Anita Rajan, CEO Tata STRIVE & VP Tata Community Initiatives Trust
Anuj Aggarwal, COO, ICICI Foundation for Inclusive Growth
Prabhat Labh, CEO, Grameen Foundation for Social Impact
Manoj Kumar Nambiar, MD & Member of Board, Arohan Financial Services
Parag Agarwal, Founder & CEO, JanaJal
Moderated by David Wilcox, Founder, ReachScale
David Wilcox: There are things that capitalism is good at and there are things that it is not good at. One thing that capitalism is really good at is taking innovators’ ideas from all over the world and commercializing them. They themselves did not come up with those ideas, and those innovators, in most cases, didn’t get their fair share of having come up with that idea. So, capitalism is really good at taking other people’s ideas, commercializing them and taking credit for it. It does not serve everyone. The people who are in the places that capitalism does not serve do not get to make the decisions, they are not presented with choices. In India, there are amazing children in schools all over the country, but a third of those kids are written off before they ever have a shot.
Can you talk about the work that your organization is doing to try to rethink how young people will be presented with opportunities over the next few years?
Anita Rajan: We at Tata STRIVE work with the children who are not mainstreamed, who have dropped out for whatever reason and we are partnering with these kids to put them on a pathway to livelihoods. We fundamentally believe that when you empower youth with either a job or an entrepreneurship opportunity, you are enabling this individual to pay for their health and other services. Therefore, the root cause of the problem is empowering this individual.
Our work is one of the most challenging sectors to be in because of the various complexities that exist today. On one hand, there are innumerous opportunities of jobs and the industry is not able to get enough people. On the other hand, there is this demographic dividend. So, there is a mismatch of aspirations. There are also lots of new jobs being thrown up, which are waiting for people like us to train people, and even though we are Tata, we are just a drop in the ocean. Our annual footprint that is maybe over a lakh is nothing when there are 13 million young people getting into the workforce. It costs about a crore of rupees to run a good center and train about a thousand people a year. If you were to throw crores of rupees into starting centers, that is going to take India a lot of money and a lot of time, and we don’t have the time. We just have a window of 20 years to leverage this, so we have to look for some disruptive, innovative solutions and we have to do it together. We have to have a collective focused approach.
Anuj Agarwal: The change that we are trying to bring about is the shift from mere education to vocation, to get a person involved into an activity that can lead to a livelihood. Mere education is not going to take us very far. Something which is very focused and oriented towards the livelihood can actually bring about a change and how do we make that livelihood more sustainable is what will help us in the long run. That is the direction in which we would all want to move.
The good thing about the work that all of us do is that we are not in the world of competition. We don’t compete with each other. We actually try and see how synergies can be worked out. There are a lot of interactions that we have amongst each other. There are learnings that we pick up from each other and the nature of activities that we do involve multiple steps. It could start from sourcing, and then there is mobilization, hectic counseling, skill development, training, and finally, placements or market linkage because that’s how the chain will get completed. There would be many institutions who are working in the field who may be doing a few of these steps and not all. If we can get together on that and the resources can then be optimized by some of us doing a few steps, collaborating and then doing the rest of the steps instead of everyone doing everything, it can help conserve resources for the nation and in effect, we can have a multiplier effect to do so.
On one hand, there are innumerous opportunities of jobs and the industry is not able to get enough people. On the other hand, there is this demographic dividend. So, there is a mismatch of aspirations
David Wilcox: What is the best actual example of that happening?
Anuj Agarwal: Krishi Vigyan Kendra, which is Indian Council of Agricultural Research’s extension arm is one example. As far as agriculture is concerned, there are people who are sitting with tremendous amount of knowledge. They know what happens on the ground, they know what is best suited for that locality, for that district, what will work best for that place, but somehow, they are not able to connect with the villagers in terms of reaching out to villagers the benefit of the knowledge. That is where entities like ours can play a big role in terms of acting as a bridge, working with the villagers, counseling them, educating them, and taking the knowledge base from Krishi Vigyan Kendras. For example, there is a village called Machagondanahalli in Karnataka’s Chickmagalur district. A large part of coffee production happens out of Chickmagalur. There are land owning farmers who are extremely rich, but on the other side of the spectrum, we have people who are just labourers, who don’t own land. They are the bottom of the pyramid.
