Let's Not Waste This Crisis
very day brings new heart-wrenching news stories: 32% of Americans are unable to pay rent or their mortgage in August. One in five Americans has lost their jobs since March. With this scale of economic devastation pounding the supposedly most powerful nation on earth, how can poor countries cope? Oxfam and the World Bank are predicting that they can’t. Half a billion people are projected to slide back into extreme poverty.
We can’t let this happen.
We must take the lessons from the last 30 years of fighting poverty to build a dam against this slide back into poverty for too many. One of those lessons is that people experiencing extreme poverty are not helpless. They are resourceful and eager to take opportunities to build stable lives for themselves. The microfinance industry demonstrated that first by creating millions of microentrepreneurs. Now new approaches are teaching us the same lesson.
For years, Upaya Social Ventures has championed job creation to fight extreme poverty. Predictable income, even relatively small amounts, is a game changer for poor households used to scrambling for some kind of income each day. We have seen incontrovertible evidence that job creation provides a sustainable, lasting, and effective ladder out of extreme poverty. Now we are also seeing it as a critical shock absorber during a crisis.
What we did not know until now is how critical these employment relationships are in providing stability in a crisis. While news reports are filled with horror stories in India of day laborers and microentrepreneurs suddenly facing starvation, the jobholders we’ve surveyed from our portfolio are still earning money. In our survey, 69% of respondents were able to earn an income, and it remained the same or increased for 54% of them.
The respondents’ earnings were driven by the fact that five of the six Upaya partners we surveyed were able to maintain wages of some form; two maintained full wages regardless of the amount of work done. In addition to wage support, partner companies provided other support to their workers such as grocery credit, food, and shelter. While respondents still reported fear for future earnings, they were not immediately thrown into desperate circumstances during the lockdown.
Surveys of a comparable population are finding the inverse – the vast majority of the poor have no way to earn a living in the lockdown and for many, this leads to dire consequences.
Our findings surprised even us. The companies in Upaya’s portfolio are not mature corporate behemoths. They are startups founded by passionate entrepreneurs committed to creating livelihoods. Like all early entrepreneurs, they worry about cash in the bank. In many cases, their own revenue came to an abrupt standstill in the lockdown. And yet, they went to extreme lengths to protect their workforce. This relationship with a caring employer formed a lifeline for the workers in our portfolio and created the infrastructure for them to access help when they needed it most.
Building a better world post-crisis
There are urgent lessons here for philanthropists and impact investors trying to protect the progress of the last 30 years. While we know there is no silver bullet solution to extreme poverty, we need to be more focused on supporting sustainable jobs. These jobs come from Livelihood-sustaining and Dynamic Enterprises described as “too risky” and “too hard to finance.” The Collaborative for Frontier Finance describes these kinds of businesses as “the backbone of local economies (that) are important sources of jobs for low- and moderate-skilled workers.” These are exactly the kinds of jobs we will need in a post COVID recovery.
But while these may be the kinds of jobs we need, we are not seeing adequate support flow to the companies that can create them. Graham MacMillan, President of the Visa Foundation, describes these companies as “the most missing of the ‘Missing Middle.’” The companies that Upaya targets, which can create 1,000+ jobs, are often overlooked by impact investors seeking higher returns or lower risk or both. Where investment is available, it is often high cost debt (22%+ APR in India) that cannibalizes cashflow and limits growth; or it comes with equity terms that trap both entrepreneur and investor into expectations which are misaligned with that is achievable.
So far, Upaya has invested in 23 small and growing businesses that have created jobs for over 17,000 people in India. But we need to do more—and so do our peers. We have doubled our investments in 2020, but are not seeing enough capital flowing to the companies can provide stabilizing employment in the recovery. Good research is being done into better ways to make these investments but that won’t help if we can’t bridge the estimated $930 billion and growing gap.
Let’s not waste this crisis. We have an opportunity to take a fresh approach to fighting extreme poverty. We know that there will need to be subsidy and rations, but let’s also invest right away in the small and growing businesses that create sustainable jobs. Let’s bring flexible capital to the entrepreneurs who can sustainably create opportunity and create resilience.
MEDIA CONTACT:
Madlin D’silva
mdsilva@upayasv.org