Venture Capital for Micro-businesses: Creating employment for the Poorest
Ruby, her husband Mohd Sadik, and four young children live in a rented room on the first floor in Savda Ghevra, a resettlement colony at the northwest fringe of Delhi. The family moved to Savda in 2009, from Sarai Kale Khan, Delhi. There, they lived in a rented house and were making a living stitching hospital garments for a contractor. As their incomes improved, Ruby and Sadik decided to build their own house. Sadik purchased a plot of land in Savda, but had to soon sell it to meet some financial emergency. However, they continued to stay back in Savda in their rented house.
After moving to Savda, Ruby and Sadik continued to sew garments for hospitals – patient garments, doctor’s coats, operation theatre gowns, etc. They also sewed school dresses for private schools. They were paid on piece rate basis. Hospital suits fetched Rs.20 per piece, a doctor’s coat, Rs.25, Operation theatre gowns, Rs.30-35 and school dresses, Rs.40 per piece. They got the job work from a super-contractor-supplier of garments to major city hospitals like the All India Institute of Medical Sciences, medical stores near hospitals, schools like Gure Harikisan Public School, etc. The contractor provided the fabric and design specs. While Sadik cut the cloth, Ruby would tailor the garments. They even employed two women from the neighbourhood to sew, paying them Rs.15 per garment. Together, they managed to earn Rs.10-15000 per month, while the employed women earned Rs.3-4000 per month.
Venture Capital Fund: As part of its livelihood initiatives in Savda Ghevra, the Centre for Urban and Regional Excellence (CURE) has set up a Venture Capital (VC) fund integrated within the Livelihood Revolving Fund (LRF). The LRF was a small fund capitalized out of the Tata Trust grant in Phase 1, to offer free of cost credit to women in micro-enterprises facilitated by CURE. The LRF provides access to; rolling capital to buy raw material and manage multiple orders, procure, upgrade and maintain equipment, and for house building/upgrading such as for adding toilets or installing bore wells, etc. LRF is managed by an LRF committee with representation of all micro enterprise groups both set up by CURE in phase 1 and which continue to be operational in Phase 2 and newly formed micro-enterprises. The LRF committee works under the supervision of CURE. In this second phase, the LRF fund has been deepened and expanded to do two things; open it to other residents of Savda other than those supported under the project by CURE and operate as Venture Capital Fund -the logic being the changing profile of residents in Savda due to gentrification.
The VC fund works as follows. CURE invites people to submit their proposals for business development funding. Announcements of the idea were made in every block by the facilitators during their regular visits and street corner meetings. Announcement made also by the Mosque committee over their microphones, three times a day. Four proposals were received and reviewed by CURE including that of Ruby’Âs. The others included sewing school bag and ladies wallets, animal husbandry and supply of potable water. Received proposals were reviewed to determine two things the venture’s commercial viability – income earning potential, and its ability to employ at least 3-5 poorest people, especially women, for the work.
Ruby and Sadik were invited to discuss their idea -Â its historicity, operationalization, and sustainability in the long-term. They explained that they had the market connect, but needed capital to expand the operation by being able to invest in purchasing the cloth. According to their contractor, if they also bought the fabric, he was willing to escalate the order. CURE team examined the durability of the idea. CURE undertook a Value Chain Analysis and its capacity to offer employment to additional 3 to 4 women. Convinced about the plan’s effectiveness, CURE agreed to enter into a contract with them.
Contractual obligations were negotiated with Ruby, especially the plan for repayment and obligatory employment of some of the poorest women. Ruby asked for a received a loan of Rs20000 from the VCF, paid into her bank account. It is interest-free and without collateral. However, it is closely monitored by CURE. For loan repayment, Ruby is accountable to the LRF committee. Loan return has a deferred repayment plan – becomes payable after 3 months and has 4 equated installments of Rs5000 each. The amount to be repaid was based on Ruby’Âs own assessment of her ability to repay as the business picks up.
The contract was signed on stamp paper of Rs10. Ruby and Sadik expect their incomes to grow to Rs15000 from the current Rs10000 ÃÂ¢ÃÂÃÂ an increase of 50%. Besides buying fabric, they propose to invest in additional sewing machines ÃÂ¢ÃÂÃÂ manual to start with and upgraded later to electric, as women get more accustomed. The venture will continue to operate from their housing premises.
Currently Ruby has orders from a medical store at INA market close to the University Medical College. The order is small, for 30 pieces only. However, if satisfactory, it will open up the order book for many more. Ruby has also been in touch with other contractors for building the order pipeline. According to her, her uniform order of last month from Guru Harkishan Public School grossed Rs.8000. She recognizes that schools are closed for summer and hence the slowdown in demand. She is confident that the number will increase once the school reopens.
Ruby and Sadiq are optimistic about their future business. They already imagine a second loan, but would apply for it after the first is paid off. So far, Ruby and Sadiq have been buying second hand machines. They now hope to buy the newest in the market to improve work speed. They firmly believe that the venture fund, while helping them personally with increasing incomes, asset creation and capability to fund their childrenÃÂ¢ÃÂÃÂs education, will also create job opportunities for the poorer in the community.