Goodbye world - THE BLOG WILL NO LONGER BE UPDATED

Greetings everyone!

I have been working on developing a new, much improved blog website... launching it today - http://bamboozling-bombay.com/ 

Therefore this blogger site will no longer be updated. So please subscribe to my new site.

Thanks for your support!!

:-)

Empty Spaces Initiatives... rejuvinating urban spaces

Wow, my MBA committments have been eating up almost all of my available time recently. Since my work has been restricting me in updating this blog I figured I may as well use some of the more interesting aspects of my MBA study...

Currently, I'm working in a team that is engaged in a management consulting assignment for Create Innovate Gosford City, an 'empty spaces' initiative. More information on the organisation and the concept can be found here:

http://emptyspaces.culturemap.org.au/ 

http://www.createinnovategosfordcity.com.au/ 

Basically, it is a project that secured long-term vacant real estate in the city CBD and facilitates creative groups to use the space... Similar projects in Germany and the U.S have been really successful in bringing life back to old, disused urban jungles.  I believe that something similar can happen in Gosford. Local press coverage of Create Innovate's recent launch with five great creative installations, along with a mention of our team's work..

http://express-advocate-gosford.whereilive.com.au/news/story/cornerstone-of-a-new-beginning-for-gosford-cbd/ 



Consequently, these are excellent examples of social businesses, people doing what they love in business to better society, while also seeking to be financially sustainable. Anyway, my team is hoping to help this sustainability by looking at creating on-going financial and human resource viability for Create Innovate... Very confident we can see this great initiative set-up for the future! More info to follow...

A sign of the times... leaders re-thinking the structure of global commerce

Under a weight of global environmental and social issues, and the increasingly recognised need to re-calibrate the global system of commerce to enable global prosperity and well-being into the future, there have been a series of ‘light bulb’ moments from members of the global business elite. I have found it fascinating to see a number of notable stalwarts of the traditional ‘maximise shareholder wealth’ mantra come to their senses. One of the leading business strategy theorists of modern times is Michael Porter, whose work has advanced the ideas of globalised organisations and competitive strategy. Now 63 years old, Porter has finally realised that the greedy pursuit of wealth at all costs is un-sustainable, un-necessary and un-reasonable. Instead corporations and organisations generally should be driving towards Shared Value. I’ll let Mr. Porter explain...

“The capitalist system is under siege. In recent years business increasingly has been viewed as a major cause of social, environmental, and economic problems. Companies are widely perceived to be prospering at the expense of the broader community... The legitimacy of business has fallen to levels not seen in recent history.”

“A big part of the problem lies with companies themselves, which remain trapped in an outdated approach to value creation that has emerged over the past few decades. They continue to view value creation narrowly, optimizing short-term financial performance [shareholder wealth & executive bonuses] while missing the most important customer needs and ignoring the broader influences that determine their longer-term success. How else could companies overlook the well-being of their customers, the depletion of natural resources vital to their businesses, the viability of key suppliers, or the economic distress of the communities in which they produce and sell?”

In my opinion it represents common sense in the extreme, however in agreeing with this assessment, it is necessary to accept that profit, ROE and increasing quarterly dividends are not the pinnacle of one’s engagement with a corporation as a business owner, shareholder or executive. However, it is important to note that  Shared Value, along with one discussed in an earlier blog post – Social Business – are not necessarily departures from capitalism. Instead, they represent a new way of conceptualising the role of business in society and how to maximise their effectiveness considering metrics beyond those narrow fields mentioned above.

“Capitalism is an unparalleled vehicle for meeting human needs, improving efficiency, creating jobs, and building wealth... Businesses acting as businesses, not as charitable donors, are the most powerful force for addressing the pressing issues we face. [However] the purpose of the corporation must be redefined as creating shared value, not just profit per se... Reshape capitalism and its relationship to society and legitimize business again.”

“The solution lies in the principle of shared value, which involves creating economic value in a way that also creates value for society by addressing its needs and challenges. Businesses must reconnect company success with social progress. Shared value is not social responsibility, philanthropy, or even sustainability, but a new way to achieve economic success. It is not on the margin of what companies do but at the centre.”

“Shared Value blurs the line between for-profit and non-profit organisations. New kinds of hybrid enterprises are rapidly appearing.”

I see Shared Value representing the framework for a paradigm shift in global commerce. And that the Social Business is a subset of this new, ground-breaking way of thinking. A social business can be but one of many connotations of business models being designed, whereby societal value is embedded in the core activities and very fabric of an organisation. See my previous article ‘Tourism and Sustainability’ for a discussion on how this can be achieved.

