DARE - Because Entrepreneurs Do

While renting out cycle rickshaws is already a lucrative business, giving micro-loans to pullers for new purchases is an emerging opportunity

Thirty-five year old Mohammad Mehtab’s day begins at seven in the morning when he sets off from his home peddling a cycle rickshaw to his workplace.

His workplace is a cycle rickshaw stand where he has been a regular for the past ten years. With the tring tring of his rickshaw, he tries to attract the attention of potential customers and happily peddles them off to their destination. After a grueling day, which ends at about eight at night, he manages to earn about Rs 200, or Rs 250 if he is lucky, of which he pays Rs 25 as the rent for the cycle rickshaw. At the end of the month, he saves a meager Rs 4,500 with which he looks after his eight member family back home in the Darbhanga district of Bihar.

Pulling the cycle rickshaw is not his only job. So while Mehtab pulls rickshaw for eight months a year, the rest of the time he spends working as an agricultural or construction laborer. Mehtab is just one of the multitudes of migrant workers who throng the metros in search of work during the off agricultural season. Due to the lack of skills and identity, they often end up joining the unorganized workforce doing petty jobs like pulling rickshaws, roadside vending or as construction workers. In this story, DARE focuses on the rickshaw business in India that thrives on people like Mehtab.

The Cycle Rickshaw Industry
The rickshaw industry in India is highly unorganized. Though no exact market size of the industry is available, a conservative estimate puts the number of cycle rickshaws in India at 10 million, including both the passenger rickshaws as well as the peddle carts used to carry goods. Of this, the capacity utilization at any given point of time is estimated to be around 65-70 percent, which means seven million cycle rickshaws are operational at any given point of time in India.

Cycle rickshaws are a popular mode of transport not only in smaller towns and cities but also in large metropolitan cities like Chennai and Delhi. Cycle rickshaws as a mode of transport is especially common in ten states in India, including Bihar, UP, MP, Delhi NCR, Chhattisgarh, Orissa, Punjab, some parts of Maharashtra and so on. Most of the rickshaw pullers are migrant workers, of which nearly 70 percent are from Bihar, followed by 30 percent from UP, and the remaining 10 percent are from Bengal, Orissa, Rajasthan and other states. Though it was predicted that the increasing popularity of mall-culture and modernization of the transport system, such as the introduction of the Metro, would ring a death knell for this industry, the cycle rickshaw business has grown at a healthy rate of 10 percent. “There are several reasons why the rickshaws are gaining popularity as a mode of transport. Cycle rickshaws are eco-friendly and are used for ferrying passengers and goods for short distances. The increase in the number of malls and Metro has increased the mobility of people thus giving a boost to the sector,” explains Irfan Alam, Founder Director of SammaaN Foundation that aims to organize the highly fragmented cycle rickshaw industry.

This sector has always been plagued by issues of exploitation of migrant labor. However, some innovations in the recent past could as well be the game changers in this sector. For example, the Center for Rural Development (CRD) introduced a prototype of the solar rickshaw on a pilot basis in the capital last year. Similar researches in terms of bringing new products to the market are ongoing. A few players have also trying to organize the sector by developing a business model around it. For example, SammaaN Foundation uses the mobility factor of the rickshaw and uses it as an outdoor advertisement medium.

The Cycle Rickshaw Business
In a typical industry set-up, a rickshaw puller does not own the rickshaw, rather he takes it on rent. The rent is inclusive of the maintenance charge. The rent for the rickshaw differs from city to city and also upon the newness of the rickshaw. For example, the rent for a rickshaw in Chandigarh is approximately Rs 15 per day whereas in Delhi it is somewhere between Rs 25 and Rs 50. On the other hand, the peddle carts used to transport goods are less in number and the rent is comparatively higher at Rs 30-50 than the ones used to ferry passengers due to obvious reasons. Manoj Gursahaney, another fleet owner who owns fifty rickshaws, including eight peddle carts, explains, “A consumer looks for peddle carts mostly when he has to shift his house, which is not a daily activity. Or, the demand for such carts goes up if the shopkeepers have to transport goods. They are also used for transporting construction materials.”

Rickshaw Economics*
Cost of a rickshaw	Rs 6,500 to Rs 8,000
Average rent of a cycle rickshaw (inclusive of the maintenance cost)	Rs 25
Average number of days a rickshaw plies	240 days
Life of a rickshaw	5 years
Profit per rickshaw per day on a new vehicle	Rs 18
Payback period per rickshaw without interest	362 days
* metro cities

