3
Page 1 of 3 © 2013 by The Varhad Group. All rights reserved. No part of this document may be reproduced or transmitted in any form or by any means without prior written permission of The Varhad Group. Overview of Small and Growing Businesses (SGBs) and better livelihood for the poor According to Varhad Research, Small and Growing Businesses (SGBs) are growth oriented firms employing between 50 and 250 people with capital requirements between USD1-5m. The owners of SGBs are the people who are ready to tap potential opportunities with professional help. The Varhad Group can help the SGBs raise funds which remove the hurdle of SGBs access to finance, human capital, business development and capacity building. With growth, the SGBs can provide employment to skilled and unskilled workers. According to Global Poverty Research Group (GPRG), UK, SGB employees earn 75% higher than self employed entrepreneurs which helps bring the poor out of poverty through stable incomes, in addition to providing many more jobs indirectly. The small and medium enterprises provide over 60% employment and over 50% to the GDP, but it is observed that microenterprises and large enterprises are predominant in developing countries and not small and medium enterprises. This gap is called the ‘missing middle’. Due to extreme poverty, the people work in various kinds of jobs for survival. However, such works do not allow the people to improve their skills and are not sustainable. SGBs on the other hand can provide jobs that are sustainable and the workers can perfect their skills. It is important to note that microenterprises do not provide sustainable employment as they are created out of compulsion rather out of entrepreneurial ambition. SGBs help to create 78.25% employment in low income countries and within this 86% are in the formal sector and in spite of regulatory hurdles, corruption and poor infrastructure they are able to grow. Investments in the SGBs will help create jobs for both skilled and unskilled workers. SGBs are too small for banks, but, too large for MFIs to fund them; investing in the missing middle will create positive spill over effects in the community. Lack of access to clean drinking water, proper housing, sanitation and healthcare prevents poor from being employed as regular employees. Due to disease prevalence in children, the daily incomes of the poor are severely affected as they cannot go and work on account of childcare. Due to cash inflow uncertainties, the poor cannot spend on essential items and they remain deprived as large enterprises do not employ them, but SGBs can employ them. There are 365 445m SMEs out of which 70% do not avail banking facilities even though in countries such as India which mandates the Priority Sector Lending, where certain credit needs to be allocated to sectors with social benefits. Similarly, CSR funds of large corporations, banks, financial institutions and insurance firms can be used in capacity building of SGBs. The Varhad Group intends to pull out Source: Harvard (http://www.hks.harvard.edu/centers/cid/programs/entrepreneurial-finance-lab-research-initiative/the-missing-middle)

Small and Growing Businesses create sustainable livelihood for poor Indians

Embed Size (px)

Citation preview

Page 1: Small and Growing Businesses create sustainable livelihood for poor Indians

Page 1 of 3 © 2013 by The Varhad Group. All rights reserved. No part of this document may be reproduced or transmitted in any form or by any means without prior written permission of The Varhad Group.

Overview of Small and Growing Businesses (SGBs) and better livelihood for the poor

According to Varhad Research, Small and Growing Businesses (SGBs) are growth oriented firms

employing between 50 and 250 people with capital requirements between USD1-5m. The owners of

SGBs are the people who are ready to tap potential opportunities with professional help. The Varhad

Group can help the SGBs raise funds which remove the hurdle of SGBs access to finance, human

capital, business development and capacity building. With growth, the SGBs can provide

employment to skilled and unskilled workers. According to Global Poverty Research Group (GPRG),

UK, SGB employees earn 75% higher than self – employed entrepreneurs which helps bring the poor

out of poverty through stable incomes, in addition to providing many more jobs indirectly.

The small and medium enterprises provide over 60% employment and over 50% to the GDP, but it is

observed that microenterprises and large enterprises are predominant in developing countries and

not small and medium enterprises. This gap is called the ‘missing middle’.

Due to extreme poverty, the people work in various kinds of jobs for survival. However, such works

do not allow the people to improve their skills and are not sustainable. SGBs on the other hand can

provide jobs that are sustainable and the workers can perfect their skills. It is important to note that

microenterprises do not provide sustainable employment as they are created out of compulsion

rather out of entrepreneurial ambition.