“The concept of shared value can be defined as policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates. The concept recognizes that societal needs, not just conventional economic needs, define markets. It also recognizes that social harms or weaknesses frequently create internal costs for firms—such as wasted energy or raw materials, costly accidents, and the need for remedial training to compensate for inadequacies in education. And addressing societal harms and constraints does not necessarily raise costs for firms, because they can innovate through using new technologies, operating methods, and management approaches. Value is defined as benefits relative to costs, not just benefits alone.”

“Companies can create economic value by creating societal value. There are three distinct ways to do this: by reconceiving products and markets, redefining productivity in the value chain, and building supportive industry clusters at the company’s locations. Each of these is part of the virtuous circle of shared value; improving value in one area gives rise to opportunities in the others. The concept of shared value resets the boundaries of capitalism. By better connecting companies’ success with societal improvement, it opens up many ways to serve new needs, gain efficiency, create differentiation, and expand markets. The opportunities will also differ markedly across industries and companies—but every company has them.”

A recent review of Shared Value in the Economist had mixed thoughts. The major concern raised was the actual implementation of the theory stating that...

“What does this mean in practice? Mr. Porter focuses on three things. First, the need to create market “ecosystems”, especially when selling to the poorest in developing countries; this may require firms to make partnerships with NGOs and governments. Second, expanding their value chains to include such unconventional partners. And third, creating new industrial clusters.”

It is clear that there is much more work to be done on this relatively new field of inquiry. As with any radical new concept, bodies of work are required to piece together the finer details. Regardless, this and other similar recent shifts in the thinking of global leaders are a welcome sign of the changing times.

Further reading

Harvard Business Review – “The Big Idea: Creating Shared Value” http://hbr.org/2011/01/the-big-idea-creating-shared-value/ar/1

Economist - Schumpeter “Oh, Mr Porter” http://www.economist.com/node/18330445

Media coverage of the internship

Here is the link to a media release produced by the university... featuring yours truly.

http://newsroom.uts.edu.au/news/2011/03/students-visit-mumbai-to-see-ground-work-of-microfinance 

Social Business - a more sustainable model

In recent articles I have alluded that I believe the corporate world could do with  a little more ethics and social consciousness. Following on from this I would like to talk about an exciting business concept that I have been heavily involved with in recent months.

Traditionally, the corporate structure is limited to two main overriding frameworks. That of the profit seeking organisation and the non-profit or charitable organisation. Private enterprises chase profit to satisfy the financial goals of the owner(s) and public for-profit companies must maximise profit for shareholders by legal obligation. Business is carried out to generate excess funds to be channelled to relatively few with ownership rights. Meanwhile, non-profit organisations such as charities generally rely on philanthropic donations, government funding or angel investors to enable their existence. Fundamentally, this involves obtaining funds from relatively few and distributing small amounts to a large number of recipients for free. These are two ends of the spectrum, literally polars apart in respective raison d’être. A viable third way, a hybrid of these two models has emerged – social business.  

A social business venture operates as a regular, self-sustaining enterprise generating revenues from commercial activities. This could be through the provision of education services, manufacturing, professional advisory services etc. These organisations are designed to operate as any other traditional profit-driven enterprise, trading goods and services, receiving revenue from customers, paying market competitive salaries to staff and so on.

What separates social business from the two common models discussed earlier is that profits are re-directed to activities of the business, such as expansion, or otherwise used to fund corporate social responsibility programs. Investors receive their initial investment in full, however no profits are paid.

Nobel laureate and founder of Grameen Bank, Muhammad Yunus, is also a pioneer and champion of the concept he describes as...

“a social business is outside the profit seeking world. Its goal is to solve a social problem by using business methods, including the creation and sale of products and services. One [kind of social business] is a non-loss, non-dividend company devoted to solving a social problem and owned by investors who reinvest all profits in expanding and improving the business.”

Building on Prof. Yunus’  definition with a social cause as the primary activity, I believe any enterprise can operate as a social business. For example, an education enterprise can be created within a developing country that teaches Australian exchange students. Beyond start-up capital, no further funds are required as operations generate self-sustaining revenue. Profits received obtained can then be used to build schools within the local community. In this example the social cause is not the primary purpose of its existence but part of a new type of multi-sided business model. Enterprises can organise the social programs they fund around their core business. This can build on the elements that their customers value most, thus creating a very robust competitive advantage. It would not surprise me if this type of business model is increasingly used by today’s non-profit organisations. Recent global financial turmoil provided a stark reminder that international pools of donation funding for such outlets is limited and not guaranteed in times of turmoil.  

