S3IDF
S3IDF
May 21 · 10 min read

By Russell J. deLucia, PhD., S3IDF — Innovation Director & Principal Founder

This blog is triggered first, by my recent lecture at UMass Boston in which much of my focus was on poverty and growing global inequality, along with interventions to address these challenges with particular focus on South Asia. Second, my desire to express in very summary terms some realizations from my years of inclusive development intervention practitioner experience — and that of colleagues and partners. Third, some recent experience of a formal collaboration of entities created to pursue inclusive development initiatives; initiatives that usually involve the use of renewable energy. Herein collaborators refers to a group of practitioners continuing to act together, and partner with other entities that bring skillsets useful for a particular initiative, but who may or may not be involved in more than one initiative. Finally, I targeted having these thoughts written prior to my attendance at the forthcoming ACEF19 (Asian Clean Energy Forum 2019) which engages with rural poverty alleviation in a number of modalities.

Some Developing World Realities

Unfortunately, despite significant overall economic progress in much of the developing world in recent time, this progress has not been truly inclusive. Consider South Asia where inequality of income and wealth has worsened and the rate of diminishing extreme poverty has lessened. This, despite significant expenditures from various development entities: international donors and governments including in the case of large federalist countries from this state/provincial as well as federal public purses. And this along with various relevant policy initiatives.

Moving from just income and wealth metrics to encompassing health, literacy and other “Human Development” metrics, one is often not encouraged, and in country-specific realities can observe, dramatic differences across both areas and over time. Further bringing in two metrics of this century’s interlocking crisis — food and water security- both are often driven by the extreme drought and flood events that one sees disproportionately impact poor communities. Here again, the inclusiveness shortfalls of intervention programs and policies are all the more apparent.

Adding lenses focused on specific sectors and communities paints a similar reality, which is far from encouraging. For example, in India and other Asian countries, the most marginalized peoples are found in the various segments of the waste sector. Here, despite opportunities for better waste management and the potential for resource recovery and recycling through interventions that could be viable and explicitly pro-poor, such interventions are mostly woefully missing.

Many approaches to solving development challenges around enabling poor and marginalized people to escape the “poverty trap” do not address the underlying complexity of the ecosystem that locks them into intergenerational poverty, meaning that addressing these challenges in a “holistic” yet cost effective and efficient manner are at best exceptions rather than the rule. As a result, underserved communities continue to be trapped by their socio-economic situation, forced to live and work outside of the mainstream economy.

Such “holistic” approaches must include market-based interventions that address market inefficiencies and barriers that prevent the poor from participating in the mainstream economy while also benefitting from critical services. When market considerations are not included, this ultimately limits the opportunities of the poor and fosters inequalities within the broader economy and society. A market systems approach addresses the intrinsic causes of these market inefficiencies and/or barriers to build more inclusive economies by first assessing the underlying market dynamics and then facilitating new modes of engagement and interaction among a range of market players, which respect each party’s unique objectives.

Energy Access (Especially Electricity)- Its Role and More

No poor community can escape the “poverty trap” without access to and use of modern energy forms (e.g. diesel). Many decades back that meant mobile and stationary shaft power to eliminate the human drudgery of tasks involved in growing, harvesting and consuming of food and fodder crops and post-harvest of consumption and market crops — milling, milking, carding etc. This also meant minimizing reliance of animal shaft power (and need to feed them). To this was added kerosene as a “modern” illuminate. Unless there was grid electricity or local generation, usually diesel based or in some “fortunate areas” small hydro based, all the many other electricity dependent energy uses –refrigeration (yes it can be done without electricity, but it depends on technology often not present), all modes of modern communication, etc. were generally not available, or if so not affordable.

Fast forward to the rapidly evolving world of today’s vast numbers and types of electricity-dependent technologies for use in all sectors of modern societies. Some examples are: agriculture’s computer controlled and soil water sensor-informed trickle irrigation systems and high energy efficient cold storage plants; the communication sector’s various cell phone apps that allow non-literate and relatively non-numerate farmer’s to access information such as market prices; the transport sector’s electric motorcycle taxis “callable via cell phone apps”; the health sector’s MRIs –magnetic resonance imaging machines for multiple purposes; the education sector’s wonderful innovation of the Khan Academy bringing teaching modules to communities with good electricity, internet connectivity and necessary equipment.

