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Five years. Over 4,000 jobs created. Nearly 200,000 lives changed. And solid evidence that these jobholders are making progress out of extreme poverty!
For any entrepreneur – especially social entrepreneurs – it is critical to collect feedback from the people you are serving.
According to a new World Bank report, 114 million people worldwide moved out of extreme poverty in 2013, accelerating an overall positive trend that researchers have observed over the past two decades. There is much to celebrate: as stated in the report, “the world had almost 1.1 billion fewer poor in 2013 than in 1990, a period in which the world population grew by almost 1.9 billion people.”
India in recent years has made remarkable strides, and is a significant contributor to this trend. Just five years ago, around the time Upaya was getting off the ground, we lamented the fact that experts a few years earlier reported over 400 million people living in abject poverty in India. This put the country on par with — or even exceeding — the same numbers reported for all of the countries in sub-Saharan Africa combined.
Today, India as a country still houses the largest number of people living in extreme poverty, but this figure is now estimated to be 224 million. Economic growth, increased employment, and rising incomes have all contributed to this progress. We at Upaya are proud to play our role in encouraging inclusive growth, and nurturing the development of investable businesses that create lasting, dignified employment for the most marginalized communities.
The World Bank deems a household living under $1.90/day as living in extreme poverty. Upaya ensures that the jobs it helps create pay incomes in excess of this amount. But just as important as the increase in income is ensuring the regularity and stability of that income stream. Households that remain mired in abject poverty are often reliant on cobbling together “odd jobs” in the informal economy – manual labor, trash collection, and even begging when nothing productive materializes – to make ends meet. On a good day, there is work to be had and a wage earned. On a bad day, there is no work, and hence no income. An entire family goes to bed hungry, anxiously hoping that its luck will improve tomorrow. This erratic and uneven and unpredictable existence does not allow a household to build a firm economic foundation and move out of poverty.
In keeping with our mission to create dignified jobs for the poorest of the poor, Upaya from day one has been committed to not only track how many jobs have been created, but also monitor how incomes have improved, and how these incomes have helped previously destitute families make improvements to their quality of life. We refer to this practice of collecting, assessing, and reporting data as social performance management (SPM), and this activity over the years has yielded invaluable insights for our entrepreneurs and other stakeholders. Are households making progress out of poverty in the ways we expect? If not, are there refinements we can make to our interventions to effect better outcomes?
This week, we are releasing a report for Maitri Livelihood Services, one of our partner businesses working in the Northeast states of West Bengal and Assam. Maitri provides skill development, training, and job placement opportunities in the domestic work sector for women from economically disadvantaged backgrounds. Traditionally, women working as housekeepers, cooks, nannies, and at-home nurses have dealt with highly informal work arrangements. It was not uncommon for employers to delay compensation to workers, negotiate below-market wages, and deny workers basic rights in terms of number of hours or working conditions. Maitri is bringing much needed structure and formality to this sector: women who are trained and placed in affluent households are guaranteed a steady and reliable income, an assurance of their rights and safety, and proper recourse in case of any conflict.
Our report demonstrates that Maitri jobholders do indeed benefit from increased, reliable income. It also points to improvements these households are able to make to their quality of life as a result -- such as being able to afford formal electricity and gas connections. The household is less likely to live in extreme poverty the longer a jobholder maintains her relationship with Maitri. We fully expect to see positive improvements in other indicators as time passes, such as housing quality, asset purchases and savings patterns.
In the coming weeks, we plan to release reports for two other partner businesses, Saahas and ElRhino, as well as a year-end portfolio wide assessment. Preliminary findings reveal significant improvements to household income, job satisfaction, and overall well-being. We view these developments as critically important components in our continued fight against extreme poverty. Knowledge is indeed power … studying the exciting progress our jobholders make over time, and listening closely to their feedback and ideas, allows us to fully engage these hard-working, ambitious women and men and empower them to build pathways to a better life on their own terms.
At Upaya, the process of collecting and assessing beneficiary data to track outcomes and measure impact is fundamental to our work. After all, four years ago the organization was founded with a hypothesis that providing jobs -- and not handouts -- is the most efficient and effective way for the “ultra poor” to progress out of poverty. To date, we have sought to prove or disprove this hypothesis through social performance measurement (what we internally refer to as “SPM”), the systematic collection and analysis of beneficiary level information.
I recently had the wonderful opportunity of attending the “Impact Measurement (IM) and Performance Management Training” in Bangalore organized by the Global Impact Investing Network (GIIN) in collaboration with international consultancy Steward Redqueen and Social Value International, to reflect on Upaya’s methodology and revisit some of these ideas. The purpose of the training was to introduce practitioners to different IM frameworks and ways in which these frameworks could be used to suit the context of an individual organization and its mission.
Some of my key takeaways from the training were:
- Don’t overstress the rigour; it should be “good enough”
- Data is not just for reporting but also for decision making
- Consider establishing a counterfactual in the setting
Financial and business decisions are made everyday on the basis of imperfect information provided by financial accounting frameworks. Yet when it comes to evaluating impact, we tend to hold ourselves to a higher standard or rigour --where randomized control trials are considered to be the gold standard. However, sometimes the fear of publishing imperfect impact data gets in the way of doing any IM activity. If the data is ”good enough” to spot trends, aid in decision-making and undertake some course correction, and not overly tax human or financial resources, then it is worth undertaking.
Secondly, these days it appears that impact data is mostly used for reporting outwardly to stakeholders, such as philanthropists and investors. In doing this, we overlook the critical role data can play in helping an entrepreneur and/or management team make decisions about the business itself. The challenge most often cited among practitioners is one of constrained resources - the buy-in needed to undertake the exercise of data collection and the need for doing it all. For an early stage enterprise that is working to expand the business, build the team, formulate marketing strategy, and raise funding, IM is a weighty commitment.
Data collected through impact measurement, however, should not be seen separate and distinct from business data. Instead, if an IM framework were designed to provide useful insights for the business about its beneficiaries, that could then inform refinements to the core product or service, then there exists a higher probability of entrepreneur’s buy-in and also better quality data.
Last, but certainly not least, is the need to accommodate the counterfactual in the actual impact assessment. A counterfactual simply put means “what would have happened anyways, without the intervention in question.” A counterfactual could be in the form of state and national averages based on government data. Or it could be a more statistically rigorous “control group” or “non- intervention group.” The counterfactual, when compared with data that depicts the outcomes of the intervention, can give us a clearer indication of impact, or what positive effects can be attributed to the intervention. In essence, it can provide the necessary context and help us paint a picture of the impact that has occurred.
In the coming months, we will integrate some of these learnings into our SPM framework. We hope to make our system of impact assessment more robust so as to provide high quality information on the progress made out of poverty by our beneficiaries. Our goal is to simultaneously provide valuable insights and learnings to our entrepreneurs, to support the continued growth of their businesses and the creation of hundreds more jobs.
Following the Deshpande Foundation’s Development Dialogue 2015 conference in Hubli, thealternative.in published a series of session excerpts to share the learnings. I (Sreejith) had the chance to be a part of the "Art to Mart: How can we build an end-to-end value chain that brings artisans profitably to market?" panel.
The transcript of that session has been reprinted below as it appeared on thealternative.in. The original article can be found here.