There are some limitations to this idea. It relies on owners with an ethical mantra not seeking profit. Naturally, in a wealth-driven society the number of such investors is tiny relative to profit seeking equivalents. Furthermore, growth may be slowed in the absence of profit seeking investment funds, and the treatment of tax and legal structure is yet to be clarified in most countries. However, these issues need not necessarily hinder social business ventures. Tellingly Jack ‘Maximise Shareholder Value’ Welch, Forbes magazine ‘Business Leader of the Century’ and one of the main voices for profit-maximisation in business, has openly admitted this ideal has a number of irreconcilable flaws, particularly in relation to long-term environmental and social sustainability. Subsequently, private and government investors have shown an increasing appetite for social business entrepreneurialism. As an outlet for philanthropic funds, social business will return all monies invested and once operational, to remain self-sufficient in perpetuity. With a solid business model and good management of course ;-)

Further reading:

Eisenmann, T., Parker, G. & Alstyne, M. 2006 “Strategies for two-sided markets”, Harvard Business Review, October 2006.

Singh, R. 2010 “The Fabric of Our Lives: The story of Fab India”, Penguin Viking, London.

Yunus, M. 2010 “Building Social Business”, Public Affairs, New York.

Bye Bye India...

So, all good things must come to an end. Unfortunately for me, it is not possible to remain in India, traipsing the country indefinitely. On reflection, the best way I can describe the India that I saw coming from an orderly, slightly sterile environment (Sydney) is that in many ways India represents a parallel universe. On the surface much looks familiar, people bustling about their daily business, roads full of vehicles, rural communities tending fields. However, once you begin to scratch the surface and take in all the dizzying sights, pungent smells and stark realities of the people inhabiting it’s cities, towns and villages, it is plainly clear that India possesses a character that is truly unique. That said, it is clearly a country metamorphosing, fast. My time in India was truly fantastic, I would happily recommend everyone to go and experience it for themselves. But don’t wait, go now before some of that quintessential character is replaced by shiny shopping malls and new apartment towers.

Thank you to all who have read this blog and kept up to date with my perspectives throughout my journey. Coming into this project as a creative writing virgin, the amount of great feedback and encouragement I have received has been truly touching. Now that I am back in Sydney I will not longer write about my experiences in India. That said, I do plan to maintain this blog, although from now it will showcase information, happenings and anything else I think it worth sharing. In this I hope to provide a range of diverse posts from here, there and everywhere. With that, thanks again for your support and please keep a look out for future blog posts!

Cheers

Nath 

The Launch of UTS Masters Network website!

I'd like to introduce you to the UTS Masters Network. Founded in early 2010, as a social opportunity for people studying post-graduate courses at the University of Technology Sydney (UTS). It has become a great way for fellow students and their friends to get together outside of the un-inspiring university environment. Each event has progressively grown in size and diversity of people from many different educational and professional backgrounds. The most satisfying thing for me are the new friendships that have been forged with each event. I've also gained a lot of encouragement from the brilliant feedback from those involved!

Over the last twelve months, and after three increasingly successful social events, the network has now grown to over 80 people. Over the summer break, I decided to add some tangibility to the network by creating a blog site - to make it easier for people to connect with each other, to find out info on past and future events, and to get more people involved in the network.

If this sounds like your 'cup-of-tea' check out the new site, become a UTS Masters Networker, and get involved! 

http://www.uts-masters.blogspot.com/  

 

Sustainable Economic Development through Community-based Tourism

Moving beyond the common ignorance that environmentalism is the sole concern of sustainability, it is obvious that holistic sustainability is both very difficult to achieve as it is incredibly desirable. In this post, I will provide an example of how this can work in tourism. Firstly though, I am thrilled that my last article provoked some thought and got a number of readers thinking about these issues! I received a number of comments of complement and question. Because of this, I would like to clarify the main points of contention.  

Understandably, a few raised concerns about the place of business taking responsibility to solve environmental, social and cultural issues that are not the direct result of their own operations. The normal functioning of the society around these businesses is the role of governments, who extract tax revenue to be distributed and turned into public services like waste management, schools, maintenance of public spaces etc. And of course they are right. In theory, these are critical roles of various layers of government from local, to state and sometimes federal. The reality is different to this ideal as much of the world lacks healthy government structures. Cronyism, incompetence, largess, corruption and self-enrichment are common features of many public service systems, particularly in Developing nations. This often means the little money available for public services is syphoned off and diminished, ultimately undermining the ability to achieve consistent tangible outcomes. As I hinted at in my previous post, I believe that businesses have an ethical obligation to take up some of the mantle where required and that if calculated and planned in the right way, receive an equal share of benefits in return.

