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Tuesday, December 21, 2010

Economics of a Rikshaw Puller in Delhi

On my recent trip to Delhi, I had the opportunity to travel in a cycle rickshaw (the Metro-town connections are still not good in some places like Dwarka) and I chatted up with all the rickshaw pullers I engaged with to try and understand their economic condition.

Turns out that they earn anywhere between Rs. 100 and Rs. 150 per day. Assuming an average of Rs. 125, they end up earning Rs. 3750 per month. Their monthly rents vary between Rs. 800-Rs. 1100 a month. Again, an average of about Rs. 1000 for accommodation and a Rs. 1000 for food (around the consensus figure) and some miscellaneous expenses, leaves them saving about Rs. 1200 per month. The guys I spoke to, shared their income with their families back home, but they admitted that end up sending something around Rs. 1000 a month for their families. So, as per my suspicion, it doesn't leave much for their families to survive on, forget the option of providing a brighter future for their children.

Those who had families in Delhi struggled even more with the incomes that they wished that their families could stay back in villages.

There was however one silver lining. All of them I spoke to, end up renting the rickshaws from the owner. That rent alone is about Rs. 30 per day. This amount includes the cost of a rickshaw plus any major repairs that might be needed, but any minor repairs will have to be borne by the puller himself. The owner also provides for 3 off-days, whether you take it or leave it, which means he has to pay only for 27-28 days of rent in a month. If you factor that in, that is Rs. 840 a month that the rickshaw puller could potentially save.

The average cost of a Rickshaw is anywhere between Rs. 8000-9000, which can easily serve a puller for anywhere around 10 years, and probably more. This cost can be recovered from the rent he saves for a year. So, for the next 9 years, he gets to save something around Rs. 750 more (I am setting aside Rs. 90 a month towards the expense of "major" repairs) per month for 9 years. That effectively increases the net income for the family back in the village by 75% potentially paving the way for a brighter future for the next generation.

Then, if the above mathematics looks reasonable to you, then you will agree that this funding fits the bill for a micro-finance institution, like RangDe, to step in. It is well within the standard investment levels they make. The return payments for the first year can be the rent that they are already used to and then once the repayment is done in full, the rickshaw is for the pullers to use.

Any hurdles? Yes. Lobbies. The rickshaw owners (the ones who rent out the rickshaws) are sort of local overlords with deep connections into the local political circuit. They wouldn't want these pullers to become self-sufficient, since it kills their golden geese. So, what is needed for RangDe to function in this space is a field partner that can potentially counter the owners through educating the rickshaw pullers and providing them with logistics help to make their experience smooth.

Will RangDe take up such an initiative? Anybody else?

(Disclaimer: The facts presented here are from a few interviews only, but there is enough consistency from different pullers and the lack of a motivation to lie about it, that I believe it is representative.)

(Photo Credit: Wikimedia Commons.)

Tuesday, December 07, 2010

RangDe follow up at the end of the 2010

In April this year, I wrote about how you can distribute any investments you make on RangDe and in effect reduce your risk of defaults. I was convinced this arrangement was very close to the right mix for anybody wishing to make investments. So, I had started toying around with the idea of gradually investing to see how the money came back and figure out any other thorny issues that could arise.

I am glad to announce that I have made a total of 104 investments amounting to Rs. 32,000 so far, almost all of it happening within the past 9-10 months. Out of this, Rs. 4,600 is through re-investments with direct inputs of Rs. 27,400. I have now stabilized around contributing Rs. 5000 every month, which funds about 10-15 entrepreneurs. The money generally comes back in 12 months, and so on an average, expect about 7-8% of your total investment to come back every money and hence available for re-investments.

What does these numbers mean? On an average, most Indian rural entrepreneurs ask (or get approved for) about Rs. 5000-7500 meaning that this amount might have touched 5-6 people's funding requirements. They might have grown out of the clutches of the money lender, albeit only for a bit.

In general, there is no dearth for enterprising folks in rural India, but they are severely handicapped by the lack of funding and infrastructure. Towards the funding issue, a peer-to-peer lending arrangement charging about 8% simple interest from the entrepreneurs looks like a good arrangement for me. If I did not do this, this money would be lying around in a bank, EPF, PPF account on utilized in the stock market, probably growing at a better rate (the effective money that the lender gets back is 2.5%, the rest goes to RangDe and the field partners), but the satisfaction in contributing towards "Knocking out poverty", which is RangDe's tagline seemed too tempting to pass. Hence the consistent association.

Did I bother when there was the controversy regarding MFIs and suicides? Somewhat, but when I started reading, I realized that much of it seemed related to pure-MFIs at play, like SKS, and not with Peer-to-peer lending arrangements like RangDe (though it could spread out, but let's forget it for now) and with enough vested interests from the moneylender lobby, who stand to gain when a controversy erupts against MFIs, I decided to apply my judgment and instinct to decide that I want to continue supporting MFIs. I could be proven wrong, but that's a risk one has to take.

How did I arrive at the Rs. 5000 p.m. investment number? At around SGD5 per meal on an average per day for lunch, I spend SGD100 per month. If you add in the cost for my teh-halia-kurang-mani-takeaway (ginger tea, less sugar, take away), Rs. 5000 is what I end up feeding myself just during the day for a month. Surely, if the same amount can be put to somebody's good use, why not? It also seemed morally prudent to contribute back to the society rather than increase my own standard of living, so instead of upgrading myself to SGD10 meals per day, I would chose spending it on improving somebody's life. Makes sense, doesn't it?

What next? I want the total investment I make to Rs. 100,000 which seems a few months away. Around that number, it seems that the paybacks will be enough to sustain a little micro-cycle of investments. At that point, I am going to review my strategy.

Anything else I learnt? To remember that this is not charity. This is using your money to improve somebody else' life and getting that money back. So, I consciously try to call the beneficiaries as entrepreneurs and not as borrowers, which seems right. They are taking money against a business purpose, be it cattle raising, vegetable selling etc, and not for marrying off their daughters or on hooch. And I want to respect that intent. I wished everybody else looked at it the same way.

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