With over six million people (officially) working with Handicrafts in India, traditional handicrafts are a major source of income for a large number of people in rural communities, and have a huge market potential, about 20,000 crore according to some estimates, across the globe.
But while the market itself seems to be thriving, the livelihoods for most of these artisans are not.Various factors – like wages, market price gaps, and lack of technology – are forcing these artisans to move away from the handicrafts industry, to more profitable work.
How does one create a sustainable, equitable value chain for these markets? How do we ensure that rural artisans – all artisans, for that matter – are able to reach the right markets without losing out on the profits due to them?
A panel discussion hosted by Sattva at the Development Dialogues 2015 brought together practitioners who work across the craft value chain in India,: Sreejith from Upaya Social Ventures and ROPE International; Neelam Maheshwari from Navodyami.org, and RangSutra‘s Sumita Ghose, moderated by Rathish Balakrishnan of Sattva.
Edited excerpts from the discussion:
Can market led solutions bring about equitable development?
Sumita: If we are talking about an equitable model of development, it is possible only in an organisation owned collectively by all, which is why RangSutra is a company owned by these artisans. It gives you a say in how the company is run, your wages etc. Earlier, a lot of the women we worked with were paid a pittance while working for middlemen, being paid per piece.
Now, they are paid properly, according to the material, skill and time inputs required. Having shares in the company gives them not just a right but also a responsibility. They ensure that the work is quality work because they know that the company’s profit decides their dividends.
The idea that your work is valuable, that there are people who are going to buy it and that you can make profit out of it gives them a power, an awareness of the value of your work, and that comes with equitable ownership. Using your own money makes a difference because it’s something you believe in, versus just doing something out of program funds.
An incident that really motivated me is when I visited this woman’s house in a village and she had framed a share certificate we had given her. She said it was the only property that I own, the land and the house are owned by my husband’s family. She was so proud.
Should the producer/community facing entity be different from the market-facing entity?
Sumita: We decided in the formation of RangSutra not to have many organizations, we don’t have one community facing and another market facing, that’s too complicated!
What these artisans do need are quality inputs, access to markets, efficiency, timing, delivery response etc. That remains a challenge especially in our case, where 95% of the artisans we work with are from villages.
Sreejith: A very important thing is for artisans to produce what sells, to keep updating what he makes. Can we find alternatives to the saree that a weaver can make if the saree market is going down? It’s possible. Like with artisans making mats for sleeping etc.. that market has completely vanished, nobody uses them anymore. A few players including Industree started making table mats or runners with the same material, a lot of these artisans were able to come back to their profession.
Sreejith: I completely agree that we should have a model that combines the equitable value distribution of community owned model with the efficiency of the dynamism of a private enterprise. But if I had to choose one, I’d choose market focused, more dynamic and efficient model for the question of sustainability.
Let me tell you an example which inspired me to entrepreneurship: In 2005, in Thanjavur, I visited some of the weavers’ cooperative societies that started with the best of intentions but were not working very well. We went to procure some sarees and find market for it to give an assured market to weavers. The cooperative societies complained that they had a huge stock of unsold sarees and therefore were unable to procure more from weavers. The weavers said that 90% of the weavers had migrated to cities to look for other jobs, so they had very little skilled labour.
They told me that someone had visited them from Holland, and was stunned by the beauty of these pieces but he asked them to make scarves or shawls as there was no market for sarees in Holland. But back then, there was no internet or any way of getting in touch with the market(or that man) and they got in the same rut of producing sarees in cooperative societies. The weavers told me they don’t want to weave sarees if there is market for it, they are glad to make anything else if it’s sold.
If that type of market dynamism were possible in a community led model, it would be great. But it’s not. Another reason is the shortage of capital.
I think for these reasons, the sustainability of the enterprise depends on their ability to continuously engage the artisans, irrespective of the structure is.
We always look for scale. Would you say that a simpler model could scale better?
Sreejith: A simpler model is more accountable, more efficient etc but that depends upon the entrepreneur who runs it. Of course, you need to scale, scaling is great, but it is not easy. Just because it has worked for some organizations in some sector, it doesn’t mean it will for all. It takes investment in capacity building, in system and community owned structure to have a good organisation. In some cases, private entrepreneur can do it much more efficiently and they have access to capital.
Neelam: To think that in 60 years in India, we have had just one FabIndia.
We don’t have enough models, we should look at these people as beneficiaries, but also entrepreneurs. For me, it’s an information gap, we need to connect producers to market opportunities. There are so many artisans, we need many more models, we can’t stick with one or two models that we think are good.
Sumita: Today, there are also lots of people leaving the field, I have seen that it’s more for young men than women. For women, it’s convenient as it allows them to earn a livelihood while working from home, but sometimes with the men, it’s more profitable to work in a city in some other job.
Sreejith: In my experience, I’d say men too are interested… provided they have a sustained income from craft. It’s not that they want to preserve the art of anything, they really need a livelihood.
Which one is more relevant to artisans, the B2B or B2C model?
Sreejith: I think B2C is extremely relevant, but in my experience, it takes more capital and therefore for smaller entrepreneurs with less access to capital it’s a difficult ball game. Look at FabIndia, it’s a very successful B2C model, but it takes a lot of capital.
When I started my company (ROPE International) in 2007, I was attracted by B2B opportunities and therefore I’ll talk more about that. When we started out, we did a market research and we saw that the US had 60 or 70 retailers double the size of FabIndia. They said that India has beautiful artisanal products but they don’t source majorly from India as they had issues about production, organization, compliance to social norms and so on in India. So when I started ROPE, my challenge was to build a model where consistent large scale, quality production is possible.
Sumita: RangSutra’s overarching goal is sustainable livelihoods for artisans. So for us, B2C model wasn’t viable for us when we started out. It is more difficult in India, because people take hand-skills for granted, they don’t understand why they have to pay more. Globally there is much more respect (than India) for handmade, because most people in other parts of the world have lost that skill. We do have challenges given our goal, there have been situations where we have had to make an order and make no margin at all just so that an artisan can work.
The panel wrapped up with 2 important takeaways: Building sustainable livelihoods is the obviously the most important thing to keep artisans in their work. Produce what sells, be flexible.
This article is part of a series of panel discussions and reports from the Deshpande Foundation’s Development Dialogue 2015 conference in Hubli. The Development Dialogue is a conclave of like-minded people from across the country who believe in entrepreneurship as a way of nurturing scalable solutions for development, an International social entrepreneurship ecosystem conference hosted by Deshpande Foundation India.
On 18 December 2014, the Global Impact Investing Network (GIIN), in partnership with Dalberg Global Development Advisors, released a report that provides a “state of the market” landscape analysis of the impact investing industry in South Asia. The Landscape for Impact Investing in South Asia looks at the $8.9 billion in deployed impact investment capital in six countries – India, Bangladesh, Pakistan, Myanmar, Nepal, and Sri Lanka – and paints a picture of a “diverse but growing impact investing market across South Asia.”
As the report has circulated amongst the Upaya team, four main points have jumped off the page. Some of them mirror observations we’ve seen through our own experience investing in India, and others shed light on issues we are wrestling with. In no particular order:
Two of the top five areas for impact investment in South Asia – Manufacturing and Agriculture/ Food Processing - are directly contributing to livelihood enhancement. That said, they are still only 17% of the identified market.