Secondly, some questioned the benefits possible to organisations engaging in sustainability and why I focussed on tourism in my article. The idea of responsibility in business is not a new one, labelled as the concept of corporate social responsibility (CSR). Many of you would know and probably can recall programs already in place by big business. In recent times, CSR has come to the fore, as corporate board rooms compete with each other to see who can capture the hearts of Western society’s new found lust for a consumer conscience. Ronald McDonald House supporting families of children with cancer, Qantas Airways providing significant funding to UNICEF and Starlight Foundation, Ernst & Young funding an annual Young Entrepreneur competition. Many examples you will see are not addressing direct negative externalities produced by the business, nor are they directly related to their particular line of business (though some more than others). In return for participation in CSR, the primary outcome for the organisation is branding and promotional opportunities. The reason for my focus on tourism, is that it is one of the only sectors of the economy that relies heavily on the nature, quality and sustenance of the place in which it operates. A jungle tour operator has no business if the forest is logged and animals poached. Similarly, resort owners will struggle to maintain occupancy if the beach on which they rely on to attract sun-worshipers is polluted and beach eroded. The key point is that tourism businesses have an opportunity to extract benefits from sustainability that are more tangible than other sectors of the economy. If properly planned and constructed, sustainability projects can boost the tourism enterprise’s business offering by becoming an attraction in its own right and key point of differentiation. Think about the earlier McDonalds example. The main benefits from that CSR program are brand equity and some advertising opportunities. The program does not add another product to the menu board that might specifically induce you into a McDonald’s restaurant when you may not otherwise have. Tourism enterprises have both opportunities, to strengthen brand equity AND improve their product offering.

How holistic sustainability can be targetted with community-based tourism.

That brings me nicely to a Bombay-based tourism enterprise, Culture Angaan. Started five years ago, founder Rashmi set out to create new tourism industries as a form of sustainable economic development in rural India. Firstly, she quite rightly identified that the main focal point and facilitator of tourism is accommodation. Without the ability to accommodate visitors overnight, tourism is not possible in regions without airports and over four hours away from major population centres by road and rail. Culture Angaan began by meeting with precinct chiefs, hosting town meetings, and personally talking with various groups and individuals within the community. This is to determine what potential exists for the creation of a holistic tourism industry, including accommodation, attractions and other supporting services such as transport and retail opportunities. It is crucial that economic benefits from the introduction of tourism can be dispersed across the greatest number of people within the community.

 Once the community itself is assessed on a macro-level, and a desire has been expressed for community participation, Culture Angaan approaches individual families who wish to create and operate homestay accommodation. These are typically famers, as it is common for family farms to have large homesteads and/or disused detached barns that can be relatively easily converted to small scale tourist accommodation. Culture Angaan acts as a quasi-franchisor, providing expertise, assistance with access to capital (if required), marketing and distribution of the finished product in return for a fee.

A Culture Angaan homestay in the southern Maharastra state region of Sindudurg. The owners operate a commercial organic farm, with accommodation being a supplimentary business to top-up their income.

A typical meal spread. All home-made by the homestay operator, usually the same as the family would eat themselves using only locally sourced and traditionally used ingredients. Meaning minimal extra effort and cost required and additional dipersement of economic benefits.

In the meantime, aspects of the community, particularly culture and industry that are endemic to the local area are engaged. Where appropriate, assistance in the form of expertise and funding is provided to set up galleries, run lessons for local children, to restore representations of culture. This is done with the expectation of restoring and maintaining critical aspects of the community by showing that through tourism there can be economic sustainability in these activities. See examples below of how Culture Angaan, by introducing community-based tourism, have provides social services to the community, kept alive critically endangered art forms.  

Rangoli, an art form that uses coloured chalk dust. Culture Angaan set up a local school in the Sindudurg region. As part of this they engage a rangoli artist to provide lessons to the children.

More rangoli. This provides an economic incentive for local artists to maintain the art form, as well as a unique attraction for visitors.

A Sindudurg speciality, wooden objects including toys, utensils and fruit!

Culture Angaan provided some original funding to help set up the Pinguli Art Museum, a modest gallery showcasing a rare local art form in string and leather puppetry as well as painted art. With the money made by selling art from the gallery, the local artist has now commissioned a much bigger museum next door. This will allow him and his brother (amongst the last remain practicioners of the art) to expand their business and keep the tradition alive.  

 Dollars and cents makes sense.

This approach to tourism through community sustainability programs has created a multi-faceted product offering. Here’s an example. A typical Culture Angaan guest would spend 3 nights, at around 4,500 Rupees ($100) per night. This includes 3 nights of accommodation, 3 meals per day (full board) provided by each homestay, and various sights and activities generated from the aforementioned sustainability projects. More than enough activities to fill each day and to provide a varied experience of the region’s environment, culture and people. By itself the full-board accommodation would only be capable of returning $50 to $60 per night. What this means is that through sustainability projects, Culture Angaan have not only provided additional attractions that together might induce custom, it has also enabled product bundling. Fundamentally, this enables Culture Angaan to obtain $100 per night, instead of $50-60. Some of this money goes to funding the individual attractions and the rest increases the profitability of the business.  