SGBs help to create 78.25% employment in low income countries and within this 86% are in the

formal sector and in spite of regulatory hurdles, corruption and poor infrastructure they are able to

grow. Investments in the SGBs will help create jobs for both skilled and unskilled workers. SGBs are

too small for banks, but, too large for MFIs to fund them; investing in the missing middle will create

positive spill over effects in the community.

Lack of access to clean drinking water, proper housing, sanitation and healthcare prevents poor from

being employed as regular employees. Due to disease prevalence in children, the daily incomes of

the poor are severely affected as they cannot go and work on account of childcare. Due to cash

inflow uncertainties, the poor cannot spend on essential items and they remain deprived as large

enterprises do not employ them, but SGBs can employ them.

There are 365 – 445m SMEs out of which 70% do not avail banking facilities even though in countries

such as India which mandates the Priority Sector Lending, where certain credit needs to be allocated

to sectors with social benefits. Similarly, CSR funds of large corporations, banks, financial institutions

and insurance firms can be used in capacity building of SGBs. The Varhad Group intends to pull out

Source: Harvard (http://www.hks.harvard.edu/centers/cid/programs/entrepreneurial-finance-lab-research-initiative/the-missing-middle)

Page 2: Small and Growing Businesses create sustainable livelihood for poor Indians

Page 2 of 3 © 2013 by The Varhad Group. All rights reserved. No part of this document may be reproduced or transmitted in any form or by any means without prior written permission of The Varhad Group.

Live Project on SGBs

Total Sample 4000 SMEs

Income evaluation of

SGB employees

Correlation with increase sales

and income

Livelihood improvement of

employee

1m people out of poverty through 1,000 SGB billionaires’ (direct and indirect employment). The

social impact of the SGBs can be studied in collaboration with business schools and bring in

additional business to SGBs through the Public Procurement Policy, which is expected to create

sustainable jobs for 1m people from 1000 SGBs.

Methodology: To understand the impact SGBs have on the livelihood of the poor, a survey is made from a sample

of 4,000 small and medium enterprises (SMEs). For the study, a ten percent of the total sample, that

is, 400 SGBs are studied in detail. The surveying team visits each SGB and interacts with the

promoters and the skilled and unskilled employees of the SGB. As a Sustainability Study Project, the

students of selected business schools will be allotted the live projects, where they will get an

opportunity to learn and study the social impact of SGBs in uplifting the standard of living at the

base of pyramid. Out of the total 400 SGBs, 50 SGBs will be studied in greater detail where 5 SGBs

can be allotted to 10 teams, each team consisting five students. As a part of their project, the

students will study the positive effects that SGBs have in improving the livelihoods of the poor. They

can interact with the promoters of the SGBs and this will be a huge takeaway for the students in

terms of gaining practical knowledge of how sustainable businesses make profits but at the same

time improve lives of many by generating employment and giving stable incomes.

The survey will be conducted using data collected from the employees how their lifestyle was before

they work with the SGB and the improvement that has taken place after they work with the SGB.

The target employees of the survey will be employees who have worked for at least three years so

that the improvement in income levels of these employees can be assessed. In addition to

understanding the rise in income levels, the study will try to find out as to how improvements in

incomes have helped the poor raise their standard of living. More importantly, the study aims to

understand how the lives of the employees have improved after they have started working in the

SGBs. The students will be provided with a questionnaire having a set of questions that guarantees

anonymity to the respondents, but have a detailed list that will help in understanding where the

employees worked before, what was their living conditions, etc.

Page 3: Small and Growing Businesses create sustainable livelihood for poor Indians

Page 3 of 3 © 2013 by The Varhad Group. All rights reserved. No part of this document may be reproduced or transmitted in any form or by any means without prior written permission of The Varhad Group.

The interaction with the promoter will centres around the growth in revenue through increase in

sales. With increased sales, the SGBs will be in a position to increase the profit after tax. This will

allow the SGBs to grow and expand it businesses. An SGB, being a growth focused enterprise will

seek out the best talent and will also invest considerably to train and improve the skills of its

employees. Since the SGBs need to attract talent, they offer competent compensation to the

employees earn competitive with the industry. This is accomplished through a good human

resources team and policies that works in the best interests of the employees and the SGB. With

proper employment policies in place, the employees have access to stable income. The SGB, as a

part of governance initiatives can create bank accounts for the employees for salary payment. This

will allow the employees to have greater access to bank credit facilities which will help them

improve their livelihoods.