Broadly speaking, manufacturing and agri-processing are two broad areas under which our team has focused its livelihood development efforts and we are excited to see them crack the top five areas for impact investment.
However, the fact that the two segments combined are still a smaller percentage of the impact investment market than each of the top two categories - Financial Services and Energy – shows that we still need to expand the conversation about job creation and its social benefits in the impact investment community.
“There is also a need to bring less-exposed enterprises into the fold in a number of countries. Even in India, where formal networks of entrepreneurs exist, it is difficult to find enterprises that are not part of these networks.”
This point really hits the heart of one of the biggest challenges in the impact investment space – pipeline. Right now, too many impact funds are only looking at the businesses that self-identify as social enterprises, and are only doing due diligence in that limited pool. The result is a sort of “social venture ghetto” where a subset of entrepreneurs are continually showcased together at business school competitions and conference panels, thus creating the impression that they represent the full scope of social ventures in the space.
Not coincidentally, the investors who have been successful are the ones who have not limited their purview to that ghetto. For Upaya, the majority of entrepreneurs we support do not necessarily self-identify as social enterprises, but simply as businesses operating in poor communities. Friend of Upaya Artha Initiative has taken a similar view of the issue with their Artha Venture Challenge, a competition that has uncovered several great companies outside of the mainstream social enterprise conversation. In both cases, Upaya and Artha have had success in finding the types of investment opportunities that were sitting outside the standard impact investor conversation but are having a positive impact through their work.
“[In India] funds are shifting toward a less opportunistic and more hypothesis-driven approach to selection; in this new approach, these funds start with the identification of a problem in a given sector, then identify a potential solution (hypothesis), and subsequently seek organizations that contribute to this solution.”
Among the team we’ve long been wary of the proliferation of impact investing funds whose portfolio companies are united only by a broad notion of “positive impact” rather than a specific type of change they are working toward. Our concern is that, without a unifying objective, funds will scatter investments across a variety of issue areas and miss the opportunity to aim significant resources at a specific problem.
Of course, Upaya has developed its own hypothesis – support Small & Growing Businesses that can be large scale employers in ultra poor communities – and are pleased to see that others are starting to bring their own theses into sharp relief. I would certainly point to our friends at Omnivore Partners as a great example of what can happen when a fund pursues clear and measurable outcomes in a specific area (in their case, agricultural supply chains).
In India, “foreign funds are prohibited from investing in debt and, as a result, most of the capital from [foreign] impact funds is deployed through equity instruments. Consequently, small domestic funds are emerging to fulfill the need for early stage debt.”
Accessing affordable working capital debts is a continual challenge for many SGBs in India, including some of Upaya’s partners at various points in their early lifecycle.
For much of the past year, our team has worked with domestic lenders to find creative and effective working capital solutions for our partners. What they are now coming to see that, while smaller domestic lenders are playing a role, these funds still have a big gap to bridge if they are to fulfill the credit needs of SGBs. It is an issue that Sreejith, Tanya, and the team are working hard on, and we are all glad to see this observation in the report.
Representing Upaya at the Clinton Global Initiative for a second year in a row, I was honored to meet Secretary of State Hillary Clinton and share with her Upaya’s successful completion of its Commitment to Action — to double the number of jobs in our portfolio over the past year! The timing could not have been better, either, as Secretary Clinton told the assembled members earlier that day that “We need to provide the support systems that enable … the array of opportunities that women at all ages should have.” I was heartened by this statement, and could not agree more when she followed it up by asserting “work is an essential part of one’s purpose in life.”
A common theme during the meeting was the empowerment of women and girls all over the world, and the discussions made me reflect on our own experience as an organization that has now promoted entrepreneurship for over three years in India’s poorest districts.
We’ve seen with our own eyes the power of women in the workforce. A woman who earns is far more likely to provide nutritious food for her family, send her children to school and save for the future.
We have seen the effect that a woman’s job has on her daughters — they start to believe that they too can be productive and more independent when they are older. They aspire to stay in school, reject the notion of early-teen marriage, and collectively perpetuate a virtuous cycle that will lift their communities out of poverty.
Women entrepreneurs are an especially powerful breed — they are fearless, have overcome seemingly insurmountable societal obstacles to pursue their dreams, and run their companies with a devotion and purpose that is infectious. These entrepreneurs are committed to hiring other women, counseling them through their own challenges at home, and providing a safe haven for them in the workplace. Women helping women, women helping girls … it’s a natural rhythm we kick off when we equip just one in a community with the funds and the right tools to start a business.
Upaya is more determined than ever to identify the women leaders of tomorrow in India and nurture their incredible potential. And after my recent experience, I know we’re not in this alone.
Stanford Graduate School of Business “Does Impact Investing Really Have Impact?” (4 August 2014)
Jyotsna came across this YouTube video of a panel discussion on Impact Investing from the 2013 Social Innovation Summit at the Stanford Graduate School of Business. It led to a good debate around what the merit of impact investment really is, and whether or not it could become a mainstream asset class or another form of venture philanthropy.
Jyotsna also took pride in noting that Michael Smith from the White House Social Innovation Fund is exhorting exactly the type of evidence-based practice that Upaya holds central to its approach through continually measuring outcomes, refining models, and improving the business program to maximize benefit. He also warns of a trend he sees in investors who seek out innovation by “running after bright shiny objects and creating things people don’t need,” and instead is promoting efforts that are focused on measurably better, outsized positive effects for the public. We couldn’t agree more with this approach.
The Nand & Jeet Khemka Forum Podcast “Artha Initiative: Investing For Impact with Audrey Selian” (August 2014)
Sreejith sent around this great audio interview with Audrey Selian, Director of Rianta Capital’s Artha Challenge in which Audrey hits on some really interesting insights about impact investing. In particular, we felt her comments on sacrificing good investments in search of perfect investments were spot on. She also made some nice points on creating social value in areas where most infrastructure and services are non-existent. Definitely worth the read.
Stanford Social Innovation Review “Fundraising is Fundamental” (26 February 2014)
Laurel sent this piece around to the team in early August. She was struck by the way the authors touted the interesting correlation between forward thinking, innovative nonprofits and discomfort around fundraising.
“The organizations that have the most compelling logic models and the most impressive record of impact (as demonstrated by external impact evaluations) tend to be the worst at raising money—and vice versa ... At many bold and extraordinary nonprofits, people cease to be bold when the topic of fundraising comes up.”
The authors throw out a number of ideas for overcoming this "unfortunate inverse correlation." One strategy is approaching external actors as potential collaborators and passionate partners in the fight to end poverty, instead of as potential funders. This attitude can humanize all players and lead to deeper personal relationships. It also opens up an organization to support in a wider variety of forms - be it moral, in-kind, strategic or material. Of course, she noted that we at Upaya also accept snacks.
Fast Company Co.Exist “Sustainability Doesn't Mean Less Profit, It Means Profit Forever” (16 June 2014)
Phillip Barlag of World 50 takes a deeper look at the intersection of profitability and social good. This quote in particular stood out:
“Sustainability thus becomes about evaluating your business for its ability to endure forever. It becomes about identifying the roadblocks to infinite market success and finding a way around or through them. It is not as much about good for good sake, but the enlightened self-interest of pursuit of doing well in a sustained manner.”