It is important to bear in mind that most localised sustainability projects need not be cash sinks or black holes. Many require minimal financial investment and a little time and effort to get started. Furthermore, as I mentioned in my previous post, collaboration with NGOs and charities can further reduce financial outlay and personal effort required.       

There are many more examples that I could discuss, but in the interests of keeping this article at a reasonable length I will finish it there. If you desire to learn more, hear more examples or chat generally about tourism and sustainability feel free to drop me an email.

Tourism and Sustainability

How many of us travel in search of that special place. An oasis, a haven or utopia. Somewhere with a magical scenery, interesting culture and an idyllic society. Postcards attempt to capture feelings of happiness, warmth and wellbeing generated by these ideals. We send them home as a caricature, to encapsulate the dream that motivated us to travel to that particular location. The reality of these places is often very different. It is amazing how the memory can be selective, when the frayed, dirty edges are trimmed off with a strategically framed photograph or two.

Many places we travel to in our leisure time face a disconcerting array of problems. Travelling over the years, I have noticed many recurrent themes. I have witnessed first-hand, many of the environmental, social and cultural issues enveloping countries particularly of the Developing world. In many occasions it has occurred to me that these deficiencies are either the direct result of increasing pace of economic development, or are worsened because of it. Unsustainable deforestation, chocking air pollution, stagnant waterways, poor sanitation, child beggars, displaced people making way for progress. While there are undoubtedly other contributing factors such as over-population, poor governance and corruption, from my perspective economic development is the most important common denominator.

Tourism plays a key role in development.

In most countries tourism is a major source of tax and export revenue and can be an important trigger for regional economic development. Despite playing this central developmental role, the vast majority of business managers and owners of tourism enterprises ignore the side-effects. This attitude is a result of the cottage enterprise nature of tourism, ignorance and greedy profit-maximisation. It is a travesty that in many (if not most) circumstances, tourism businesses operate with detached responsibility, at times almost as if in a parallel reality to the community, society, natural environment within which they operate.

Environmental and social degradation.

There are many examples of tourism failing to take a lead role in issues of sustainability. On Mabul Island, a few kilometres from Malaysian Borneo’s east coast, local sea gypsies share an island marginally larger than a postage stamp with half a dozen 4-5 star resorts that protrude over the water in the popular sea bungalow style. Although these resorts rely on a pristine environment for their appeal, there are serious issues with waste management and sanitation. With the government unwilling to provide these services, the island is filthy, leaving the local community to live in squalor (see image below). Meanwhile, most of the community’s young children play in the dirt as there is no formal school for them to attend, neither is there electricity (except for a few businesses that have small diesel generators).



Mabul Island - Tourists lounging in the sun with the ramshackle shanty village of the local community in the background.



Similarly, in Kochi, the main tourism hub of the Indian state of Kerala, magnificent colonial era mansions converted to 5 star guesthouses overlook a litter strewn ‘parade ground’ that has been allowed to deteriorate into an incongruent dusty wasteland suitable for stray goats. A similar distain for waste management is obvious in Varkala, my current location in southern India (see image below). It is beyond doubt that these realities detracted significantly from each place.

A typical scene from the cliff-top village at Varkala. Waste management involves dumping and burning of plastics and plant matter.

Popular attempts at eco-existence in tourism.  

Despite a lack of interest in genuine sustainability, many tourism enterprises have been obsessed with eco labelling. As if by proclaiming one to be an ‘eco-resort’, ‘eco-tour’, or by offering customers an opportunity to ‘carbon offset’ their travel, they identify themselves as ‘eco-tourism’. Often these labels are simply marketing terms designed to tap into what is perceived as a growing consumer consciousness. The policies underpinning these concepts do not represent sustainability and is commonly referred to as green washing. Nothing rankles more than a hotel operator/marketer trumpeting themselves as ‘eco-friendly’ simply because wildlife can be seen from the property, or because they place small placards in guest rooms encouraging minimal towel and sheet washing to save water. Corporate social responsibility (CSR) is another common buzz-phrase. I am not a huge fan of this term as it implies only large corporate organisations should be responsible. Quite simply, sustainability is a step or two beyond these concepts. To be sustainable is to be continuously on-going, forever. Without degradation and destruction of the environment and all stakeholders. Sustainable development, in the words of the United Nations is "meeting the needs of the present without comprimising the the ability of future generations to to meet their own needs". A decreased rate of destruction is still destruction. To work towards greater sustainability enterprises must consider the three main pillars of their existence being economic, environmental and social. Fundamentally, tourism industries lack a conscientious approach to environmental and particularly social responsibility. Social sustainability is concerned with the communities and societies that most tourism enterprises rely on for their existence.