In this afore-outlined evolving world, considering both global and local environmental benefits and the particulars of addressing poverty alleviation, clean energy investment especially efficiency and electricity from renewables of all types, coupled with power storage where appropriate will hopefully play dominate roles in both the “overall” grid and mini-grids, both interconnected and independent. However, in the near term, the realities for many poor communities are such that often the grids –big or mini- are not present or not reliable. There are just too many communities that are off or nearly off –the grids, the communication networks and the roads and other infrastructure allowing market connectivity. In such situations, efficiency and renewables-based electricity cum power storage whether in lieu of a non-existent grid, or to supplement the grid to adequate performance norms, must be part of holistic development interventions allowing such communities to benefit from the plethora of technologies to improve the livelihoods and well-being.

Achieving Poor Community Livelihood and Well Being - Some Comments

Everywhere, poor communities cannot escape poverty by living and working outside of the mainstream society and economy. Livelihood fostering/strengthening interventions must be market-based but will realistically need to use a blend of grant, soft and commercial term finance, along with enterprise-centric approaches to bring the necessary minimum bundles of services and technologies (energy, credit, appropriate market access, technical and business knowhow) to allow escape from the poverty trap.

Narrowing the Focus to India — Comments from Our Experiences

In addition to various public sector sources, the emergence and growth of mandated Corporate Social Responsibility (CSR) funds, growing philanthropic sources, some “truly impact” oriented investors, as well as India’s relatively well developed capital and banking systems will allow for necessary blended finance deal creation and implementation. This will be assured by use of instruments like the “partial risk guarantee” and other access to bank debt for pro-poor deals.

Comments below outline very briefly some dimensions of this needed “holistic” development intervention approach underscored above. It draws from experience and detailed knowledge of the author and collaborators, and highlights a few examples of intervention classes that are judged very widely appropriate for the challenge of rural poverty alleviation in India. These are examples of interventions whose business plans encompass investment and/or operations technologies that are electricity dependent and in one instance also dependent on energy efficient investments.

Appropriate determinations of an intervention’s success is that its aims are explicitly pro-poor and pro-environment and there are measurable positive impacts on the target community, village or group to services previously absent, employment, income and, in the best of cases, asset ownership. In almost all cases the intervention will require investment expenditure. Further, a success means that in post-investment implementation (in the operations phase if not earlier) the intervention must be financially sustainable as defined in the intervention’s blended finance design.

Experience suggests that to be explicitly pro-poor much if not all of the pre-investment efforts as well as some implementation costs need to be covered by grant or financing on patient terms. However, in the operations phase, the aim should be full cost recovery, including any servicing on debt obligations or other similar alternative investment types that are tied, for example, to revenue. The operations phase should also include some return on equity, where the equity metric includes “sweat equity.” Experience further suggests the poor can be entrepreneurs and their own target financial return on equity capital is lower than other investors when intertwined with the poor’s other benefits, such as gainful employment at non-exploitive wages.

Execution of the “holistic approach”, begins with the intervention pipeline building followed by implementation of the specific interventions. Whether the core of the possible physical investments and/or changes to the operation and perhaps ownership of assets are included, the initiative must have a pre-implementation stage. For existing development practitioners, as is the case for the collaborators, intervention locations in terms of community, organization or whatever is where one of the collaborating entities and/or one of their existing partners have both:

  • an existing relationships with target communities or community representatives and significant domain knowledge of the location-specific “ecosystem of poverty” and
  • a working hypothesis of possible interventions that could meet the aforementioned success criteria.

The devil is in the details for any particular intervention, and the “ecosystem of poverty” that must be escaped. But in general these steps are analogous to those for any economic asset investment and/or investment operation, except the details must ensure it is pro-poor and pro-environment.

In parallel with the location-specific efforts, intervention pipeline building can be complemented by efforts to build knowledge of classes and more detailed sub-classes of interventions (with potential for replication with appropriate modification of local specifics). Such knowledge to include intervention characteristics for technology, business/implementation model, and blended financing sources and approaches that are likely to be applicable based on the collaborators’ extensive knowledge and experience. For example, important classes for rural agricultural context include:

  • Interventions which improve the productivity of existing factors of production (land, water, labor, etc.), including the input factors that are of utmost importance to the working poor
  • Interventions producing improved and more value-capturing market access for situations in which there are marketable surpluses
  • Interventions that add-value to these marketable surpluses

The interventions that are likely to be widely applicable may entail a very wide range of investment costs. All below examples are dependent on access to, and use of modern energy forms. In general this should be electricity, although some examples are those only needing shaft power could be powered by for example diesel engines. The examples:

Class 1: At the low end of investment costs are interventions to introduce powered “chafe cutters” (about $ 400) that decrease labor and increases the digestibility of many dry fodders and thus the productivity of dairy cows. Such interventions are best geared to a single or small group of farmers located close to one another.

