As part of its coverage of the Deshpande Foundation's Development Dialogue 2015 in Hubli, thealternative.in sat down with Upaya's Director, Business Development Sreejith Nedumpully to talk about his previous work with Rope International, what initially drew him to Upaya, and where he sees the future of livelihood development in India.
The interview has been reprinted below with the permission of thealternative.in, while the original article can be found here.
In his role as Director (Business Development) at Upaya Social Ventures, Sreejith Nedumpully is enjoying the opportunity to realise his long time passion—building regional eco-systems of small enterprises with big impacts. As the co-founder and former Managing Director of Rope International, a manufacturer and supplier of handmade and handloom woven natural products, Sreejith has had over two decades of expertise in the domain of rural livelihoods and the challenges of scaling small businesses.
At the 8th annual Development Dialogue 2015, organised by the Deshpande Foundation in Hubli, The Alternative spoke to Sreejith about his journey from working with rural artisans to funding impact creating enterprises and the role of small businesses in making big change.
You have been involved in rural livelihood generation for over a decade. What are some of the chief learnings that led you to co-found Rope International?
During my work with in microfinance with DHAN Foundation in 2002, I got first hand exposure to the enterprising nature of people in rural India and how access to finance – by generating livelihoods – is directly linked to increased rural incomes. Thus, creating opportunities for gainful employment of BOP populations, besides permitting access to finance, can also permit a regular income stream to support a better standard of living. It also became evident that raising rural incomes was key to ensuring the financial inclusion of BOP populations.
At that time, in the midst of the discussion about capturing BOP markets through appropriate technology and customised product design, I found myself siding with those who were looking at reversing this trend by facilitating rural to urban transactions. So, we started focusing on livelihood generation by tying up with companies to outsource a part of their production to rural areas by setting up manufacturing centres in villages, employing and skilling rural manpower especially women’s groups, and supplying raw material to them.
This enabled companies that wished to increase production but, due to lack of physical infrastructure from working at full capacity, were unable to employ more people on site. This outsourced manufacturing model built the capacities of rural people and absorbed them into year-round employment.
Did you see this this creating an entrepreneurial mindset among these people?
It definitely did lead to the development of leadership qualities and better negotiating skills among the women employed in these units. Microfinance activities in the village had already empowered SHG women economically to some extent, making them confident and adept at negotiating with bankers for favourable financial deals. Further, under the outsourced manufacturing model, each unit was put under the leadership of 2-3 women who were responsible for managing finances and operations and that really honed their leadership qualities. Witnessing this transformation fired my own entrepreneurial ambitions.
Was this then the beginning of Rope’s journey?
Yes, my initial idea was an extension of the outsourced manufacturing model – outsourcing both production and services to rural areas. With my idea incubated by IIT Madras, I was able to work on the upcoming rural BPO model while simultaneously building my own business plan for the rural manufacturing model.
In 2008, with seed funding from the IIT Madras incubator, we were able to launch Rope (now Rope International) with the aim of creating employment opportunities for rural artisans, many of whom were still employing age-old manufacturing techniques to create produce traditional designs. Many artisans had been left unemployed when demand for their crafts gradually disappeared.
We began Rope using a key account model – partnering with large brands like IKEA and Walmart with a large and steady demand for products with certain design specifications. By establishing rural manufacturing centres that met the supply requirements of these large clients, we were able to leverage the natural skill and traditional craft knowledge of the rural artisans, upskilling them in the process by introducing them to contemporary design ideas. The large volumes (sometimes 10 lakh pieces of a particular product) required by these brands helped us move beyond the level of handicrafts to a handmade production factory, with production flows, quality control mechanisms etc. all established within the village.
The work of Rope, initially centred around weaver clusters in Madurai began to expand to other districts Tamil Nadu, where we trained and employed a few hundred people. As we got buyers from India and overseas, the quantum of production too began to grow. That’s how Rope began to be successful.
What were some key lessons about scale that you learnt through Rope?
With Rope, the idea was to create rural employment opportunities at scale, providing alternative livelihoods to people formerly employed, often as bonded labour in the textile mills and firecracker product units in Tamil Nadu. Our model involved setting up a unit within the village which employs about 50-100 women and replicate those units in neighboring villages. So in two years, we had six such units, each directly employing 60-70 women.
Besides this, each unit also indirectly employed about 30-40 women from the village who would take work home, supply at their own convenience rather than contributing to core production. By 2010, we had established 6 such clusters of units. Besides production units, there was a central hubs that procured and supplied raw material as well as collected ready products from the units, they were places where quality care, packaging, and despatch took place. Thus, we managed to successfully create the best of village level production by shift a large part of the value chain to the rural areas.