When we went to Krishi Vigyan Kendras seeking to find what we can do to help the villagers create a sustainable livelihood, we came to know that the environment of the place, humidity levels and the moisture content was suitable for growing mushroom. It does not require a significant investment and space to grow mushrooms. When we went back to the villagers to tell them about this opportunity, they did not know what a mushroom is. There were extensive efforts required to convince them what mushroom is, what are the nutritional qualities of mushroom, and how easy it is to grow. Today, three metric tons of mushrooms have been grown over there in the last six months, and they are also exporting some. They are also able to retain 10% of the daily produce for their own family. That is how a change can be brought by the convergence.
David Wilcox: How has the financial sector been impacted by the sudden demonetization?
Manoj Kumar Nambiar: Demonetization was very abrupt thing that happened overnight. Our business is microfinance, and the sector today serves more than about 100 million customers, of which 99% are women. We have got a portfolio outstanding of almost about Rs 3 lakh crores between the SHG and the JLG program which are two different types of lending in the sector. The key point is that this is really their first access to formal credit from an RBI-licensed institution, so demonetization for us essentially meant that on the ninth morning when we had to go and collect in our center meetings, we couldn’t accept the old notes because the old notes were not valid. This is an industry which thrives on a group discipline, which is essentially the JLG program, the Joint Liability Group where women of five groups come together to borrow, so when you missed your payments because you were waiting for the new notes to come to the villages you lost at least a month or two or three. In that process, the lord of local activity, who were essentially interested parties, cropped up and created more confusion.
Around October 2016, we closed with a portfolio outstanding of about Rs 1,50,000 crores across NBFCs and banks, and the total hit was about 10%. So, almost 10% of that portfolio got provided for, written off over a period of almost about a year. This is the cost we paid, but “jugaad” is a very topical Indian word for ensuring that in spite of all the problems, you need to grow and survive, so we’ve taken that as an opportunity.
Today, almost 95% of disbursements which happen in the sector are cashless. We are trying to convert the repayments which happen on a monthly, fortnightly, weekly basis into digital money, but due to the unavailability of supporting ecosystem of banking correspondence, BC outlets and bank branches, we are not able to do that. Nevertheless, we are hopeful that with the new payment banks, we will be able to convert even the repayments into cashless means over a period of time. When that happens, we will be able to ensure that the customer has a safer way of accessing that credit, and for us too, it becomes safer than dealing with cash. It also brings down the operating expenses, which means that we are able to pass on the benefit to the customer.
Prabhat Labh: I have been working in this industry for quite some time and I have worked in the financial inclusion in India and Africa. While new things such as digital payments are coming, the problem in microfinance industry is that the fundamental business model of micro lending has not changed from what it was 20 years ago. It has been adequately researched through very intensive rigorous research methods by the likes of Abhijit Banerjee and Esther Duflo. In their book, Poor Economics, they write that the limitations of microfinance is that microfinance in its current form is not the right solution for everyone. So, the question for us is that, should we only think about scaling this model further which has worked extremely well with these 400 million people in India and many more around the world or we should be thinking about innovating a new model which takes us back to the purpose with which we started it?
The idea of a small finance bank is to go deeper into that particular state or location that they are in, so that even the cobbler on the street, the lady who is selling vegetables on the street has a bank account and is also able to get formal credit rather than be at the mercy of the money lender.
David Wilcox: I would argue that the microfinance model has changed dramatically. Now, we are stuck with a mixed model where some people are trying to do the model that we know can succeed but doesn’t scale as well and then other people are doing totally the model that scales really well but often results in a farmer committing suicide. If there is a new model, is it going back to the community model or is it something else?
