Celebrating Women Leaders

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.

New Frontiers: Measuring Progress Beyond the Pay Packet

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)[1]. 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[2], duration and direction[3] 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[4] 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.

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[1]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

[2]Depth of poverty is related to the extent by which a household falls below the poverty line threshold.

[3]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.)

[4]For a richer discussion on this refer to http://www.ers.usda.gov/publications/err-economic-research-report/err89.aspx

Do You Want More Upaya? Well You're in Luck!

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:

1. “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. 
2. “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. 
3. “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.  
4. “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.

- Steve

Editorial for moneyspentwell.org: Strengthening the silk industry and its workers

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.

A silk weaver at his loom in Bhagalpur, Bihar, India. Courtesy: Upaya SV.

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.

Eco Kargha weaver prepares bobbins of silk thread in Bhagalpur, Bihar, India. Courtesy: Upaya SV

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.

Editorial for nextbillion.net: What's Next for Impact Investing - How to bridge the 'Pioneer Gap' and support entrepreneurs in the earliest stages

Co-authored with Upaya Advisor Brian Arbogast, this article was originally published on 30 March 2013 on nextbillion.net. In December 2013, nextbillion.net readers voted this post one of the year's most influential. 

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.

A worker with SMV Wheels maintains one of the many rickshaws in the fleet, which employs hundreds of rickshaw pullers. (Image credit: SMV)

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:

Above: The son of a Samridhi employee milking a cow in front of the family home near Barabanki in Uttar Pradesh. (Image courtesy of Upaya Social Ventures)

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.

Above: Traditional wooden looms have passed down for generations by weaving families in the poor communities in and around Bhagalpur, Bihar. An Eco Kargha employee follows a traditional method for spinning bobbins by hand.  (Image courtesy of Upaya Social Ventures)

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.

Looking Ahead

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.  

"Promoting Entrepreneurship, Combating Poverty" on Indiaspora.org

Upaya's Sachi Shenoy was asked to share her thoughts on the potential for change found at the intersection of entrepreneurship and philanthropy.

Click to read her thoughts on Indiaspora.org.

Editorial for Indiaspora.org: Promoting entrepreneurship, combating poverty

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.

Editorial for SSIR: Too Poor to Earn? Changing Assumptions About the Ultra Poor

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.

Editorial for WSJ India Realtime: Jobs Not Handouts Help the Very Poorest

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.

Photo by Noah Seelam/Agence France-Presse/Getty Images 

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.