi bears its genesis to a recent economic survey which has highlighted significant increase in women-led enterprises in India.

The author’s opine that in India today it is easy to find successful micro-enterprises in the vicinity run by women, who not only manage their household but also financially support their families and educate their children. While these are often home-based businesses they do have the potential to scale but the entrepreneurs are unable to do so. The authors note that there has been no dearth of schemes, initiatives and programs implemented by the government and the private sector, to increase access to finance for women entrepreneurs, but most of these programs exclude majority of women-led enterprises.

Delving into the challenges, the authors go on to talk about how there is a high risk perception of women entrepreneurs and how there are several ways to address this perception and encourage women led enterprises to scale and grow.

Speaking about the finance sector, the authors cite a recent International Finance Corporation (IFC) report which pointed out that women employees constitute less than 20 percent of the workforce in banks. These numbers are even fewer for women fund managers in private equity firms. Thus the problem becomes cyclical where with low representation of women in financial sector, unconscious gender biases of our patriarchal society often influence the investment decisions, leading to high rejection rates for women-led businesses.

Speaking about catalyzing women investing in women, the authors urge the need to move beyond loans and borrowings, and to look at global trends and how this very aspect to go beyond conventional schemes and initiatives has encouraged the rise of “Women Investing in Women”, where venture funds set up by women are investing in women entrepreneurs. Today almost 70 percent of such gender lens investing funds in developed countries were either seeded by women investors and/or raised from women as limited partners. The authors name several such funds across that are not only investing in women entrepreneurs but are also running targeted interventions to build capacity of women as angel investors.

In conclusion, the authors bring the conversation back to India, and ask some pertinent questions around creating a conducive atmosphere and a positive narrative that creates real change on the ground and brings about a paradigm change in the way of our thinking to build an empowering and an inclusive society.

While cities cover only two per cent of the global land area, they contribute around 70 per cent of the global greenhouse emissions, one of the main drivers of climate change.

The UN forecasts that urbanisation and population growth could add another 2.5 billion people to urban populations by 2050, with almost 90 per cent living in Asia and Africa. Consequently, the urban contribution to greenhouse gas emissions and climate change will only increase with time.

As a response, various stakeholders have designed climate change resilience products including cool roofs, home insulations, drip irrigation solutions and solar home systems that have seen heightened interest in India. While such products have seen a market, the uptake is concentrated among the richer sections.

The urban poor, who constitute almost 30 per cent of India’s urban population, do not have the knowledge or the capacity to pay for such products. It has always been a challenge to symbiotically combine all four components (informed customer targeting, low-cost marketing, innovative distribution and sales, and nurturing consumer goodwill) to design a marketing strategy for the urban poor. As a response, some organisations have started leveraging community-level leaders (CLLS) as marketing channels for such products.

The rationale for the CLLs comes from the effectiveness of the model in building long-term products resilient to climate change while simultaneously creating livelihoods. Some best practices that can be used to strengthen the efficacy of the CLL mode are:

* Design a product identification framework tool: Each product should be analysed on the basis of four parameters: a) demand for the product (number of households), b) affordability (price), c) profitability (percentage of price), and d) scalability (potential demand across different urban agglomerations). On the basis of analysis, only those products which score high on all parameters should be offered to the market.

* Conduct on-ground demand assessment: Understanding the customer becomes more important in such cases, particularly since the customers knowledge of the product is limited. Hence awareness levels, willingness to pay and customer demand becomes more critical. Such an on-ground assessment can help further shortlist products for a particular set of homogeneous households.

* Provide easy financing options: It is beneficial to help CLLs establish close networks with MFIs and other financial institutions to provide financing facilities to potential consumers, hence enhancing their ability to pay and increasing uptake.

* Segment CLLs based on skillsets and motivation: Classification of CLLs as per their sales skills and motivation is essential for success. Selling different products require different skillsets and a quick analysis can help in this matchmaking. Some parameters which can be used to assess skills include age, educational qualification, business experience, and technical skillsets.

* Capacity building: CLLs need a certain degree of training and it is observed that CLLs find it easier to sell better when trained rather than through close association with their communities.

* Build ownership in CLLs: Instead of making the product available free-of-cost, CLLs should be asked to invest in the product. If required, finance should be made available by partnering with co-operative banks and MFIs; that way one can build ownership in CLLs.

* Design standardised operational procedures (SOPs): Since the business model includes partnerships both with CLLs and product manufacturers, it is necessary to design SOPs to simplify the entire delivery process.

Over 4 billion people around the world face unmet needs in core areas such as food, water, energy, health-care and housing. The market potential for these low-income populations is huge: Approximately 4.5 billion low-income people globally represent an annual purchasing capacity of US$ 5 trillion (PPP), with India, East Africa and South East Asia accounting for a sizable chunk of this market. Yet servicing this market is fraught with challenges, including customers’ limited ability to pay, poor infrastructure and latent demand. Catering to this market requires frugal innovation, which is about transforming adversity into opportunity, enhancing value and ultimately doing more with less, thereby impacting more people.