Prabhat Labh: It is not about giving up on something that is working and it’s not about doing something which won’t scale because we have to solve the problem of hundreds of millions of low-income people who are not getting access to financial services, and microfinance is only one of that. So, that’s where the limited offering that microfinance has needs to be broadened and it has to graduate to the needs of everyone, not just somebody who wants to take a small loan to start an enterprise. There are also people who need to do the risk management for crop insurance, health insurance, life insurance, old age pension, and so on.
In 2015, Jan Dhan account and PMJDY account were launched, and over 300 million accounts have been opened. It is extremely good but a lot of those bank accounts are not used, there is barely any transaction. So, it’s about the metric we are using to measure and it can’t be only the number of accounts opened or number of loans dispersed. It has to also be about the level of financial wellness or financial well-being or resilience that you have been created that needs to be measured.
David Wilcox: Who is the best at doing that new thing?
Prabhat Labh: At Gramin Foundation, we are trying to develop a model which will be way more comprehensive. In Uganda, we had the Community Knowledge Worker Program with agriculture knowledge workers and were also bringing agricultural inputs and supplies. The model that we are developing in India builds on the idea of convergence, as we are setting up a network of last-mile agents who will bring in services from all the potential players, be it an insurance company, an MFI or a bank to the villages.
We are looking at the potential of this model to address the gaps and weaknesses that the original Gramin model had and bring a comprehensive range of financial services. It will not only ensure financial inclusion but also economic inclusion, because real impact is created only when we enhance the ability of low-income people to interact with the markets to access the resources, the government schemes and agriculture inputs in addition to financial service. This is the kind of model we are thinking about.
Manoj Kumar Nambiar: No, it’s not about that, but about what all of us can do together when the market penetration today is hardly 30%. You cannot substitute debt with equity. Essentially, microfinance talks about giving debt to a person to scale an activity they are already engaged in, whereas equity is something you give to somebody to start something new. So, it is not to say that microfinance is the end of the world and it will completely take people out of poverty. It is just giving them that first helping hand.
Secondly, the physical network of about 10,000 branches that we’ve already set up across the sector with about a lakh of people employed as branch managers, loan officers, field agents and area managers is a distribution network which has been created. Through that, we are cross selling both financial and nonfinancial items. On the financial side, there are things like bank accounts, both life and non-life insurance, pensions or remittances, and over a period of time, even things like investments. On the nonfinancial side, there are a host of things, such as solar lamps, bicycles and Samsung mobile phones which help them be better connected. Thus, physical infrastructure has already been set up, and credit is giving you that little bit of margin available to do a lot of other stuff.
David Wilcox: On the contrary, Prabhat, you are saying there is another component that is needed, right?
Prabhat Labh: It is needed. There was a data published about Mudra loans, which counts all the microfinance and other loans given to low-income people and for SMEs. The data shows that in most cases microfinance does not create additional employment. It just gives you an extra working capital to slightly grow your business. So, the point at which one extra job gets created is about Rs 5,00,000, as per the data released by Mudra. The limit to which MFIs can lend, as per regulatory limitations, is Rs 50,000, which is one-tenth of that. So, there’s a big gap between what the great needs of these micro small enterprise are and where they can actually start creating jobs and start hiring.
Manoj Kumar Nambiar: But we must remember that the RBI has created different types of institutions to do different things. There are NBFCs, MFIs, small finance banks and universal banks. The idea of a small finance bank is to go deeper into that particular state or location that they are in, so that even the cobbler on the street, the lady who is selling vegetables on the street has a bank account and is also able to get formal credit rather than be at the mercy of the money lender.
Anita Rajan: A refreshingly different perspective into the way we can create entrepreneurs is somewhat in the realm of “panga”. We are doing an experiment in Odisha, which is of creating nano unicorns. The underlying belief is that India needs rural entrepreneurs, ground-up entrepreneurship and access to funds. If they have an idea, it is usually difficult monetize it even through Mudra loans.