Mutual benefits of sustainability are plentiful for community and tourism

These issues can and should be addressed. There are mutual benefits on offer to both businesses and communities. The community gains new resources put towards fixing issues that are decaying their locale. Improved social capital, a better place to live and stronger relationships with the tourism industry. However, this is not a one-way street, sustainability programs need not be a charitable operation. What excites me is that sustainability makes economic sense for tourism businesses. From engaging in environmental and social programs, tourism enterprises can expect a number of benefits including:



-       Brand strengthening & development. Providing a point of differentiation from competitors along with new promotion opportunities such as press and website reportage.

-       Sustainability initiatives as attractions. Local school initiatives such as cultural and sport programs, sustainable farming projects and small business development can be interesting for visitors and become attractions in their own right. E.g. Sindudurg (case study in next blog post).

-       Better experience for tourists.  As mentioned above, appropriate initiatives can only increase visitor satisfaction.

-       Sustainable business model. Tourism businesses and the surrounding environment are healthy in the long-run together.

-       Tourists contribute to the project financially and/or donate resources. Personally, I have witnessed many examples of this.  

-       Government grants and NGO assistance. Some governments will provide financial assistance for social and environmental programs. 

-       Sustainable competitive advantage. By developing deep-rooted relationships with the local community, tourism businesses can create a competitive advantage that is difficult for competitors to imitate.

The specialist area of sustainability in tourism.

To begin down the sustainability path, enterprises can start small. The scale and scope of initiatives that are realistic will depend on individual circumstances. Firstly, start with a scan of the immediate environment. Identify prevalent environmental and social issues. Find out more information about what, if any, action is being undertaken. Then investigate the issue to see what solution(s) can be developed.

Collaboration should be an important aspect of sustainability. It makes sense for tourism enterprises to utilise pre-existing networks and systems built up by non-government enterprises (NGOs), local and national government, charities and the like. These organisations are normally very happy to work with private enterprise and organisations whose work overlaps with their mandated raison d’être. Expertise can be obtained, costs shared, outcomes expedited and benefits increased. A great example of such cooperation is common at micro-finance visionaries, Grameen Bank. They often work with charities such as Rotary, government and multi-national corporations to achieve their social program objectives (see the book Building Social Business by M. Yunus).

The way forward.

Specialist consultants are needed to devise suitable sustainability and community engagement strategies, to oversee the implementation of programs from concept to operational, and to track/evaluate progress. To make it easy for tourism enterprises to participate. Education of decision-makers, both managers and consumers must play a crucial role. Real innovation is needed. Innovation in business models, fund raising, maximising benefits from sustainability programs, in measuring outcomes, in collaboration. At the end of the day, it is crucial that tourism starts taking a leading role in the sustainability of the places it inhibits. For everyone's sake.

** Coming up in my next post... examples of sustainable tourism projects. Stay tuned! **

Social Norms and Economic Modernisation.

India is a country fast advancing, growing and modernising at a rate of nots. Almost everywhere there is evidence of this, from the countless construction sites erecting apartments for the new middle-class, to the expanding army of I.T engineers, and near exponential growth in domestic tourism catering to a new  home-grown leisure class. Despite this, some elements of this country are alarmingly backwards.

Elephants. One of the most graceful, placid, and innately majestic creatures roaming our planet. Unfortunately their friendly, obedient nature has made it easy for humans to domesticate and exploit them. Still used by some today as a replacement for trucks, bulldozers, for entertainment and religious symbolising. It is shocking to many that threatened and endangered animals are still being used as labour. Below are two examples I have come across in the last few days alone.

In many ways, it is the social aspects of this and other developing societies that requires more work and attention, than economic growth. As economic growth accelerates, so too it is likely that natural resources, such as elephants, forests and waterways will be the used as the facilitators of that growth. Deeply engrained social norms such as the exploitation of natural resources are difficult to change. It takes education, good governance, credible alternatives and urgency from government bodies. Granted that most Indians too find this appalling. Then perhaps it is time that someone took action to modernise this aspect of their society in line with economic modernisation.



An elephant being used to carry palm branches along a National Highway in Kerala.



An elephant used as a religious symbol at a Temple. Put money (notes and coins) into his trunk and in return he'll provide you with Ganesh's blessing.

Stories from the Slums

Over the last three weeks, working with micro-finance institutions and other assorted organisations that serve the poor, I have been fortunate enough to meet some of the people that dwell within India's urban slums. With the help of translators I’ve been able to discuss various things with the many welcoming, kind and gracious faces. Particularly, their socio-economic status quo and what aspirations they hold for the future. Inevitably, some things got lost in translation. Despite this I came across one obvious theme. A desire to improve their lives. Far from stagnating, these people are working their absolute hardest, fighting for more. Interestingly, they don’t necessarily aspire to a quintessentially Western ideal of a middle-class lifestyle with SUVs, plasma screens and a family home with sunrooms, sitting rooms and spa baths. The people I encountered simply want to grow and develop, they want a full education for their children, less cramped housing, full employment. Modesty in the face of poverty. These are their stories....



