Daniel Etter for The New York TimesShushila Varmar lies with her newborn in a Primary Health Center, a rural clinic catering for basic needs, in Kurebhar, Uttar Pradesh. The growing affordable health care industry hopes to provide more services for India’s rural population which does not have access to state clinics like this one.NEW DELHI — Health care experts, investors and government officials gathered at New Delhi’s Habitat Center on Friday to discuss one of the most promising new investment areas in India: affordable health care.
You’d be forgiven for finding the name a bit confusing — after all, who wants health care that isn’t affordable, no matter how much money you have? The term here refers to health care for those at the “bottom of the pyramid” — in other words, poor people.
India is viewed as one of this new industry’s most exciting markets, as Jyoti Pande Lavakare wrote on India Ink this week, in part because there are so many people here who are not receiving adequate health care: the industry aims at the 835 million people in India earning less than 250 rupees, or $4.50, per day.
“We can’t think of a more important sector with greater social impact than affordable health care in India,” Jasjit Mangat, director of investment at the Omidyar Network, told Ms. Pande Lavakare. Private-sector annual revenues, he estimates, could be up to $20 billion in India alone.
But behind the excitement about the promised growth of the industry lies a fundamental question that needs to be addressed: Should providing health care to very poor people be a business at all?
The venture capital community’s move into the affordable health care business is just the latest example of the “doing well by doing good” phenomenon. Some companies and investment funds have embraced the notion in recent years that being socially responsible and caring for employees also helps boost profits. The idea has been touted by Harvard Business School professors and debated by the likes of Bill Gates and Larry Summers.
Entrepreneurs and venture capitalists, under the umbrella of “doing well by doing good,” have particularly seized on the idea of “impact investing,” or applying a businesslike approach to what may once have been a charitable enterprise. Expecting a definite return, whether it’s profit or tangible results, helps ensure that funds and services get more efficiently to those who need them and ensures that they keep coming, they say.
Enthusiasm for this approach, and a significant amount of money along with it, reached a peak recently in India with the for-profit microfinance industry. The end result, though, was disaster: dozens of women committed suicide after being pushed into loans they could not repay.
For-profit groups’ jump into the industry led to its collapse in India, Lydia Polgreen and Vikas Bajaj wrote in November of 2010:
Vijay Mahajan, the chairman of Basix, an organization that provides loans and other services to the poor, acknowledged that many lenders grew too fast and lent too aggressively. Investments by private equity firms and the prospect of a stock market listing drove firms to increase lending as fast as they could, he said.
“In their quest to grow,” he said, “they kept piling on more loans in the same geographies.” He added, “That led to more indebtedness, and in some cases it led to suicides.”
The biggest proponent of for-profit microfinance in India, Vikram Akula, founder of S.K.S. Microsystems, subsequently admitted that his approach was a mistake.
“Bringing private capital into social enterprise was much harder than I anticipated,” he said at a Harvard University conference. Mr. Akula blamed his own “focus on scaling S.K.S.’s model” without anticipating the “potential downside” — in other words, trying to grow the business without looking at the harmful consequences of pushing for growth.
At Friday’s conference on affordable health care in Delhi, there are sessions titled “From Product to Market” and “Rethink Access,” but nothing on what a reasonable rate of growth is to keep the industry ethical, or how investors plan to ensure that poor people will not be pressured into spending money on health care they don’t need.
For the affordable health care industry to truly become one, these are issues that need to be thoroughly addressed, experts say.
“It is all very well for companies to come in to invest in any social sector, so long as they are willing to temper their expectations and earn a reasonable return,” said Sanjay Sinha, the managing director of M-CRIL, a microcredit rating agency based in Gurgaon, India.
But affordable health care enthusiasts, like any social investors, should learn from the microfinance industry’s troubles, he said. “Usually these companies get so excited about the growth opportunities that they think growth can go on forever,” he said, “and that’s where problems arise.”