Anirudh Gopalakrishnan: Lessons from a rickshaw bank

The United Progressive Alliance government's view that development should be undertaken through empowerment of local bodies has rightly been identified as an important way to alleviate poverty.

One fundamental problem that enables poverty to persist in India, as well in many other parts in the world, is the unwillingness of banks to extend credit to the poor.

Conservative estimates report that approximately $10 billion is needed in the form of microcredit to alleviate poverty in India, of which only $300 million is currently being met.

Without access to capital, productive activities are stifled and income generation constrained. Nowhere, however, is the need to alleviate poverty greater than in the country's North-east, which has historically been isolated from the rest of the country.

I benefited from visiting Assam last month to witness the launch of "Rickshaw Bank", a unique microfinance initiative that was launched in Guwahati.

Rickshaw Bank's idea is to purchase rickshaws and to lease them out to unemployed youth. Each day, the rickshaw-puller returns a small fraction of his revenues to the Rickshaw Bank.

Over a period of one year, the daily payments sum up to the total cost of the rickshaw. In this way, the rickshaw-puller owns the rickshaw at the end of one year, thereby, creating a long-term sustainable employment opportunity.

Creating such a sustainable proposition was made possible due to three things. First, and most important, a social entrepreneur by the name of Sarmah had the vision to conceptualise the "Rickshaw Bank".

His experience growing up in Assam gave him a deep understanding of what it would take to create employment opportunities for the Assamese people. He consulted all the sources he possibly could to make this venture a success.

For example, Sarmah worked with McKinsey to validate his strategy, to write a business plan for the Rickshaw Bank, and to market this concept to India's leading corporations.

Second, corporate partners such as Hindustan Lever Ltd (HLL), Oil and Natural Gas Corporation (ONGC), and Indian Oil Corporation (IOC) saw merit in the idea and invested in the project in return for advertising space behind the rickshaws.

Understandably, the return on their investment may not have been the highest, but yet, these corporations displayed great corporate social responsibility by investing in one of India's most neglected regions.

Finally, Rickshaw Bank worked with a professor from the Indian Institute of Technology (IIT), Guwahati, who developed a newly designed rickshaw that was 40 per cent lighter than regular rickshaws and that was uniquely designed to ensure higher levels of comfort to customers.

Creating a new product in an IIT lab differentiated Rickshaw Bank's product from the other 50,000 rickshaws that populate the streets of Guwahati.

It is the strength of the partnerships that has allowed 500 Assamese youth to take the first step to come out of poverty. If the ongoing pilot is a success, replicating this model on a large-scale (through soft loans from financial institutions like ICICI) could end up having considerable impact.

India could do with more social entrepreneurs like Sarmah, with more corporations like HLL, ONGC and IOC and with more public-private partnerships. But to really make social development work in the long run, government support will be required. And required with some urgency.

The Small Industries Development Bank of India (Sidbi) and the National Bank for Agricultural and Rural Development (Nabard), two government organisations that were created to focus on rural development, are sitting on top of a pile of cash that has been highly under-utilised.

These organisations argue that there are not enough high-quality projects to be funded. However, examples like the Rickshaw Bank have given enough indication that there are high-quality ideas out there that merit attention.

From a policy standpoint, a review of Sidbi and Nabard's disbursement policies need to be undertaken in order to create a sustainable model for development.

Funding social entrepreneurs is the need of the hour. We need to create a spirit of inclusiveness, with everyone aligned towards achieving a common objective; we need the Centre to empower local bodies to act on socio-economic development; we need to have public-private partnerships to blossom as it did in the case of Rickshaw Bank. Only then will talent be unleashed in a region that has been waiting patiently for its turn to arrive.

(The author works for an international consulting firm. Views expressed are personal)