So how much does a fleet owner earn? There are several cost heads for a fleet owner, such as the maintenance cost of the fleet, cost of employing a mechanic, and the cost of the land or yard for parking the rickshaws. In all, a rickshaw owner makes a profit of approximately Rs 18 on a brand new rickshaw that he rents out for Rs 25, and this profit margin depreciates over a period of time as the rickshaw ages. The profit also depends on the city in which it plies in. The cost of a brand new rickshaw varies between Rs 6,500 to Rs 8,000. “It differs from city to city. For example, in Bihar, the cycle rickshaw would cost you somewhere around Rs 8,000 because the load carrying capacity is more compared to rickshaws in UP, where it costs Rs 6,500, because it uses less wood, the height is low and there are other technical differences,” explains Irfan. Based on these numbers, the payback period of a rickshaw without calculating the interest is 362 days or approximately 1.5 years assuming a rickshaw plies for 240 days a year. Besides this cost, another major cost head is that of licensing. As per the law, all cycle rickshaws should have licenses. Moreover, in some cities it is mandatory for even pullers to have licenses. For example in a city like Delhi, every rickshaw should have valid licenses (both for the rickshaw and the pullers) issued by the respective municipal authorities to ply on the roads.

For a fleet owner, the cycle rickshaw business is basically a volume game—the more the number of rickshaws, the higher the profit. For most of the small fleet owners, owning a rickshaw fleet is just another means of augmenting their income. Manoj, for example, is a construction contractor by profession. He says, “In the construction business, there are times when there is no work for 3-4 months together. So it was my laborers who insisted on buying some rickshaws. Moreover, the income is not very regular in the construction business, so this helps me in getting liquid money.”

Micro-financing the Rickshaw Industry: A Lucrative Opportunity?
Majority of rickshaw pullers are poor migrants and lack the necessary funds to buy a rickshaw. “Currently, roughly estimating, nearly 95 percent of the cycle rickshaw operators hire the rickshaw on a rental basis from fleet owners,” says Dr Pradip Kumar Sarmah of CRD. Since a rickshaw costs between Rs 6,500 and Rs 8,000, this points to a lucrative opportunity in micro-financing for rickshaws. Many of the rickshaw pullers could avail these micro loans and purchase a new vehicle instead of taking one on rent. Currently a handful of people have tapped this segment and with some success.

Take the case of CRD, a non-profit organization that has developed a special model of the rickshaw with support from IIT Guwahati. The rickshaw is aero-dynamically designed, making it lighter, more spacious, and thus the assembling cost for the rickshaw is Rs 9,200. The rickshaw is also used as an advertising medium. CRD provides a loan to rickshaw operators for a period of 520 days at an EDI of Rs 25 at an interest rate of approximately 13 percent. At the end of the time period, the rickshaw becomes the property of the operator. The total cost to the puller come to about Rs 13,000, which also includes the cost of insurance, uniform, and license for the two years. According to Pradip Sarmah, a total of 5,000 pullers have been benefited by this scheme. The organization also has a scheme for paying back the debt in one year. “Since the EDI is high, operators generally are reluctant for this scheme but some still opt for it,” says Pradip.

Another model is of Patna-based SammaaN Foundation. This organization has also developed a special prototype of the rickshaw and provides it under its microfinance scheme. “We have an agreement with a bank, under which we ensure the delivery of the rickshaw and the recovery of the loan as well. The banks provide loans to the puller at an interest rate of 11 percent per annum. The bank gives us the recovery charges, which is our incentive. Once the rickshaw puller becomes the owner of the rickshaw, we have an agreement under which the vehicle is utilized for advertising. The revenue is shared between him and SammaaN,” informs Irfan. Under this, the rickshaw puller becomes the owner in less than a year, but there are options for longer time period as well. The puller is also allowed to park his rickshaw at the yards provided by the organization.

Overview

India has 10 million cycle rickshaws, counting passenger rickshaws and peddle carts

Capacity utilization is 70%, which translates to 7 million cycle rickshaws.

Pullers are mostly migrant workers, 70% are from Bihar, 30% from UP and 10% from West Bengal, Rajasthan, and Orissa.

A passenger rickshaw puller in the metros earns Rs 200-250 a day, whereas in smaller cities, he earns Rs 150 a day.

A peddle cart puller earns Rs 450-500 per day in metros and Rs 300 per day in smaller cities.

Another organization, Bihar Development Trust (BRD) also provides loans for rickshaw pullers under a slightly different model. Ravi Chandra, the Managing Trustee of BRD, tells us that since women are more reliable audience for providing micro-finance, they have made small groups consisting of 5-20 women beneficiaries. Ravi Chandra says, “Under this model, we provide loans to wives of rickshaw pullers at 18 percent interest. The re-payment is collected on a weekly basis for a year.”

Challenges
Being highly unorganized in nature, there are several problems faced by this sector as well. The first major issue is the problem of migrant laborers. Explains Gursahaney, “For nearly eight months our capacity is 100 percent full, but for the rest four months it has been around 70-80 percent.” This causes a major disruption in the workflow. Moreover, the laborers who double up as rickshaw pullers do not have any identity papers on them, which makes them easy targets. The municipal corporation therefore, seldom issues licenses to them due to lack of identity. This in turn leads to them plying rickshaws illegally. On the other hand, due to the lack of license, the traffic police also creates problems for the pullers as well as the fleet owners.

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