This is a point we often make at Upaya when talking about the entrepreneurs we work with, some of whom may not always self-identify as “social entrepreneurs.” For many, they are focused on building profitable enterprises with the clear understanding that the positive externalities of doing so will allow them to play a transformative role in their communities for some time.
The Chronicle of Philanthropy “How Foundations Can Be the Risk Takers They Want to Be” (16 June 2014)
Kevin Jennings at the Arcus Foundation asks if foundation funding has become an impediment to innovation? He argues in part for a more honest conversation with grantmakers about failures and he longs for a forum in which nonprofits could present case studies on failed ventures in much the same way venture capitalists do.
This sort of “learning through failure” concept is not new and not limited to the entrepreneurship space. Physicians have been holding Morbidity and Mortality (M&M) Conferences for over a century. It was in this spirit that I moderated a panel titled “We F$&#ed Up!” at the 2013 Global Washington Conference, designed to give three development professionals a safe space to talk about their struggles.
With a packed room of more than 100 funders and nonprofit professionals, each panelist talked openly about the high-wire act of learning from their mistakes without the fear of losing support by alarming their funders. Their hesitation was understandable - in a sector where good intentions are the primary currency, many people are reluctant to disappoint. But as Jennings argues, if innovation is the goal, then a paradigm shift and open dialog about goals may be necessary on all sides.
This article gives a good overview of the Aspen Network of Development Entrepreneurs (ANDE) and their efforts to support the growth of small and growing businesses (SGBs).
In many ways the ANDE approach of embracing a wide variety of organizations recognizes the importance of the sector without endorsing one rigid model over another. Instead, ANDE is playing the role of a credible intermediary by creating forums for best practices to flourish, and connecting those with complementary resources and shared goals.
The article also gives a nice look at ANDE’s approach to promoting social metrics and the desire to standardize measures. As Genevieve Edens, ANDE’s impact assessment manager, put it, “by speaking the same language, we can start to compare one company to another, create benchmarks for performance, and create market intelligence.”
If we have any hopes of turning up the volume on the global conversation about small business and dignified employment, a credible forum and common tongue like what ANDE is developing could be the amplifier that is so badly needed.
Authored by Upaya's own Jyotsna Taparia, this article was submitted in June to the Devex/ USAID "Frontiers in Development" Essay Competition. The competition prompted writes to submit their thoughts on a variety of questions under the heading How would you Eradicate Extreme Poverty by 2030?
Q: Aside from income, how might we define and measure other dimensions of extreme poverty?
“Development requires the removal of major sources of unfreedom: poverty as well as tyranny, poor economic opportunities as well as systematic social deprivation, neglect of public facilities as well as intolerance or overactivity of repressive states.”
-Amartya Sen (1999), Development as Freedom
For far too long the discourse on poverty has been limited to income or lack of it thereof. The discourse on extreme poverty or absolute poverty has been taking its shape and form since early 80’s. In 1990, the World Bank proposed that global poverty should be measured through the standards of the poorest countries and arrived at a $1 a day poverty threshold, a figure that was last updated to $1.25 a day (based on 2005 PPP). This definition also became the basis for Millennium Development Goal #1: reduce by half the proportion of extreme poor (those living under $1.25 a day) by 2015.
However, income measures can only go so far as to capture the consumption capacity of an individual, calculated either in monetary terms or nutritional count. They are grossly insufficient in capturing extreme poverty as they do not exhibit any sensitivity towards the depth, duration and direction of poverty.
In his seminal work Development as Freedom (1999), Nobel laureate Amartya Sen outlines how the development debate should be structured. Sen postulates that development is closely linked to three sets of freedom: economic, social and political. Poverty in this framework is described as absence of at least one freedom. According to Joseph Wrensinski, a lifelong activist and founder of the ATD Fourth World, extreme poverty is a “... lack of basic security [that] simultaneously affects several aspects of people’s lives, when it is prolonged and when it severely compromises people’s chances of regaining their rights and of reassuming their responsibilities in the foreseeable future.” The underpinnings of this approach are largely similar to what Sen proposes - poverty is deeper than just the state of material deprivation and is not static in time.
From the postulations of Sen and Wrensinski, it’s clear that extreme poverty is a result of three crucial factors:
a. Availability and efficiency of human, financial and physical assets
b. Inequality in the availability of opportunities and ability to exercise agency
c. Interaction with measurable deprivations that reinforce the impact of others
Despite the longstanding focus on income as the sole indication, a significant body of work has emerged establishing the multidimensional nature of poverty both at the household and at the community level. However, identification of the extremely poor based on this multidimensionality poses its own set of unique challenges. For example, if the indicators being used are income, school attendance, nutritional status and health status, then there are some scholars who argue that a household falling below the minimum threshold on any one of the indicators should be considered poor. There are still others who contend that households should score low on all indicators in order to qualify as poor. With these conflicting approaches to poverty identification, one runs the risk of erroneously including or excluding a fraction of the poor population when developing programme interventions (also known as an error of commission or omission.)
Extreme poverty measurement is much more complex than a simple error of omission or commission. It has been observed that deprivation of one indicator actually has negative impact on other indicators, resulting in a self-perpetuating cycle of poverty that is often referred to as the “vicious cycle of poverty.” Thus any discussion of alternative measures must look at these trailing indicators as well as leading ones. These additional indicators can not only capture the effect of extreme poverty, but also show us the progress being made by a household. For example, a household that cannot afford to send its children to school will see them working either with their parents or elsewhere. The lack of formal education and skills won’t allow them to compete in the more remunerative skilled job market and will often result in a lower household income.
Following this logic, it is useful to look deeper at some of the trailing indicators of extreme poverty that are common to all contexts and benchmark them against established trends, such as:
● Households that typically spend more than 50% of their income on food expenditure are more sensitive to income shocks and less likely to avail of services like health and education. Deprivation for these households would be on multiple counts - lack of food, education, quality health care and other services. Therefore an increase in income should result in a decline in the food expenditure to income ratio but also a concurrent increase in the uptake of the other services.
● Households relying on manual labour (informal and unorganized) as their primary source of income are more likely to be in the extreme poor category as the availability of work is not only infrequent and erratic in nature but also low paying. Therefore, tracking changes in the nature of the work that generates income for the family can provide valuable insights.
● The presence or absence of certain classes of assets is also an indicator of the extent of poverty in the household. A low percentage ownership of productive assets (land, livestock, simple machinery and tools etc.) is a likely trailing indicator of extreme poverty.
● Households rate of electrification against local and regional statistics. Electrification has a direct impact on trailing indicators - household assets, cooking and refrigeration, educational success - and therefore is often prioritized by households as income stabilizes or increases. Admittedly, the legality of such connections is often murky at best, but it is nonetheless an indicator of a household’s day-to-day income situation.
Because extreme poverty is relative, we must look at each case in the context of a larger community. Geography and surroundings play an important role in determining the common minimum threshold for a poverty measure or even if the measure will prove to be valuable in providing insights into the extent of deprivation. Therefore, the goal of poverty measurement should not be to create a one-size-fits-all multidimensional index but rather a set of robust indicators that is most relevant to the local context. While this route may not allow for seamless cross comparison, it is successful in achieving a high degree of universality.