Many firms – both startups and corporates – have begun to design frugal, market-based solutions that include product and business model innovations to meet the unmet needs of billions of underserved customers. In Kenya, for example, Pad Heaven makes re-usable sanitary towels from banana fibers, and Ecopost uses plastic and agricultural waste as a resource to manufacture sustainable materials for the building, construction and transport industries. India is also a hotbed of frugal innovations, which spread across sectors. For example, Saral Designs markets an automatic machine that allows organizations to produce low-cost sanitary napkins, Bhagwan Mahaveer Viklang Sahayata Smiti provides the Jaipur foot – a low-cost prosthetic leg, and Banka Bioloo sells sanitation systems that eliminate the need for off-site disposal of human waste. Each of these products highlights how such innovations can be game changers.

But frugal innovations are not just about products: Great potential also lies in business model innovation. Frugal innovations in services can include deep specialization in a niche segment of a huge market, tiered pricing systems and efficient use of human capital. These innovations respond not only to a lack of skilled human capital, but to an institutional void. For instance, Unilever’s small, affordable detergent sachets are priced at a more palatable level for the low-income populations in India and Africa. And Aravind Eye Care’s approach to performing cataract surgeries at large scale without compromising on quality highlights how process innovation can ensure inclusivity and service delivery in a sustainable manner.

Frugal innovation is also not limited to low–tech sectors. It can require, or be combined with, frontier science and technology. Products like Swach a high-tech portable water filter developed by Tata, HealthCubed Inc.’s Health Cube – an integrated, tablet-based, portable point-of-care diagnostic test device, and Agatsa’s pocket-sized 12-lead electrocardiogram have demonstrated how technology can not only be an enabler but an amplifier to both product and process innovations.

Lessons for the Circular Economy

While frugal innovations are commonly associated with developing economies, these innovations are not only for resource-constrained users – and they also address the issue of resource scarcity. The current “take, make and dispose” economy is not sustainable. Economic productivity is already being curbed by the rapid depletion of existing and readily available natural resources. These constraints require a shift in thinking towards a more circular model focusing on resource productivity, and a shift towards a “make, share and remake” model. This will be a key driver towards sustainability for frugal innovations of the future.

Principles from frugal innovations are directly applicable to this circular economy, as generating value from waste is common across African and Indian startups. For example, Kodjo Afate Gnikou built a $100 3D printer from electronic waste. And in Europe, the firm Qarnot has developed QH.1, a high-performance computing server that uses “waste heat” from its microprocessors to heat homes and other buildings.

An assessment of value chains in rural India with high women participation has interesting findings
“The Indian rural retail segment is dominated by unorganised, independent, owner-managed shops, majority of which are set up within household premises and often managed by women,” said Himanshu Bansal, Associate Partner-FS Advisory, at advisory services firm Intellecap, part of the impact investment-focussed Aavishkaar-Intellecap Group.

Intellecap was selected as project advisor by international development agency USAID recently to identify and digitise rural value chains where high volumes of financial transactions occur, representing potential for digitisation.

In a project that aimed to expand acceptance and use of digital payments in a rural setting, women were identified as key beneficiaries as they play an important role in the rural ecosystem, both as workforce or labour on farm and non-farm related activities and as micro entrepreneurs.

Take, for instance, the dairy sector. It contributes nearly 18 per cent to agricultural GDP and provides livelihood to over 75 million women. Food and beverages too provide employment to over 48 million people, with high women participation.

Noting that rural women “have an appreciable, albeit under-stated presence in all facets of rural life”, Bansal felt it is but natural that they become the fulcrum of activities around digitisation of rural value chains, digitisation of households, and financial transactions.

The findings of the study initiated by Intellecap revealed that though there exist multiple rural value chains with significant women participation — like poultry, fisheries, rural retail, apparels and textiles, beauty and wellness, several barriers line the way, including low literacy levels, low financial awareness and a knowledge gap on digital transactions. What also came to the fore was the significant potential of Digital Financial Services (DFS) to not only extend financial inclusion but also digitise core areas of multiple value chains.

High potential
The study, ‘Digitising rural value chains with high women participation in India’, showed that though rural retail and micro finance are common intersections for financial transactions for rural women, what remains relatively discreet is the influence of these segments on rural communities as enablers of change.

“Rural communities, especially rural women, are largely under-served as far as formal financial services like savings, credit and insurance are concerned,” Bansal said, adding that digital inclusion of women has the potential to empower them to make better financial decisions and also drive value chain and household consumption spending. Pointing out that the retail sector has high women participation, with over 2.4 million women-led establishments, Bansal said, “While majority of rural retail stores are informal establishments, a few private-led initiatives such as the Sakhi retail model in rural Maharashtra around Solapur and Mahol are managed by women, through the assistance of self-help groups, and have expanded rapidly, offering value added services.”

However, rural digitisationneeds the integration of digital payments into the rural ecosystems. “Enabling merchant payments through digitisation of the rural retail store can go a long way in building confidence among rural users for using digital payment platforms,” Bansal said, Rural retailers, through digital financial transactions, could also get improved access to credit to grow their businesses.

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.