In my experience of the past ten years of propagating the idea of entrepreneurship amongst Dalit youth as a means of attaining economic empowerment, I have found that there is a generational shift taking place amongst them. Though they are interested in entrepreneurship, they do not have access to primary factors that can support entrepreneurship amongst them.
Starting a successful venture is a complex undertaking that requires more than just the idea. It needs a good team, a strong network, strategy, capital and other important attributes.
Lord Buddha spoke of ‘samyak drishti’ or the right outlook, which literally translates to ‘see it as it is’. If we want to follow this principle, we cannot live in the past and see the present. If entrepreneurship is the dictum to pull the Dalit world out of its poverty then let’s take a look at the bottlenecks that have to be surpassed to achieve the desired results, and discuss each in turn.
“If entrepreneurship is the dictum to pull the Dalit world out of its poverty then let’s take a look at the bottlenecks that have to be surpassed to achieve the desired results, and discuss each in turn”
1. Lack of Early-Stage Risk Capital
In the above statement, two words are important: ‘early’ and ‘risk’. Thus, what Dalit entrepreneurs need is a partner who can provide funds at the early stage of the business and who will participate in the risk. This is a hybrid of angel and venture capital investment. If we want to wean away today’s Dalit youth from the employment mindset and make them undertake the entrepreneurial journey then that can happen only if the cost of failure is reduced considerably. In the case of debt funding, the cost of failure increases tremendously because the loan has to be repaid along with the interest, and one can also lose the collateral provided, which in most cases will be the residential dwelling. Thus, entrepreneurial failure will not only make the Dalit entrepreneur penniless, but chances are that he will become homeless also. Furthermore, the repayment of interest and principal in the initial three years of a business is the main cause of its failure.
In the first three years, the first-time entrepreneur is trying to fight the competitive market and maximize his capacity utilization, and hence is always in need of working capital. However, debt has to be serviced every month or quarter, and, as a result, promoters have to use their working capital for repayment, instead of using the funds for utilization as working capital to strengthen the venture. Hence, banks should provide a thirty-month moratorium on principal repayments for MSME loans below Rs 5 crore.
2. Inexperience in Deploying Capital
Capital comes with a cost, whether you borrow it or deploy your own. In the former, there is the applied rate of interest, and in the latter, it is the cost of opportunities that you forgo due to your investment. The best way to learn the tricks of the trade is to actually undertake the trade. Dalit entrepreneurs have to be encouraged to grasp the financial workings of the enterprise that they want to operate—they should understand the commercial terms, the language of the trade and the margins involved before they approach any financial institutions.
However, we have observed that most of the applications of Dalit youth with banks are for setting up the production unit (factory), and the bankers during their appraisal can make out that the applicant does not have any understanding of the proposed business; hence, the proposal is rejected. It is always better that the youth first undertakes the trading activity and then sets up the manufacturing unit.
3. The Lack of Organizational Capability
Most Dalit entrepreneurs miss the three Cs concept of business—customer, credit and cash. The key aspect of business is not in establishing a manufacturing unit or establishing a store—it is the ability to identify a customer and deliver to him/her the product that he/she wants and recover the cost of the product.
4. Inability to Deploy Managerial Talent
Being first-time entrepreneurs, Dalit youth do not employ specialists as that involves costs, and hence end up doing everything themselves—from managing operations to handling finance to marketing the product and also doing the HR function. As a result, they cannot deliver on any segment and finally end up in a debt trap.
For an entrepreneurial ecosystem to be created, one of the steps is showcasing success stories, creating networks of venture capitalists, building platforms for sectoral growth, but above all, strengthening the education system at the primary and secondary levels. The experience of Pratham, the NGO that comes out with the Annual Status of Education Report (ASER), states that while skill training helps learners build strong foundations in their careers, there is a glass ceiling for those who lack basic reading and arithmetic abilities. In order to handhold Dalit youth, we need to create incubation centres in universities and colleges where aspiring entrepreneurs are provided with essential infrastructure that will nurture their ideas and make them bloom to viable business plans.
The essential infrastructure must provide:
- Primary common facilities such as office space, office equipment, staffing and other services
- Support from financial institutions
- IPR (intellectual property rights) support
- Support with licensing and other regulatory requirements
- Inventor–investor engagement
- Handholding with PSUs (public sector undertakings).
- Equitable Distribution of Credit and Capital
It would be proper to quote here the Commencement Address ‘To Fulfill These Rights’ by Lyndon B. Johnson at Howard University, 4 June 1965:
This is the next and the more profound stage of the battle for civil rights. We seek not just freedom but opportunity. We seek not just legal equity but human ability, not just equality as a right and a theory but equality as a fact and equality as a result.
Over the past ten years, all our discussions on promoting Dalit entrepreneurship with either the government or the private sector have had ‘quality’ as a key discussion point. The procurement managers of these companies would always say that they do not and will not compromise on quality. Fair enough. We have never asked for any compromise on quality, but I always had this: If you do not compromise on quality, then why does your final product/service not meet global standards?
“Caste stands out as a central decision-making force during procurement, as it has been with labour recruitment, capital formation and networking.”
Caste stands out as a central decision-making force during procurement, as it has been with labour recruitment, capital formation and networking.
As stated earlier, the three Cs of community, credit and capital are key to create businesses.
For Dalit entrepreneurs, the community aspect transcends region, language and caste/sub-caste when it takes the mantle of Ambedkarism. The other two, credit and capital, are the critical components of financial inclusion, and the key issue with regard to making financial inclusion a success is obtaining reliable data on the lending done till date to Dalits through the PSL tool of the RBI.
Arun Khobragade holds an MBA from IIM Calcutta. He is chairman of the Babasaheb Ambedkar Social Innovation Council (BASIC). He is currently working on the issue of caste inclusivity in corporate India.
Excerpted with permission from Penguin Random House India.