This blog post is a part of the catalyzing new mobility program and receives support from The Rockefeller Foundation.
Last month, EMBARQ India hosted an event, “Rickshaw Rising: An Auto-Rickshaw Entrepreneurship Summit,” in Mumbai to discuss the challenges and opportunities of promoting and scaling up entrepreneurship initiatives in the auto-rickshaw sector in Indian cities. The three key issues highlighted at the event included 1) finance, 2) regulation, and 3) institutional issues.
To gain insights into the financing aspects of the auto-rickshaw business, we spoke with Anuradha Bhavnani, regional director of Shell Foundation, India. She shares her thoughts on entrepreneurship, business models and various finance opportunities to help entrepreneurs grow to scale.
Why is it important to focus on the auto-rickshaw sector in Indian cities?
It is estimated that there will be 215 million new residents moving to Indian cities by 2030, and their mobility needs will have to be met. Rapid urbanization makes sustainable transport a pressing issue. Hence, EMBARQ, one of Shell Foundation’s partners in India, is developing sustainable urban transport solutions to reduce urban congestion.
The auto-rickshaw is a much-neglected para-transit mode. It offers personalized space for women and senior citizens. It is also a cost-effective and safe system of urban transport.
What would you say is the case for supporting entrepreneurship in the auto-rickshaw sector?
The auto-rickshaw sector in its current unorganized form poses significant challenges for drivers, passengers and the city, as a whole. Promoting innovative entrepreneurship initiatives, such as organized fleet businesses, can help realize the benefits of scaling up, such as better fleet management, improved quality of service, brand image and advertising potential, and the mitigation of environmental impacts through operating efficiencies.
Entrepreneurship is an opportunity which needs long term commitment, a clear business mindset, efficiency, and an entrepreneur with skin in the game and passion to run a business. Shell Foundation’s focus has been on enterprise-based models to deliver solutions to large development challenges. An auto-rickshaw enterprise has both social and environmental benefits.
In what areas do you think entrepreneurship opportunities exist in the auto-rickshaw sector?
There are many examples:
- “Dial-an-auto-rickshaw” companies for standardized, efficient, door-t0-door service
- Retrofitting auto-rickshaws with energy-efficient widgets that can help save fuel and reduce emissions, thus cutting carbon and costs
- Efficient non-tamperable meters
- GPS and mobile technology-based tracking devices for fare estimation and real-time monitoring
- Training centers on driving and etiquette for auto-rickshaw drivers
What are the various business models specifically for fleet-based enterprises?
There are different business model approaches to providing fleet-based services. One of the key differentiators is vehicle ownership. Companies like MERU Cabs (in the taxi sector) and Radio Tuk Tuk (in the auto-rickshaw sector) own their vehicles and rent them out to drivers. Other services, such as G-Auto, have developed a business model that organizes the existing owner-drivers based on membership and provides value-added services, such as dial-a-rickshaw and advertising. Given the importance of scale, it is extremely important to have a financially sustainable business model, no matter what business model is implemented.
What are the major finance barriers that auto-rickshaw entrepreneurs face?
A new enterprise will normally have no collateral and no profitable balance sheet for the first few years, which makes it difficult to get lending from banks for working capital needs. However, there is priority sector lending, and banks should look at this as a priority sector, since it deals with small and medium enterprises (SMEs).
For entrepreneurs to take their business to scale, they need financing, as well as business capacity-building, systems and processes, and mentoring. They may also need some initial risk capital and set-up costs (“soft funding”), loans for working capital needs, and equity to take the business to scale and grow it exponentially. Each entrepreneur will face challenges in one these areas, so there is a need to find ways to assist them to grow their business profitably.
What are the various finance sources that currently exist for auto-rickshaw entrepreneurs?
Investment in this space will generally be from those investors with an appetite for risk. In addition to profitability, the environmental and social benefits resulting from organized fleet businesses would be important in attracting investors.
I think the major potential sources for finance would be social venture capital firms and foundations that invest in innovative transport solutions.
What is the way forward to bring together these investor networks and current and prospective entrepreneurs?
The knowledge in this sector is very new and limited among the investor community. Therefore, as a starting point, it is important to raise investor awareness of the innovative business models in the auto-rickshaw space and the benefits that they bring to cities. At the same time, it is important to disseminate information about various investor networks to existing and potential entrepreneurs, through things like networking events and forums. Programs like EMBARQ could play a key role in catalyzing these opportunities.
Among the current entrepreneurship initiatives, what are the gaps that need to be filled to enable them to scale?
I think scale-up in terms of fleet size is something that we are yet to see, and without this, it will be difficult to assess the real benefits of these initiatives, not just in terms of profitability, but also in terms of social and environmental impacts. It will be important to put in place the right business processes, mentoring and finance, while keeping in mind the objective of running a full-fledged business, with the necessary resources and tools to track costs and revenues, assess social and environmental impacts, and evaluate quality of service.