Class 2 (a & b): Typically found at the higher end of the spectrum are a very special class of interventions and their technologies-cum-business is to introduce storage to the post-harvest value chain for the farmer. These interventions enable market arbitrage, allowing market surplus –with or without value addition - so that farmers avoid having to sell at time of peak-harvest/low market price “distress sales.”

  • Within this category are two distinct sub-classes of interventions, a — “dry storage”, for example for food grains, and b — “cold storage,” for example for horticulture crops.
  • Storage facilities — dry or cold — can be sized to serve a wide range of numbers of farmers and amounts of market surpluses and hence to some extent the investment costs of the storage facility exhibit some economies of scale. In practice, at least in India, such scale economies are more captured by dry storage facilities often owned by public entities.
  • The business models for both types of storage generally include other activities –e.g. sorting and classifying the food commodity stored.
  • In both cases, for the farmers to benefit from the market arbitrage function, they need not own the storage asset, rather they can for example pay for the storage function. But the storage asset owner or a third party will need to provide the market analytics to provide market price information in a timely manner. This is made possible by varying communication modalities enabled by the almost universal ownership of cell phones in India. These communication modalities are being innovated to address the challenges of the low literacy and numeracy of many Indian farmers.

Returning to the matter of investment cost, representative investment cold-storage that serves hundreds of farmer-members of a Farmer Producer Organization (FPO), which can benefit from the market arbitrage, will typically run an investment cost of about $8,000 with this increasing $11,000 if the FPO is without adequate/reliable electricity supply and for example a PV system is part of the investment.

An additional comment is warranted for some special rural poverty ecosystem traps that exist in the larger market ecosystem where there is the possibility to change the paradigm of the dominate commercial business models such that they can be more inclusive. This situation exists in some remote areas where there are villages off-grid, off-road and off-internet. However, there are commercial businesses catering to people wanting to visit attractions of nature’s environment for trekking, animal watching, unique vista viewing. Here for these villages to benefit significantly, usual commercial business models can be re-thought to be very explicitly inclusive, bringing financial and social benefits to communities in these areas. In these situations the scope of “holistic” intervention design and execution is even more complex and perhaps involves matters touched upon above, but often much more. Holistic approaches must be built into a new business both catering to the visitors and ensuring significant benefits getting to the villages themselves. The collaboration mentioned at the start of this note is doing such development via a new social enterprise trekking company.

The final comment for this note appropriately goes back to the issue of credit as a key and often critical component in pro-poor interventions. Depending on the particular ecosystem of poverty to be escaped, and the intervention’s components and partners (including financial institutions with local presence), a priority intervention component will be arranging credit for the village farmers that are to be the intervention beneficiaries. Even before credit becomes part of the blended finance structure of an intervention’s investment component, there is the question of whether the villagers are able to get credit for their productive activities (e.g. buying seeds and other inputs). And if so, is that credit coming from formal financial institutions (FIs) at reasonable rates or are they depending on informal sources, commonly at high/exploitive rates. If the latter, a priority intervention must address this challenge first, or simultaneously with intervention investment components. Here the intervention should aim to bring in a formal FI as a partner and as appropriate use, for example, the partial risk guarantee instruments mentioned earlier in this blog.

By more widely employing a holistic market-systems approach across all sectors, we can engender the positive inclusive social development critically missing from existing economic progress.

S3IDF

People cannot escape poverty by living and working outside of the mainstream society and economy. We remove barriers to their inclusion by leveraging private sector resources and mitigating the risk in business transactions between local players.

S3IDF

Written by

S3IDF

S3IDF is an international nonprofit organization that builds inclusive market systems to promote equitable economic and social development. More here: S3IDF.org

S3IDF

S3IDF

People cannot escape poverty by living and working outside of the mainstream society and economy. We remove barriers to their inclusion by leveraging private sector resources and mitigating the risk in business transactions between local players.

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