Ravillion et. al (2008). Dollar a Day revisited, http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2008/09/02/000158349_20080902095754/Rendered/PDF/wps4620.pdf
Depth of poverty is related to the extent by which a household falls below the poverty line threshold.
Households also show movement out of poverty to fall back again due to external shocks (for example, detection of an ailment with prolonged treatment, natural calamities etc.)
For a richer discussion on this refer to http://www.ers.usda.gov/publications/err-economic-research-report/err89.aspx
A few interesting articles and a podcast from around the internet.
Exhibit A for the “too much money is chasing too few entrepreneurs” case:
“An April 2014 study by Intellecap, a strategy advisory firm, highlights the gravity of the situation. Of the $1.6 billion invested in social enterprises since 2000, around 70% was in the financial inclusion space (both microfinance and non-microfinance). Of the investments that went into other sectors—including agriculture, energy, education, healthcare and livelihoods—about 67% was in just 15 enterprises.”
The article also does a great job of breaking down fund economics to explain why more patient investments in ecosystem are virtually impossible. Overall, it is a great look at the challenges faced by early stage entrepreneurs in India.
This article is a nice look at how small investments in quality control and chain of custody management allow dairy companies and farmers to profit more from their efforts.
The connection between pro-poor business models and higher-end goods is growing. Here in Seattle, we have Theo Chocolate, a company that is working hard to create maximum social benefit in their supply chain. To absorb the higher costs Theo has had to create a $4 chocolate bar but rather than cutting costs, the company’s founder Joe Whinney has set out to create the best darn luxury bar he can. And Theo is not alone – the work Arthur Karuletwa is doing with Starbucks is very much in the same spirit
This is a fascinating interview with Intellecap’s Aparajita Agarwal as she talks about social enterprise in India, the differences from working in Africa, and the constant battle entrepreneurs face when they’re trying to differentiate themselves.
Most interesting for me was the point about entrepreneurs trying to make their idea feel truly unique. I suspect much of this need is driven by interactions with impact investors and the benefit narrative those investors are trying to build around their work. Unlike traditional investors who can look simply at the financials and management team in their due diligence, self-defined impact investors often need to have their imagination captured by the social benefits of the business. As such, entrepreneurs often try to tell a story about how their product or service is “revolutionary” or “innovative,” when the reality is that their business might be most socially beneficial and profitable if they could focus their efforts on the fundamentals.
There is a saying that has been floating around Upaya for a long time that seems relevant here – sometimes a business is not innovative for what it is doing, but for where it is doing it. This interview shows we might not be alone in that thinking.
The re-launch of upayasv.org is more than just new layouts, photos and fonts. It also is an opportunity for us to bring a new voice into the global conversation about ultra poverty, employment, and entrepreneurship.
The people who make up the Upaya team each bring a unique set of experiences and perspectives to the organization. I would say twice a week I wake up to an email with some article, video, or podcast that one of my colleagues is struck by, and it usually sparks a fascinating dialog among people looking at a single issue from a variety of different angles. Think of it as a cross between Squawk Box, Stanford Social Innovation Review, and Guy Kawasaki’s How to Change the World blog, with a dash of boringdevelopment.com thrown in for a bit of pragmatism and humor. We always thought that one fine day we would start sharing these conversations with the world, and that day has now come.
So what can you expect from this blog? More than anything, it will be a candid look at the conversation around a new approach to extreme poverty alleviation. Sometimes the conversation will be more academic, other times it will be more casual, but it will always give you an opportunity to learn something new. We will write for entrepreneurs and investors, students and social innovators, philanthropists and philosophers alike, and welcome all readers to share their thoughts in the comments section.
As we set out, we have four types of posts in mind:
- “What We’re Seeing” - a list of three interesting articles, multimedia pieces, and events that caught our attention, along with a few lines about what makes them interesting.
- “New Frontiers” - As an organization we’re committed to getting beyond the metros and into communities to learn about new opportunities, and we’re happy to bring readers along on that journey. A member of the Upaya team will profile an industry or geography where we feel there is potential for job creation and explain why.
- “Best Practices” - from our work with our current partners and conversations with peers, we’re constantly learning about the issues entrepreneurs face and new tools to help them be successful.
- “Counterpoint” - Real change requires challenging current assumptions, and as an organization Upaya is not afraid to do just that. If we read or hear something we disagree with in the fields of development, entrepreneurship, or philanthropy, we’ll talk about it. We’re not afraid to take an unpopular opinion, but are always considerate of differing opinions.
One last promise - you have my word that this will not just be a megaphone for updates about Upaya. That what our News page is for. This blog is a place where we can stretch our legs, talk about critical issues, and hear from those who are interested in the same issues we are.
So there you have it. We’ll try to post a few times a month to start, and more frequently as we continue to grow. Questions and comments are always welcome - just give us a shout.
This article was originally published 7 April 2014 on moneyspentwell.org.
The sleepy town of Bhagalpur, India, is famous for two things – fertile lands and fine silks. The second largest city in Bihar, Bhagalpur has earned the title of ‘Silk City’ for the high quality of Tussar Silk – a high-luster, strong, lightweight copper silk that wears very well in tropical heat, most valuable when woven by hand. Weaving in Bhagalpur is an art that has been passed on for generations. Working on large wooden pit-style looms found across the city that have been with families for decades, parents share the secrets of crafting fine Tussar Silk scarves and sarees. In fact, there are an estimated 30,000 handloom weavers and about 25,000 handlooms in Bhagalpur.
However, Tussar Silk weaving is also a dying trade in Bhagalpur as the majority of those 25,000 looms sit idle, unable to provide a livelihood for their owners. It is estimated that that market for sarees in the country stands at $2 billion and poised to grow, but the move to less delicate power looms and an influx of cheap imported chinese silks have flooded the domestic saree market.
Even in the face of this competition, a niche market that values handcrafted products remains. However, exploitative supply chains and a lack of market linkages to wholesale buyers have made it impossible for weavers to earn a viable and dependable living from their work. As such, the average weaver earns less than 25% of the final sale price of a saree that takes weeks to create. Furthermore, without continual skill-building and access to new materials, there is no way for the weavers to build skills needed to meet changing consumer trends and preferences.
Bhagalpur itself has seen very little industrial development, resulting in widespread migration to other parts of the country. As a result many weavers have left the trade altogether, migrating to urban centers to find construction work or taking up farming far from Bhagalpur. In fact, in 2004 the Government of India named Bhagalpur in the list of country’s 250 most backward (note: poor) districts (of a total of 640).
Those who continue weaving do so part time, cobbling together manual labor jobs and other unskilled activities to earn a living. One recent survey has indicated that most weaving households live on less than Rs. 3000 ($50) each month.
Compounding this situation is the fact that payments received from middlemen – local traders intent on buying products as cheaply as possible, regardless of their quality – are opaque and erratic. Many weavers complain that, not only do they not receive payment that they deserve, and are forced to make multiple visits to these middlemen to get their due. Facing the prospect of being seen as “troublesome” and losing their current source of livelihood, many do not pursue the matter and allow the cycle of exploitation to continue.
