Nearly 400 million Indians - more than all of Sub-Saharan Africa combined - live on less than $1.25 a day. The "ultra poor" lead lives marked by highly variable and volatile circumstances in which they struggle daily to find work, stable shelter, basic amenities, treatment for poor health, and adequate food and water. At the very heart of the problem are informal livelihoods – a cluster of irregular activities such as shoe-shining, begging, day labor, hawking of second-hand items, and trash picking. Because income is so unreliable, the ultra poor find themselves in a vicious circle where:
Most popular development interventions -‐ including microfinance -‐ do not serve the ultra poor, as this is a highly vulnerable segment with special needs. For decades this segment has been served by aid programs providing handouts – free food, housing and healthcare - under the assumption that the poor need to be rehabilitated before they can earn a living.
Finding the extremely Poor
It is impossible to create a nice, neat map that clearly delineates where the ultra poor are found. However, analyzing a number of development indicators that commonly correlate with extreme poverty - for example, the percentage of malnourished children under the age of five – we can easily see the density of ultra poor households in India.
Jobs & Small Businesses
After closely researching the dynamics of extreme poverty over the past decade, the Upaya team has demonstrated and proven that the extremely poor can become self-‐reliant and quickly address their own needs simply by having access to a stable job and steady income. They need a “hand-up,” not a “handout.”
Jobs, however, are created by employers, and throughout India the entrepreneurs who are ready to be those employers struggle to launch and grow their businesses to create such jobs. As evidence, small and medium-sized businesses (SMEs) in India contribute only 17% of GDP, while in the U.S. they make up 45% of GDP. Extremely poor regions are particularly devoid of these employers, and as a result these communities struggle with persistent unemployment. The small businesses that do exist in these environments remain small family outfits rather than growing into significant employers.
What Entrepreneurs Need
In Upaya’s assessment, locally-rooted small businesses represent the best opportunity to create the jobs that are so badly needed. However, many entrepreneurs get caught in the “Pioneer Gap,” struggling to get off the ground because they lack access to flexible funding and professional advisory support.
Owners of SMEs working in communities far off the beaten path cannot attract seed funding and support. Local banks do not invest because of the lack of collateral, and other potential investors -‐ such as venture capitalists -‐ are simply not interested in such small investments. They also view investments into SMEs as too risky because the business models are unproven and require a longer investment horizon.
Due to the lack of investment capital, poor and developing communities are currently devoid of SMEs and hence suffer from persistent unemployment. The small businesses that do exist in these environments stay small (one to ten employees maximum), as they cannot tap into the capital and resources required to grow.
Upaya is attacking both of these problems, and the outcomes thus far are promising: healthy, sustainable SMEs that are creating jobs for the poorest of the poor, in the communities where they are needed most.