A fortnightly group meeting to pay instalments on their 8,000 rupee individual micro-finance loans. 

 

The leader of the micro-finance group (see image above), this women used the loan to purchase a machine that produces aluminium cake/tart casings. Before the loan she was a full-time house wife, now she can fulfil that role while earning some extra money in her spare time, without having to leave home. Her sole customer, a large company that retails the casings, provides her with all the raw materials consisting of recycled chip packets. She gets paid based on her output so she can work as little or as often as she pleases. 

 

Here a woman has taken her first loan, from Suryoday micro-finance, in order to raise additional working capital for her family’s stall. The business, in the Yerwada slum area on the outskirts of Pune, sells a mixture of sweets, after-meal breath fresheners called makhwas, and coloured chalk used to festively decorate the entrances to the neighbourhood’s abodes. It is the only source of income for this family of two adults and two children, with everyone helping out in the family business. With extra financial capacity provided by an ability to expand the range of products sold, the business now has a daily turnover of around 500 rupees (AUD$11). Depending on the time of year (particular annual festivals bring additional demand), the business provides profit of between 8,000 and 12,000 rupees (AUD$175 – AUD$263) a month. 



Another story of increased financial capacity thanks to a micro-finance loan. Already owning and operating a small vegetable stand in the slums of Andheri in Bombay, this woman used her loan to start a second business. By selling kites she is able to diversify her business and increase her revenue. Although sold year-round, the majority of business is seasonal, especially around the annual kite flying festival of Markarsancanti in January. Kites sell for between 10 and 20 rupees (AUD$0.22 and AUD$0.44). With the extra money she hopes to pay for her children’s education.

 

This final story is one of a dream realised. This woman spent 15 years working in manufacturing for ceremonial jewellery. This involved receiving the many small sections of each ear piece, with her job to assemble hundreds of pieces per day for a tiny wage paid to her by jewellery wholesalers. This experience taught her the ins and outs of the jewellery manufacturing supply chain. With the help of a micro-finance loan from Ujjivan, she was able to obtain working capital sufficient to set up her own micro-manufacturing factory.  Her business purchases the materials, assembles the earrings and wholesales the finished product to local jewellers. In just 6 months she has been able to grow the business to employ a number of her neighbours from the Andheri slums. With the success of the new business, she hopes to one day upsize out of her family home to an actual factory, producing enough to supply the hundreds jewellers in her area. Her daughter currently studying 12th grade hopes to go to university to study commerce and take up her mother’s business. 

Micro-finance & Poverty - The Fundamentals.

Today in 2011, poverty is still a part of everyday existence for around 460 million Indians, surviving on the local equivalent of $1.25 per day. For most poverty is a trap, a continuous cycle of daily subsistence that can last for generations. These people are often wracked by health issues, poor (or no) education and bad nutrition.

There are a number of sources of poverty. For some it is caste in history, the way it has been as long as anyone can remember.  Misfortune, natural or man-made disaster displacing and destroying communities. Personal tragedy such as ill-health or foul play. While for many it is the lure of fabled fortunes of the bright lights of megalopolis that draw thousands of people every day to migrate from rural lifestyles to be consumed by teeming urban slums in Bombay, Delhi, Calcutta and elsewhere.

A key is needed to break the cycle. A change in circumstances to enable a step up in lifestyle. A step out of poverty. Living on less than $1.25 per day normally means hand-to-mouth use of all available resources including money, leaving little or nothing for growth. With current capacity it is not possible to save for education, health care, emergencies, or to develop a business. So why not give the poor money for these things? For one thing, at such vast scale the Indian government is not capable of providing adequate social security to the poor masses. Furthermore, there is much validity to the famous quip... give a man a fish and feed him for a day, teach a man to fish and feed him for a lifetime. Aid handouts have been proven to build dependency not personal capabilities.

The lack of access to financial resources is one of the major underlying links in the poverty cycle. The world revolves around economics, dollars and rupees. Without the ability to save money, borrow money, insure against unforseen events, and build nest eggs, India’s poor cannot improve their circumstances.

So, what is the answer? Currently there is no silver bullet. No one response that can be deployed to immediately dispel the tyranny of poverty. Poverty is an extremely complex economic, cultural and social issue. However, many important commentators believe that providing poor people with access to small financial loans is a major step in the right direction.

All this is hard to believe coming from Australia, a place where everyone can open a bank account relatively easy, and anyone with even a relatively meagre income can access literally hundreds of different financial loan products for almost any purpose. Once accounts are set up, consumers can simply go to an ATM for instant cash.