Rope is now continuing to produce quality products in large volumes, creating rural livelihood opportunities, generating profit, and maintaining stable business with our key account customers.
In 2013, you shifted gears, moving to Upaya Social Ventures. What motivated this decision?
By 2013, Rope had achieved a degree of stability and production was going steady without the need for new marketing. I began getting restless, looking to create newer, more exciting growth models that weren’t dependent on scaling through the establishment and replication of manufacturing units. My own experience showed that Indian government laws were prohibitive, making it especially difficult to access capital, thereby limiting the scale that a manufacturing enterprise can achieve, especially in the case of handmade products.
I have always been interested in working with rural entrepreneurs, helping them develop their business ideas, shape their models, and scale. Upaya gave me the opportunity I was looking for.
Can you tell us about Upaya’s work with early stage rural entrepreneurs and the gap that it is trying to fill?
India is capital-starved country with a big gap in accessing early stage funding, even in the impact investing space, where investors look for proven, profitable business models,, and look to minimise risk with smaller investment sizes. The focus usually, in the investment space, is more on profit and less on impact.
Upaya Social Ventures’ LiftUp Project bridges this gap by providing early stage, for-profit entrepreneurs with seed financing and business development support to help them launch and scale their business. As the first institutional investor, Upaya puts in an equity investment of Rs. 20-30 lakhs in each of these enterprises with proven business models and a revenue of about Rs. 10-20 lakhs. Investments are structured over a 3-8 year timeline, during which an enterprise can scale, attract follow-up capital and become profitable. We handhold entrepreneurs for a 24-36 month period, providing them with technical assistance, financial management, and developing effective market strategies.
We also provide advisory support and help them understand their beneficiaries better with annual surveys profiling potential customers. Working with entrepreneurs to collect and analyse social data on employees to monitor their progress out of extreme poverty.
What kind of enterprises does Upaya support?
We specifically target entrepreneurs, rural and urban, with long-term vision and a strong business plan. Our main focus is on strong business models that create jobs for the poor, ensure a secure income source, and improve their quality of life. While scalability is important to us, it alone will not determine whether we invest in a company or not. We examine the geographical limitations of SMEs, market crowdedness, product relevance, and employment generation before investing in them. At present, Upaya is supporting 6 SMEs across 4 Indian states working in areas ranging from handcrafted paper to urban sanitation. The challenge is in finding and identifying good entrepreneurs in remote regions, often not exposed to networking platforms like conferences.
How has Upaya gone about building an entrepreneurial eco-system for its portfolio companies?
Our focus right now is on supporting groups of ventures from a particular region, for example, in the north eastern states. This helps create a favourable eco-system that will attract other capital and service providers there, giving these entrepreneurs wider networks to tap into. For us, it is always more viable to enter a region where we can partner with other service providers.
MFIs, like MicroGraam, for example, which provide small entrepreneurial loans will help meet the SME’s working capital costs to fulfil existing demands, enabling them to use Upaya’s funds for further growth and expansion.
How does Upaya access finance to meet its capital requirements?
With early stage funding, we found that charity is relevant since donors are not looking for a quick exit from the venture, more patient with the capital deployed and reconciled with reaping lower returns (about 5-6%) than commercial and impact investors. So, Upaya, which is registered as a not-for-profit company in the US, raises philanthropic capital from family foundations and big donor agencies based in the US where interest in making recyclable capital deployments to sustainable and impactful social enterprises is on the rise.
What have been some of important learnings for you from this year’s Development Dialogue?
Given Upaya’s own focus on developing regional eco-systems that promote entrepreneurship, I find Deshpande Foundation’s regional hubs model very interesting. The sandbox model, by supporting budding entrepreneurs with access to capital, mentoring, etc., is creating an eco-system that can encourage the entrepreneurial spirit in the region. It is also enabling small enterprises to scale by inspiring and supporting replication in other places. It is important, while doing this, not to adopt a one-size-fits-all approach but to have business models that are customised to regional contexts, are specific to local needs, and that concentrate resources in smaller geographical areas. Thus, factoring scale into the model allows entrepreneurs to come on board irrespective of their size or reach, without scale serving as a barrier to entry.
While there are some models, like Akshaya Patra which have expanded across geographies, most enterprises are small and with application limited to the sandbox and being in the can be really beneficial to these small but profitable entrepreneurs working in niche areas who might not have pan-india scalability. The Hubli sandbox model, by providing support to these value creating enterprises has great relevance for the entrepreneurial needs of different parts of the country.