In November 2012, Upaya Social Ventures initiated a partnership with Bhagalpur based start-up Eco Kargha Marketing Private Limited headed by Dr. Ravi Chandra, a passionate Bihar native with a strong desire to see his state thrive. Hailing from the capital city of Patna, Ravi has worked tirelessly to create institutions in Bihar that can effect large scale economic growth and development in the state.
Eco Kargha was set up to improve the quality of life for rural weavers by providing the linkages and resources for the modernization of the ailing traditional handloom industry. The company trains marginalized Tussar Silk weavers on new skills, techniques, equipment and designs for producing high quality products for the modern retail marketplace. Eco Kargha also manages relationships with large national retailers such as Fab India and ANS Exports, bringing in bulk orders and ensuring that weavers can earn a full-time living from their work at the loom.
“Customers across India know the quality of Tussar Silks and are ready to pay handsomely for them. Weavers in Bhagalpur are extremely talented and ready to produce the garments. All we are doing is bringing those producers and consumers together in a beneficial way,” said Dr. Chandra.
The company is able to break the stranglehold that middlemen and traders have on the industry by directly working with the artisans. By forming formal weaver groups with a master weaver at helm, these groups in collective are ensured of a steady stream of work and greater bargaining power. Through normalizing payments and improving transparency, Eco Kargha is tilting the economics of weaving back in the favor of the weavers. It has also worked to provide additional services – opening bank accounts, obtaining medical insurance cards – to these weavers through partnerships with existing Central and State Government programs.
In one year of operations it has been successful in earning revenues of over Rs. 80 lakhs ($130,000) by selling fabric, sarees and scarves to large export houses and established retail chains throughout India. To increase its footprint Eco Kargha has spent considerable time and effort on a conscious blend of B2B and B2C sales. The company has also launched Eco Stree, its in house brand of saree and scarves. Through their work they have been able to provide steady and predictable source of employment for over 100 weavers and increase their income levels by almost 50%.
One of the biggest pain points for Eco Kargha and other businesses that work directly with weavers is the high requirement for working capital. A big component of the raw materials costs is the cost of yarn and dyes. This upfront advance payment constitutes almost 50% of the value of the order processed, but puts a strain on the company’s cash reserves. Due to the early stage of the company, financial institutions and lenders are reluctant to extend a line of credit.
Eco Kargha also faces the challenge of breaking into a saree market that has been dominated by a handful big players for decades. India’s saree market is estimated to generate $2 billion per year in sales and is projected to grow at 8.5% per annum. Within that market, Bhagalpur-made Tussar Silks remain a specialty product despite their nationwide renown. To tap this behemoth industry with deep-rooted interests is a challenge. To overcome the obstacles, Eco Kargha is assembling a professional and dynamic sales team with the right blend of industry experience and fresh talent.
Eco Kargha is projecting a growth rate of over 100% over the next two years, however, it will require equity investment up to $200,000 and an additional $160,000 in working capital debt to meet its goals. The investment will allow Eco Kargha not only to ramp up its production capacity, but also to build infrastructure like dying units and establish a retail brand presence that will further enhance its competitive edge. Best of all, if Eco Kargha’s growth continues as projected, the company will be able to provide dignified employment to over 500 weavers and provide their families with a real path out of extreme poverty.
By mid 2011, Naveen Krishna, founder of SMV Wheels in Varanasi, India, employed 443 impoverished rickshaw pullers. Speaking with him then, one would not see any trace of the trials he endured two years earlier when he was burning through his savings and struggling to line up funds to launch SMV. He was not alone - entrepreneurs throughout the world struggle to find support for their ideas in the early years. Most run out of cash and have to scrap their ideas. Fortunately for Krishna, he received angel funding from his mentor, Sumit Swaroop, saving him from having to give up on SMV. By 2011, Krishna had refined his model and attracted $250,000 from five different impact investors.
Announcements of impact-branded seed funds and investornetworks have become so commonplace they no longer seem novel. It is heartening to see so much capital being deployed to these funds. However, the fact is most are structured to onlyinvest in companies that are already succeeding and ready to scale. Their fund managers cannot afford not to reap a return, so it is extremely hard for these funds to take chances on novel ideas or unproven approaches. The resulting Pioneer Gap – best captured in the Monitor Group and Acumen Fund’s “From Blueprint to Scale” report – has been exposed, leaving many to ask what do we need to do to ensure that entrepreneurs like Krishna have the angel funding they need?
Seeing the Need for Pioneer Capital
We founded Upaya Social Ventures with a mission to alleviate extreme poverty through job creation. We attack the Pioneer Gap head on by investing in early-stage (often unproven) concepts and empowering entrepreneurs like Krishna, who can be large-scale employers of the ultra poor.
In its earliest incarnation, Upaya was a for-profit concept, ready to harness social investment capital to realize its vision. However, even the most socially minded investors could not justify our uncertain return expectations with the high risk of funding startups rooted in extremely poor regions of North India. Nor were they willing to accept the overhead needed to provide hands-on business development support to entrepreneurs in the launch phase. These discussions reinforced for us the economic infeasibility of constructing a venture fund composed of small seed investments (less than $100,000) that can cover the costs of intensive technical assistance while producing a risk-appropriate financial return in a short amount of time.
We knew we needed to build a “safety valve” for the traditional venture model that would allow us to quickly back nascent but promising ideas and work alongside the entrepreneur to build the company. After extensive due diligence, we came to see philanthropic funds as the ideal capital to fill this role, ready to take chances in areas where return capital feared to tread. Furthermore, housing both the investing and technical assistance functions within a nonprofit – instead of splitting them through a hybrid model - opened access to foundations and donor agencies to more easily underwrite the needed business development support. Internally we called this strategy “Pioneer Capital,” and saw it as the best fit for our partners’ needs.
Like traditional grants, Pioneer Capital can provide the necessary cushion for entrepreneurs in the launch phase. However, unlike traditional grants, Pioneer Capital has a chance of producing financial upside for the investor. We at Upaya do believe that a handful of our investments will attain exits that yield decent returns, but those returns are exclusively restricted for reinvestment in future Upaya partners. Upaya’s goal is not to get rich off our investees, but to create a virtuous cycle of investment that can continually launch socially beneficial businesses.
Casting off the direct profit requirement freed the Upaya team to make small, catalytic investments into a dairy supply chain, silk weaving business, and domestic service training and placement firm for slum-dwellers. Alongside our seed funding, we have worked closely with these entrepreneurs and helped them assemble investor-ready business plans, financial statements, operational plans, HR procedures, and social metrics collection systems.
We have watched these businesses evolve from ideas scribbled on a dinner napkin into tangible operations that collectively employ more than 500 ultra-poor individuals, many earning a stable income for the first time. Furthermore, eager impact investors have approached each of our partners about possible investments as soon as they see a working unit model and feasible plan for scale.