India’s poor have not traditionally had access to finance for a number of reasons. No collateral, zero proof of address, age, identity. Little or irregular income. Nothing to get the foot in the door of financial institutions like banks. Inequity in access to finance is rife in India.  In fact, even now in the year 2011 slum dwellers are scowled at, discouraged and shown the exit no sooner than they set foot into their local bank branch. Arrogance? Ignorance? Prejudice?  A little bit of each.

The alternatives have been less than attractive. Without access to formal banking, India’s poor have for generations been forced to deal in the informal finance sector. Money lenders such as local business people, loan sharks such as local mafia and even politicians. Always at astronomically high rate of interest (regularly in the region of 100% a year) with repayments often enforced with intimidation and even retribution. A high suicide rate in rural areas has often been attributed to the intense strain felt by those under a mountain of informal debt.   

Enter, micro-finance. Essentially this involves adapting formal banking lending systems for poor borrowers, lending relatively small sums of money. Thus providing India’s financially disadvantaged with the means to borrow, save and insure themselves and their assets. Loans of 8,000 to 12,000 rupees (AUD$177 - $266). For this to happen in a sustainable self-sufficient way, micro-finance institutions (MFIs) have developed a series of business model innovations. The most critical, in my opinion, was converting strong community bonds and values into group lending. Manifested in the two main fundamental business models, joint liability groups (JLGs) and self-help groups (SHGs).  These both rely on group liability for repaying, all but eliminating customer repayment default. There are key differences between the two, with both serving slightly different markets. In addition to developing these models, key early players in the industry developed complex levels of identity and income checks. Effectively nullifying issues surrounding lack of official documentation. Furthermore, specifically targeting women borrowers is another key element and has assisted the empowerment of women in these mostly highly conservative (old-fashioned) communities. To prove the worthiness of these innovations, microfinance has enjoyed near exponential growth in India over the last 5 to 10 years, with the industry now servicing 20 Million clients and over AUD$200 Billion in loans outstanding from over 12,000 different MFIs in India.   

To explain how this all works, I will take a step-by-step overview of major MFI, Ujjivan.

Ujjivan is an established micro-finance institution, currently operating from 351 offices in 20 states across India. Set up in 2005, Ujjivan was the first MFI in India to solely target the urban poor. It was previously thought that micro-finance was only suitable for rural communities. What also sets Ujjivan from much of the competition is their overriding mantra of poverty reduction – not profit maximisation.

Recognising that a micro-loan of a few thousand rupee does not eliminate poverty in itself, Ujjivan strive to provide a bridge for people to enter the financial system so to eventually be eligible for regular commercial loans by developing credit discipline, credit history and official documentation. To build individual economic capacity, loans given are predominantly for business creation and expansion. The standard time period is 12 months, with the option of further loan cycles on completion. Ujjivan operate a joint liability group structure. The following is a brief description of how this works;

Initial office establishment

• A new urban area is entered by first scoping out the area. There must be not more than 3 other MFIs already operating (to limit multiple lending), also important that there is not unmanageable levels of crime or other social problems;
• Projection meetings determine the potential market size in the area. To be economically sustainable it must be capable of providing around 4000 customers per Ujjivan office. Projection meetings are also used to spread word-of-mouth promotion and to educate the community on micro-finance and business lending;

New customer attainment and verification process

• Potential customers are encouraged to form groups of 5 people. All groups members must reside close to one another and know each other. This group will take on joint liability meaning that each member is responsible for each other member’s repayments. If one person cannot repay, the rest must help out to ensure repayment.
• A series of tests are undertaken to prove the customers identity including group recognition tests and home visits;  
• Once all these tests have been passed, the first cycle loan amount is dispersed to each customer, a total of 8000 rupees (AUD$177).

On-going customer processes

• Monthly repayments made in group meetings, facilitated by the Ujjivan field officer. This involves a ‘centre’ of 5 groups. All groups reside in the same community and are known to one-another;
• Monthly meetings to implement social programs, such as financial literacy training, general business skills, and to build group cohesion and discipline;
• Checks are made to ensure that the loan amount is being used for the state purposes (especially for business loans);
• Top-up loans are available after 6 months, so too are smaller loans for specific education (5000 rupees) and emergency (2000 rupees) purposes;
• After the first micro-finance loan is repaid after 12 months, the group can enter a second cycle loan, usually a slightly higher loan amount (10,000 rupees or AUD$222) to assist in growing business capacity. It is hoped that by the end of the third loan cycle (12,000 rupees or AUD$266) the customer will have sufficient credit history and official documentation to enter the formal banking sector and use retail banking products just like you and I are able to.

Stories from the slums to follow...