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December 23, 2011
How India's 'untouchable' entrepreneurs use capital to fight caste
By STEPHANIE NOLEN
From Saturday's Globe and Mail
The country's lowest-ranking class band together to create business
opportunities long denied them by society
When Prashant Tambe sought a loan to expand his private college last
year, the bank didn't turn him down outright. "It was just
red-tape-ism," the young entrepreneur said, using a popular Indian
expression for business death by a thousand bureaucratic hurdles.
His brother, Avinash Tambe, had an identical experience seeking funds
to build his coal import firm. They have no illusions about the source
of the banks' reluctance: It began when they wrote their surname on
their loan applications.
The name Tambe identifies them as Dalits - the people once known as
"untouchables," at the bottom of the Hindu caste system. And so
despite the fact that the brothers have eight post-graduate degrees
and two successful businesses between them, they struggle to get
access to capital and chafe at the opportunities they are missing.
They recently had an opportunity to share that frustration, and to
seek out new partners, at a first-ever trade fair organized by the
Dalit Indian Chamber of Commerce and Industry.
"It's a strange irony and it tells you a lot about the ground reality
of India," Prashant Tambe mused as they set up their stall in a vast
Mumbai exhibition hall - it's popular wisdom in the country today that
the booming economy will end the influence of caste, but the best way
they can find to be part of that economy is to join a caste-based
business association.
The Dalit business lobby, founded in 2005, has 1,000 members; 180 of
them came from across the country to exhibit and network at the
three-day fair. There were companies making solar-power systems,
military uniforms, car parts, pharmaceuticals, pesticides and
industrial piping; there were also small financial-service companies
and construction firms.
The DICCI slogan is "fighting caste with capital." But many business
owners at the fair said they share one key problem: They can't get
their hands on that capital.
As the Tambes and others described, Dalit business owners struggle to
obtain conventional bank loans. Sometimes it's malice from
dominant-caste bank employees who do not want to see a Dalit business
succeed, said Prashant Tambe; other times it's simply that the bankers
doubt that a first-generation Dalit business owner will have the
acumen to be a safe loan risk.
Almost always, they lack collateral - while Dalits are a sixth of
India's population, they control only an estimated 1 per cent of the
country's wealth. The vast bulk of the population continues to be
landless labourers working for occasional daily wages of one or two
dollars.
And they have no access to the other key source of funding for Indian
entrepreneurs; loans from extended family or their caste community -
"internal funding," as it's known here. The Tambes' father was the
kind of general labourer called a "peon" here and their mother was a
nursing assistant with a primary-school education; the cousin who is a
co-owner of the coal business is the son of a cycle rickshaw driver.
They pushed their sons to seek education, but they had no funds to
bankroll their good ideas.
The Indian government has attempted to address the issue through a
Dalit-focused national finance-development corporation, but it
provides only small loans of up to $5,000 - enough, as DICCI
chairperson Milind Kamble put it, to buy a large photocopier and set a
family up as a corner copy shop, but not enough to bankroll an
entrepreneur whose ambitions stretch beyond that.
Kaushal Vidyarthee, who is working on a doctoral dissertation on caste
and capitalism at Oxford University, said that one government policy
has made a difference, in cases exactly like the Tambes:
affirmative-action quotas, or reservations as they are known here,
which set aside 15 per cent of government jobs for Dalits. With even
an entry-level position, the family is able slowly to salt away enough
money to fund a small entry into business; those jobs, and reserved
seats for Dalits in educational institutions, are behind every
Dalit-owned business he has examined.
That's what Mr. Tambe found when he opened Imperial Mineral Resources
Pty Ltd. in 2008 to import Australian coal to India's hungry energy
sector. Private power plants were owned by wealthy members of dominant
castes and didn't want to deal with him, so he turned to
government-owned plants. But even there, dominant caste people made up
the senior staff. He pressed on - "999 people will say no but one will
say yes - and I started getting more contracts because I deliver on
time with less profit margin." The firm did just under $1-million in
business this year and has nine employees.
Mr. Kamble hoped the trade fair would help small entrepreneurs make
helpful connections, but the main audience he was targeting was not
Dalit: Indian society perceives Dalits only as takers, he said, who
need ration cards and a dozen other government programs - "that
without government support or affirmative action Dalits cannot walk a
single step. People don't know that in the Dalit community people are
running corporate houses and running multinationals."
Mr. Kamble, the son of a schoolteacher, is an engineer; in the early
1990s, he collected 25,000 rupees (today worth $5,000) from friends to
begin his own construction firm, now worth millions. But raising that
early cash was a struggle, and there was no one in his community to
advise or mentor him.
Hoping to pave the way for other Dalit entrepreneurs, the DICCI is
setting up a $100-million (U.S.) venture-capital fund, which Mr.
Kamble said would be operational by mid-2012. The sector-agnostic fund
will provide risk capital to DICCI-member businesses, both market
entrants and those seeking to expand. Prasad Dahapute, who will manage
the fund through a small investment-banking firm Varhad Capital, said
that the Dalit business elite had been approached to provide the
capital. The fund so far has two anchor partners: Ashok Khade, chief
executive of the $1-billion Mumbai-based Das Offshore Engineering, who
is the oft-cited business hero of many at the trade fair, and Rajesh
Saraiya, who heads the $400-million British-based steel trading firm
Steelmont Pvt. Ltd.
"Of the 180 businesses that are here, 160 of them need debt or equity
capital now," Mr. Dahapute said. The businesses they fund will need to
be Dalit-owned, but first and foremost good ideas, he said; the
venture-capital model means that new entrepreneurs will get the
assistance of experienced directors.
"Godrej or Tata have been in business for 100 years, but we have no
business history," Mr. Kamble mused, citing two of India's biggest
conglomerates. "But we are trying. Now we are making parts for the
[Tata] Nano - our dream is that in 10 years we will make our own car."
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