What We’ve Learned Along the Way
There are countless others who are committed to catalyzing change in everything from clean energy to sanitation to health care that could benefit from our experience. We’ve learned plenty of lessons through our work and are happy to share them in the hope that they will help others fill the Pioneer Gap and create new impact investment opportunities in their areas of expertise. These lessons include:
Unique problems rarely have textbook solutions: As entrepreneurs experiment with their models, they need help from more experienced professionals. Some social business incubators provide technical support through required classroom-based training or off-site workshops. While they have value, this type of standardized instruction takes entrepreneurs out of the day-to-day management of their businesses and does not always equip them to adapt their models to their local realities. We find tremendous value in working with the entrepreneur on their turf, integrating the instruction into their reality. For example, when Upaya invested in Samridhi, a dairy company in Uttar Pradesh, it became clear that local cultural barriers made it hard for women to leave the home for several hours a day to work in a central dairy facility. Thus, it would be impossible to replicate dairy models that were successful in other geographies. By working alongside the entrepreneur in the field we were able to adapt the plan so that women could work from home. Without this onsite mentorship, we could not have helped the Samridhi team assemble a viable dairy model that, today, employs hundreds of local men and women.
Don’t make it a beauty pageant: Often the most effective solutions for a community don’t involve cutting-edge gadgetry or websites. Rather, expansion of commodity businesses, manufacturing, or service work may have a bigger impact - but investors must clearly understand their own goal to see the potential. This was the case with Upaya’s selection of Eco Kargha, a weaving company based in Bhagalpur, Bihar. Despite a centuries-old reputation for producing high quality silks, wools, and linens, the weaving industry in Bhagalpur was struggling to be a source of meaningful employment. The sole-proprietor and co-op based models that dominated the market lacked the sales and quality control capacity to take in and fill large domestic and international orders. Seeing an opportunity, Eco Kargha developed a concept that could market woven products, manage large wholesale orders, and in turn create steady, full-time employment in Bhagalpur. Of course, using wooden handloom technology to produce traditional sarees is hardly the type of “innovation” that captures the imagination of most social VCs. But because Upaya had oriented its selection process around a specific social goal – sustainable jobs – we backed a business with the potential to pay higher wages and make it possible for weaving to be a primary livelihood.
Don’t try to hit a grand slam if nobody is on base: Too often impact investors - even those trying to focus on the seed stage - are enamored with massive outreach numbers and pass up businesses that don’t immediately appear “scaleable.” As the “From Blueprint to Scale” report made clear, there is a lot of hard work that precedes scale, and impact investors should not expect entrepreneurs to reach this point with one single swing of the bat. Instead, Upaya encourages all of its partners to first prove a financially viable unit model with a measurable level of social benefit before developing its scale plan. This approach can be seen in our partnership with Justrojgar, a company whose blend of training, placement, and employment support for service industry workers could help hundreds of thousands in the next few years. However, rather than trying to go for that scale immediately, we are working with the Justrojgar team to focus on one segment of its business - and only 50 pilot households – to refine its operational model and prove the unit economics. In turn, the company will be in a better position to showcase its social and financial potential to impact investors in successive funding rounds.
Impact investing is at an interesting crossroads. As Omidyar Network’s Matt Bannick and Paula Goldman articulated perfectly: “It is as if impact investors are lined up around the proverbial water pump waiting for the flood of deals, while no one is actually priming the pump!” If the goal is to encourage entrepreneurship and build a rich pipeline of novel solutions to age-old social problems, we must find creative strategies like the Pioneer Capital approach to give startups a better runway.
If we fall short, there's no telling how entrepreneurs like Krishna will ever have the chance to make a difference.
This article was originally published 24 December 2012 on indiaspora.org.
Recently, both Bill Gates and the leadership at eBay founder Pierre Omidyar’s foundation have come out and made strong calls for philanthropists to break the status quo and invest their charity dollars as the kind of risk capital needed by entrepreneurs globally to fund potentially-transformative social business models.
Each points to the catalytic role that philanthropic funding can play in breaking a stifling Catch-22 whereby entrepreneurs need capital to build and test their concepts, but these concepts need to be proven before most serious investors will consider funding them.
Nowhere is this problem more acute than in India. Despite the great need – roughly 400 millionpeople live at or below the extreme poverty line – and proliferation of impact funds wanting to invest in new models, investors claim “the supply of entrepreneurs is very low,” and there is a real dearth of investment-ready social businesses.
As Omidyar Network’s Managing Director Matt Bannick articulated perfectly, “it is as if impact investors are lined up around the proverbial water pump waiting for the flood of deals, while no one is actually priming the pump!”
How can we – a community committed to real change – prime that pump? What can we do to produce a new crop of entrepreneurs that is ready to tackle stubborn social problems through business solutions?
1) Let’s commit a certain amount of philanthropic funding to serve as seed capital for early-stage ideas.
Philanthropic capital is the ultimate risk capital — it can absorb a high amount of uncertainty and help an entrepreneur test what works and what doesn’t. It does not ask for an immediate return, or any return at all. In my personal experience, there is a shortage of “investment-ready” entrepreneurs in India, from the perspective of fund managers requiring market returns, but there is no shortage whatsoever of aspiring entrepreneurs with promising ideas that simply need a runway to test them out. Philanthropic capital, even amounts as low as $5K, can provide this runway and help unlock new business models.
By positioning philanthropic capital as an equity investment instead of a simple grant, we open up the possibility of an upside. If the entrepreneur manages to build a profitable and scalable business, our investment would yield returns that would flow right back to the seed fund and be recycled into future investments. As we build up the wins in our portfolio, we would have less and less of a need in future years to raise donor dollars.
2) Let’s commit to mentoring new, inexperienced entrepreneurs.
Entrepreneurs benefit most from the combination of funding plus hands-on business development support. Often times an entrepreneur will know his or her industry and community well, but may not have other skills such as sophisticated financial modeling or information system development. In addition, entrepreneurs and small-business owners from some of India’s poorest communities will have the best relationships with exactly the populations we wish to serve; they do not, however, have MBAs or the polish that venture capitalists wish to see.
I have consistently seen that 12 to 18 months of guidance and mentorship dramatically sharpens such an entrepreneur’s business acumen and ability to manage a scaling enterprise. Empowering less obvious entrepreneurs allows them to grow their businesses and create jobs for the poorer populations around them.
3) Let’s commit to exchanging best practices and “franchising” the models that work.
The seed funding and mentorship will certainly yield a few promising business models. Given the magnitude of the problem at hand, we need to think creatively about scale and replication. The more we compare notes and openly share our business blueprints, the better our chance of inspiring others to adapt these working models to different customer segments and diverse geographies. Again, in India there is no shortage of aspiring entrepreneurs … the biggest hurdles appear to be angel funding, involved mentorship, and a clear articulation of models that can be replicated by execution-oriented, passionate individuals.
The Indiaspora Forum was an exhilarating and inspiring gathering of Indians from across the world who have made great strides in their respective fields – whether it be in medicine, business, music, technology, the culinary arts, literature, or astrophysics! By simply dedicating some of our talent, time, and financial resources, each one of us can help unlock the productive potential of the hundreds of others waiting in the wings for their opportunity.
Co-authored with Sorenson Impact Foundation chairman Jim Sorenson, this article was originally published 27 December 2011 on the Stanford Social Innovation Review blog.
The only context many of us have for comprehending the struggle of extremely impoverished families are the images of catastrophes—such as the earthquake in Haiti or the tsunami that destroyed wide swathes of Southeast Asia—that periodically flash across our televisions. Our instinct to give a family enough food, water, and shelter to meet basic needs comes from a place of pure compassion. However, providing help only when people are in desperate need may cloud how we think about helping extremely poor households in the day to day.
