Opportunities in the Indian Black Market -- gangsters need not apply

By Source Senior Analyst, B.J. Richards

Last night, I was at a party. Obviously, it wasn’t a great party, because about 5 minutes in, I found myself chatting with a corporate recruiter about the challenges multinationals face in hiring for their emerging market outposts. Scintillating stuff, I know. The conversation turned to India (which, to be fair, is not this recruiter’s geography of expertise), and I mentioned my surprise to recently read that about half of India’s GDP is derived from the black economy. A look of horror came over her face. She scrunched up her nose, leaned in over her glass of champagne, and whispered in a conspiratorial tone, “You mean, like, the mob?”

It was an unsurprising, if somewhat ridiculous, misunderstanding. She, like me, is an American, and when an American hears ‘black economy,’ we do tend to think of Tony Soprano and Walter White, not the rural poor. Those who know emerging markets – and India in particular – will obviously know better, but they may still consider both types of black economies equally unappealing business prospects. In the case of rural Indians, they may be wrong.

Much like the misunderstanding with my fellow party-goer, it’s a forgivable mistake. Though we are talking about a huge pool of money, it’s spread out over a lot of people, and none of them really have much to spend. Plus, looking for opportunities here might seem a little distasteful: “Great,” you’re thinking. “I should spend my time coming up with ways to talk poor people into spending what little money they have. Just what I was hoping to do today.” I have to admit, I’m a little hurt that you would think me so cynical. On the contrary, India’s rural population stands at a critical juncture in their country’s ongoing development, and providing them with meaningful access to the right goods and services has potential to benefit them greatly. True, few are likely to be in the market for management consulting services anytime soon, but they may be very eager to talk to some of your clients. And, once you help them understand the scale of the opportunity, your clients may be eager to talk to them, too.

As noted in last week’s Economist, India’s rural poor have had a great decade. Transportation and communications infrastructure have improved, as has the electric grid. Fewer than half of rural dwellers now identify as farmers, and having risen above subsistence level, many are starting small businesses. And those who are farming and gardening are taking more of their yield to market. As quality of life continues to improve, it’s becoming clear that this is an economy on the brink of joining the formal economy. Businesses able to smooth the way – and the consultants who help them figure out how to do so -- have the potential to do a lot of good while helping themselves, too.

One critical piece of the puzzle is financial services. With the government issuing new banking licenses, many of the informal moneylenders that work in the black economy are looking to go legitimate – an outcome that’s ultimately good for them, good for their clients, and good for India’s tax base. Some of these new banks will continue as independent entities, and it’s possible they’ll be interested in your services as they take on a more prescribed (and regulated) role.

But the big opportunity for consultants probably lies with the traditional banks that will acquire many of these formerly informal institutions. Such acquisitions are not business as usual: deriving a profit from large numbers of very small accounts requires a high degree of efficiency. The moneylenders have been doing this for a long time, and they’re good at it (undoubtedly, it’s a lot easier when working in Wild West black economy conditions). How will the acquiring banks maintain this level of efficiency while serving the needs of their customers and meeting legal requirements? Will new business models need to be developed to meet the demand? Finding the answers will surely make interesting and rewarding work for plenty of consultants.

Internet and mobile technology is another area where business and the black economy meet. India’s rural poor have discovered the joys of mobile phones, and they are using them to access the internet in record numbers. One of the most immediate opportunities is, once again, in the financial services industry, where offering quality mobile banking access – and ensuring people know how to make the most of it – is rife with mutual benefit. Beyond banking, the internet is giving rural communities unprecedented access to a myriad of information, goods, and services that can help them to enjoy more success. And as Manu Joseph recently pointed out in The New York Times, we should not overlook the internet’s role in giving the poor access to entertainment and social possibilities that simply make life more fun – no small thing when we’re talking about improving quality of life.

Improved access to financial services and all the possibilities of the internet have the potential to revolutionize the lives of India’s rural poor.  Consultants who figure out what this group needs and wants, how best to provide it, and how to talk to rural Indians in a way that speaks to them will do very well in the most emergent part of this emerging market -- no meth labs or ‘waste management’ required.