The innovation in this is to bring in individual philanthropists to participate, who provides loans along with the Tata Trust and Tata STRIVE, and we give a lakh of rupees to an individual who has passed out from the industrial training institutes of Odisha. This individual is someone who is trained in a technical expertise, is interested in starting up a very small enterprise of their own, has the idea and most importantly, has the appetite for risk.This individual is cherry-picked by certain processes and is then mentored. We put them through a mini MBA, and we give them Rs 1,00,000 no questions asked, but we create a mentoring ecosystem along with the government.
This is also a model of a unique public-private partnership of supporting this individual for a period of three years by creating a mentoring network and creating a district employment officer as the recourse for opening doors where they may be needed. There are 300 districts in Odisha that are already engaged in this. These entrepreneurs are beginning to pay back money, and we already have about Rs 12-15 lakhs in repayment. It is an experiment, so we don’t know where it is going to go, but it’s like taking the “panga”. The ambition is to take 3,000 young people and create nano unicorns out of them over the next three four years.
Parag Agarwal: We work in the drinking water space, and we view the social sector or social progress through the prism of water. We are a social enterprise, so it is a for-profit company that works to benefit people. Profit is a motive but it is clearly back-loaded. One of the things we have been championing is that it’s time for each one of us, starting with the Government of India, to look at water as beyond just a utility or a resource or a product. Water is a medium of change. We need to understand what water can do, what the problems are and how this can become such a big driver that not only can it drive India’s economy, but it can actually take India to the apex position globally and demonstrate how the social sector can be the greatest engine of growth.
Our company, JanaJal built a focus around managing decentralized water treatment plants which are also called water ATMs. Through this medium of water, we are creating jobs, creating social entrepreneurs, empowering women, and we are making water. We work with a “triple A” philosophy, which is, making water Available, Accessible, and Affordable. For water to be valued, a value must be attached to water. There is a huge political aversion to levying a price on the water, but they have to understand that the reason water is being destroyed is because it is close to free.
As Amitabh Kant said, India offers such challenges that we can through our innovation not only address our own problems but also create superlative solutions for the whole planet. To put it in perspective, one of the key issues with water, especially in the drinking water space, is penetration. How do you get more and more people to adopt safe water? Penetration becomes a very critical issue there. The fundamental problem for penetration is accessibility, and if we can fuse accessibility with mobility, we will have got the bull by the horns. To demonstrate, our company has developed an electric vehicle platform and used it to build something called JanaJal WOW (Water-on-Wheels), which is going to enable the government’s Her Ghar Jal vision. We have been working on this for the last three years, and it a social entrepreneurship model with the lowest operating cost and a revolution within itself.
We need to understand what water can do, what the problems are and how this can become such a big driver that not only can it drive India’s economy, but it can actually take India to the apex position globally and demonstrate how the social sector can be the greatest engine of growth.
Unknown Speaker: While working on skill development, what kind of vocational training are you able to impart, given that nearly 50% of the children cannot go past standard three, they are stunted and have very limited mental capacity as adults?
Anita Rajan: The health angle, their ability angle does make a difference in their capabilities and in their performance on the job. We train for the retail sector, so the young girls and boys go on to serve as retail store staff. One of the requirements of the job is to stand eight to nine hours. They can’t do it, and many of them leave because of this reason. So, it is a valid point that health and ability to perform is very closely linked.
The mental capability is also impacted. Therefore, a program actually works with what they have and where they are. In a period of four or five months that they spend with us, we cannot take them from zero to 100. We respect that, but what we work on is overcoming some of these challenges they have in term of mental ability. We try to understand what is lacking and work on those weaknesses. We work with them on creating a very positive mindset, grit and determination, so this program actually is more critical than giving them any technical skills. They need to first believe that they can do it, so we have a slogan, “I am, I can and I will.” We take them through a journey of believing in themselves that they can do it. We teach them how to work on their drawbacks, and 50% of our training is on getting this compass right. It is because the mind is very powerful, and can make you believe that you can do it.
Sometimes, we also have to go back to teaching them some basic math, so it’s all about thinking on your feet and creating solutions as you find your audiences. One size does not fit all and that adds to the complexity of what we do. What I do in Aligarh may be very different from what I do in Bombay because the issues are different.