There are 1.4 billion households worldwide that are considered “ultra poor.” These households live on less than $1.25 a day not because of a catastrophe, but because systemic breakdown excludes them from earning a reliable income. Organizations spend huge sums of money on developing assistance programs under the assumption that extremely poor families need “rehabilitation” in the form of subsidized support. For example, the organizations provide free food and health care to alleviate households’ most critical needs, to stabilize them, and to prepare them for productive activity. To their credit, these programs have successfully identified effective ways of improving food security, housing quality, health care access, and financial literacy among the ultra poor. However, because they focus on expensive and unrecoverable handouts, the programs are too costly to be able to scale and reach the massive numbers still in need.
This is the challenge we set out to address with the Sorenson/Unitus Ultra Poor Initiative (UPI) in 2008. We saw that with structured intervention, it was possible to provide ultra poor households with the support they needed to make real progress out of poverty. We wanted to develop new, scalable models to accomplish this, knowing full well that we would need to take chances on untested ideas, quickly recognize failures, and adapt as we went along.
Working with five partner organizations in India, we were able to test the fundamental assumption that the ultra poor were somehow “too poor to work” and that they required extensive rehabilitation before they could be productive. We found that productivity itself was often the catalyst for rehabilitation.
Our successful pilots introduced job opportunities early on. With an increase in income, families improved their diets, took advantage of affordable health clinics, and attended skills training sessions. With dependable earnings in place, most people were willing to embrace—and even pay for—support services that traditional models fully subsidized and considered necessary precursors to earning a living. In turn, this change in thinking had a dramatic effect on the per-beneficiary cost of each pilot, and allowed partner organizations to better-leverage limited resources.
An example case is the Equitas Bird’s Nest (EBN) program, which worked with homeless people in the South Indian city of Chennai. The program was designed to find urban housing for these people, subsidize their first six months of rent, and provide food for them, but it struggled to enroll participants. Many potential beneficiaries who relied on income from begging feared that a move from high-traffic areas would severely impact their daily earnings. So EBN modified the program to promote new jobs that allowed participants to work out of their homes—work such as candle making and tailoring—and provided materials once individuals had moved into housing. In just 18 months, all beneficiaries had doubled their household income, had a roof over their heads, and were paying their own monthly rent.
Another partner, Uttarakhand-based Partners in Prosperity (PnP), also experimented with starting income-generating activity before introducing health care and financial literacy support services. Here, too, we saw that households quickly earned enough to meet their basic needs and showed a willingness to pay for quality services. Now able to recoup some of its costs, the PnP team estimates it could reduce the overall cost of its ultra poor program by as much as 80 percent.
One out of every five people on earth experiences persistent, extreme poverty. It is one of the defining crises of our time. Moving past the handout-reliant model may be the key to scaling ultra poor interventions. The good work of our partners has illuminated the possibility of less expensive—even self-sustaining—interventions. And while further work needs to be done to test these concepts, the best way to help the ultra poor is not by giving them a handout, but by giving them an opportunity.
Jim Sorenson is the chairman of the board of trustees of the Sorenson Impact Foundation and is a frequent partner of Unitus Labs on innovative poverty alleviation programs. Sachi Shenoy designed and managed the Sorenson/Unitus Ultra Poor Initiative (UPI) between 2008 and 2011, and is now executive director of Upaya Social Ventures. The Sorenson Legacy Foundation sponsored the UPI.
This article was originally published 17 November 2011 on the Wall Street Journal's India Real Time platform.
You may not have known it from how the microfinance industry was portrayed over the past decade, but micro-lenders themselves have long known that small loans are not a silver bullet for the problems facing the more than 400 million Indians who earn less than a $1.25 a day.
Commonly referred to as the “ultra poor,” this population is highly marginalized and lives hand-to-mouth on meager wages from manual labor or by stretching subsistence farming income for months between harvests. For the ultra poor, it is extremely difficult to use loans for anything other than meeting their most basic food and healthcare needs.
Recognizing this gap, several organizations have tried to develop new ways of reaching and supporting the ultra poor, with the most effective being the CGAP-Ford Foundation Graduation Program , which was modeled on a system developed in Bangladesh by BRAC.These graduation programs initially provide a safety net of support involving food, healthcare and savings intended to stabilize the ultra poor’s circumstances, followed by a series of skill-building exercises to“graduate” participants into micro-entrepreneurship.
While successful where they have been replicated, these programs still struggle to scale up to a level that meets the massive numbers of those in need. Because the safety net aspects of the program are frontloaded to the first 18 months and involve expensive handouts and coaching, the per-person cost commonly amounts to several hundred U.S. dollars.
The Sorenson / Unitus Ultra Poor Initiative was launched in 2008 and worked with five Indian NGOs on a series of pilots to experiment with ways to cut costs and improve the sustainability of this “graduation” model. What we found was that the primary assumption – that the ultra poor require 12 to 18 months of “rehabilitation” and support before they can learn new job skills and earn enough to meet their basic needs – may unnecessarily limit the scalability of otherwise promising programs.
Instead, through this initiative, we have seen that if the ultra poor are given an opportunity to start earning a stable income from the program’s outset, they are willing and able to pay for food, healthcare, and other services. To illustrate, one NGO we worked with, Uttarakhand-based Partners in Prosperity, estimates that by launching its program with job-skills training and the resources to start a new activity, it could reduce the cost of its ultra-poor program by as much as 80%. This dramatic reduction greatly improves the prospects for scale, allowing PnP to focus on making quality, affordable services available to households finally earning enough to pay for them.
This approach may seem intuitive to many. Dr. Aneel Karnani at the University of Michigan has been a particularly vocal advocate for a “jobs first” approach to poverty alleviation. But it represents a significant shift for those working specifically with the ultra poor. Some counter that the training provided during the subsidy-heavy first phase of a graduation program is necessary to build life skills and allows recipients to manage their households as much as it improves their ability to earn a living. They also contend the only way to build the necessary trust for a successful program is through intensive individual and community confidence-building activities, efforts that would be eclipsed by the demands of work.
Having worked with the ultra poor for many years, I can appreciate these concerns and agree that additional research will be necessary. But the idea that a group relegated to back-breaking labor is somehow unable or unwilling to take on a new, more dignified livelihood right away seems counterintuitive to me and I increasingly believe this view may be standing in the way of real progress in alleviating extreme poverty.
Taking a step back, if further experimentation shows that these findings hold up, it may open the door for the business community to play a potentially huge role in helping the very poorest. Should steady employment – not micro-enterprise — really be the first step toward self-sufficiency for hundreds of millions of extremely poor families, we can no longer sequester certain segments of the population from the mainstream economy. Instead, we must do everything we can to create an environment that nurtures businesses with the potential to create jobs and provide affordable services for these families. With the number of people still living in extreme poverty in India, we can’t afford not to.
Sachi Shenoy designed and oversaw the Sorenson / Unitus Ultra Poor Initiative between 2008 and 2011. She is now the Executive Director ofUpaya Social Ventures, an organization incubating new businesses that employ and serve the ultra poor.