India: Impact Investors Now Tap Urban Poor Market

Print
 
Nov 2013
India, November, 21 2013 - Although there is a slackness in overall investment volume and in number of deals in the first 10 months of current year in the impact investment segment compared to last year, urban poor-oriented social ventures have continued to receive investor traction, both at seed and early-stage.

Impact investment funds and social entrepreneurs are now targeting social ventures that cater to the urban poor segment. There is a visible departure from earlier practice where the focus of most impact funds was on funding micro finance institutions, catering largely to the rural poor, and similar base-of-pyramid ventures in a rural set up.

Although there is a slackness in overall investment volume and in number of deals in the first 10 months of current year in the impact investment segment compared to last year, urban poor-oriented social ventures have continued to receive investor traction, both at seed and early-stage. However, despite investor interest, most such urban-poor centred social ventures are still figuring out the path to a sustainable business model.

Hum, a group-buying venture, targets low-income communities in re-settlement colonies by offering them bulk discount on daily-use items and durables, ranging from five per cent to 12 per cent. “Most of these people are price-conscious, and buy in smaller quantities, paying a higher unit price,” says Vipul Prakash, an impact investor who seed funded the project in January this year with around Rs 2 crore. Currently, operational with 500-odd families in New Seemapuri, a re-settlement colony in east Delhi, Prakash says the model will become viable only when it reaches out to 25,000 such families.

Janata Meals offers affordable hygiene meals — ranging from Rs 20 to Rs 60 — for working class, which includes drivers, factory workers, daily wagers, guards, entry-level blue-collar workers from two outlets in Sikandarpur and Sheetla Colony in and around Gurgaon. Those manning the kitchen in Sikandarpur are local women from the area. The seed-funded project — currently serving 600 meals a day — plans to automate its kitchen and scale up operations with 20 such outlets across Gurgaon over the next 12-15 months, says Jesse Van De Zand, the project’s CEO, and representative of the Dutch-based foundation managing the venture.

Global Champs is a slum-based pre-school venture by public-listed, impact investment supported Tree House Education. Mumbai’s Dharavi, one of the largest slums in Asia, would soon house a modern pre-school, spread over 3,600 sq ft, catering to toddlers from the area. Two similar such pre-schools are already operating out of Malad and Kandivli in Mumbai since June this year. “There is huge demand for quality value-for-money education at that level,” says Tree House Education’s founder and a former investment banker Rajesh Bhatia. Omdiyar Network, a global impact investment fund, backs Tree House Education. Each kid in Global Champs is charged anywhere between Rs 10,000 and Rs 12,000 annually with option for staggered payment.

Jackonblock, a handyman service provider, has around 80 plumber, electrician, carpenter and other support staff on its full-time roles, offering one-stop service to Bangaloreans. Hitherto part of the unorganised work force, these workers now enjoy get all the benefits that a full time employee gets, including provident fund, medical expenses, leave entitlement, etc. Targeting the service at both home segment and corporates, founder Sharath Vatsa expects the venture to reach the break-even mark by February next year. He raised Rs 1 crore of seed fund from two impact investors in April this year.

Drishti eye care, an affordable eyecare venture operates out of Devanahalli, on the outskirts of Bangalore, targeting both urban and rural poor. Using telemedicine facility it connects its outpatient centre at Devanahalli with two vision clinics in semi-urban towns at Vijaypura and Bagepalli. Through a hybrid model, it services 1,800 patients in a month – 600 from urban centres and 1,200 from rural areas.

“To some extent, the urban patients — mostly from lower middle-class category — cross subsidise the rural poor,” says Drishti’s founder Kiran Anandampillai. In January this year, Lok Capital, an impact invest fund, picked up equity in the venture for an undisclosed amount.

Sudiksha Knowledge Solutions runs 22 pre-schools in and around Hyderabad, mostly in slums and among low-income communities with 600-odd students. Two of these are in rural areas. However, when P Naveen Kumar, the venture’s co-founder, started the venture in 2010, he wanted to make it an all-rural affair. However, over the last two years, he had to tweak the model to make it more sustainable in the long-run. “The urban centres are more sustainable while the gestation period is longer for rural schools,” he says. It is important to build scale to have an impact in any base-of-pyramid social venture. Earlier this year, Sudiksha was able to attract investment from US-based First Light Investment.

What gives urban poor-oriented social ventures an edge of rural ones? Digbijoy Shukla, director, Ennovent Circle, a group which helps connect social and impact investors, points out that affordability models in urban areas is proven compared to those in rural markets. What social entrepreneurs and impact funds find attractive is that at times it is easier to scale up a proven urban poor-oriented model given the close-knit community they live in. Many impact investors point out the distribution models are easier to scale and execute as costs involved in addressing a larger population is lower on a per capita basis.

“Urban poor is an still an untapped market,” says Karan Gupta, India investment manager, Insitor, an impact VC fund, which earlier this year co-invested in an affordable medical device making start-up, Biosense, which targets Tier-II and -III cities. Currently, 50 per cent of fund deals under its evaluation are for urban-poor oriented ventures, says Gupta. According to Jayant Sinha, partner, Omdiyar Network, many impact investors are looking at viable models for taking affordable and high-quality education and healthcare projects both to urban and rural poor. “The distinction between urban and rural poor is blurring,” says Sinha.

Agrees Srikrishna Ramamorthy, partner, Unitas Seed Fund, an early stage impact fund, which has invested in Jackonblock. “It costs less to scale up a venture in an urban milieu than in an rural set up. We like projects which create livelihood or help enhance income for the urban poor,” says Ramamorthy. Unitas, too, is evaluating equal number of investing opportunities in urban and rural-oriented projects.

However, Vishal Mehta, co-founder and partner, Lok Capital, has a different take on the issue. “We’ve seen no major trends between urban or rural models which tend to be more sector-specific depending on infrastructure availability for such models.”

Most non-micro finance investments that impact investors relate to sectors such as clean tech, payments infrastructure, housing finance, education, and healthcare. Most of these are early-stage deals. However, healthcare and education investments tend to be in urban areas while energy and agri models are more prevalent in rural areas, points out Mehta.

Both social entrepreneurs and impact investors agree it is still early days for urban-poor oriented social ventures before they trend a clear path to profitability.

 

Research Analysis Tools

The fund indexes, institution benchmarks and other market information displayed here are all Symbiotics designed analysis tools, created in-house by our analysts and experts. Symbiotics has one of the oldest track records in microfinance investment analysis dating back to the late 1990s; its indexes and benchmarks have been regularly used as markers by investors, asset managers, financial institutions and practitioners. These, as well as several other research products, are available through the Research Account. Click on the link below to find out more.

Learn More