Archive for the ‘Financing’ Category
Women in power
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I was not a great fan of Self Help Groups (SHG) when I first heard about it. I thought the ultimate result of their borrowings without collateral just put them deeper in to debt. I was wrong. The women in these groups knew what they were doing. I came to accept the fact that they needed to spend for their child’s wedding or for other rituals. A lot of the expenditure they made seemed unproductive to me. But I learnt that everyone must hold their head up in the community they live in and therefore some of these expenses were necessary.
More than that the biggest thing to change my mind was when Rosie, my assistant in field work at Melur, Madurai, pointed out to me during a particularly noisy SHG meeting that the women were talking. I could see that and hear it very well. Then she went on to explain, that these women were talking and expressing themselves not just in the SHG meetings but also during the panchayat meetings and their voice was getting more strident as their economic power in the household increased. If our country has to regain its former greatness it will be by the strength of our women.
Intellecap Response to Malegam Committee Report on Indian Microfinance
The recent legislation regulating the work of the microfinance sector has thrown open the debate on the sector’s usefulness in acting as a poverty-alleviation tool.
The Malegam Committee was constituted by the Reserve Bank of India as a Sub-Committee of its Board of Directors to review the definition and practice of microfinance in India, delineate a regulatory framework, and make related recommendations.
Intellecap, the microfinance and social business consultancy based in India, examines the recommendations of the committee, the questions it raises, and its impact of the recommendations on the industry.
A broad overview of the Committee’s Recommendations are:
- Limits individual borrowings to Rs. 25,000 annually
- Annual family income to be less than Rs. 50,000
- Not less than 75% of the loan given should be for income-generating activities
- Restrictions on other services provided by MFIs
- No more than two MFIs can lend to a single borrower
- A minimum period between granting of loan and commencement of recovery
- A credit information bureau has to be established
Some of Intellecap’s recommendations are:
- Consider increasing the limit on annual household income to Rs. 1,50,000
- Provide flexibility to MFIs to design their products around appropriate tenure, loan amounts, and interest rates, while retaining measures to protect borrowers
- Revisit the minimum capital requirement for an NBFC-MFI
- Recognize that there will be significant practical implementation and reporting difficulties, in the first 12 to 18 months of the new regime, and support MFIs in making the transitions
Read the entire White Paper, here.
Is There Hope for a Third Wave for Microfinance?
The microfinance industry in India has seen several waves of interest and investment. The current crisis within the sector (caused by the microfinance ordinance in the state of Andhra Pradesh clamping down on MFI operations), is already causing disruptions within the industry. However, if the sector manages to successfully come out of it, it could see a Third Wave.
Atleast that is the suggestion made by Atreya Rayaprolu and Sree Kumar, in their article “Are Investors Ready to Ride the Third Wave of Indian Microfinance?” In their article the authors suggest that because so much attention has been paid to the sector during this crisis, there is a growing recognition of the need for balance between profitability and impact. Because of the pressures excerted by the system, the authors suggest that the third wave of microfinance will see a growth in client-centric innovations. This is unlike the earlier waves, where the NGOs and investors respectively were centric to the microfianance model.
The authors are of the opinion that this model will ultimately lead to further opporunities for investors, for whom the third wave presents several attractive investment opportunities.
Read the entire article here.
An Overview of Social VCs in India
In November, Indian business magazine, Business World published a detailed look at the Social Venture Capital landscape in India. The article covered several big players including Aavishkaar, Intellecap, Acumen Fund, Gray Matters Capital and others.
Read the entire article here.
Notes from the field: Observations from DNE Network’s operations in Thanjavur
Contributed by Robert Moore
Siddharth Tata was invited by IFMR to take a hard look at DNE’s (Dairy Network Enterprise) Dairy Healthcare and Productivity Services Delivery Model in Thanjavur and tell them about things they needed to watch out for. His
comments include financial sustainability, the capacity of MFI partners, and importance of communication.
Read Tata’s entire post on the IFMR blog, here.
The Role of Civil Society in Affordable Housing
Contributed by Robert Moore
India recently saw a spate of announcements for affordable housing projects being launched in various parts of the country. So, what has led to developers getting involved with affordable housing projects in India? A closer look at some of these projects where developers are launching projects in the price range of INR 4-10 lakhs ($ 8000 – 20,000) shows that in most of these projects there is a collaboration with a Citizen Sector Organisation (CSO).
Read more about these potential partnership here.
Clean Sweep: Supporting Entrepreneurs in the Energy Sector
In this day and age, most of the world is worried about climate change. That is why instead of delivering energy through top-down initiatives like large-scale utilities, E+Co looks for small enterprises that can take hold locally. Rather than bringing in Western business experts, it hires regional field staff who recruit and support entrepreneurs in their own communities. Moreover, its efforts are inspiring others to see the connections between energy, poverty, and climate change. Alvaro Illanas Cerezo summarizes Susie Boss’s article “Clean Sweep” from Stanford Social Innovation Review, below.
Energizing entrepreneurs
E+Co’s portfolio proves that there’s no shortage of clean energy ideas or entrepreneurs in emerging markets.
A report stated that willing entrepreneurs represent an abundant but largely untapped resource. It also noted, however, that technical assistance for small business is simply not available in many developing markets.
E+Co unleashes this entrepreneurial potential with a three-part model that combines technical assistance with capital.
- Part 1: It helps entrepreneurs develop solid business plans. Field staff use a toolkit and their understanding of local issues to help would-be entrepreneurs analyze their market and select clean energy products. The business development process is thorough but not over-sophisticated. Similarly, the organization prefers proven solutions to cutting edge technologies.
- Part 2: It lends seed capital, typically $25,000 to $500,000 at average annual interest rates ranging from 8 to 12 percent. Getting to yes requires approval from an independent, unpaid investment committee made up of finance professionals. The experts bring a deep understanding of niche energy markets and small- to medium-sized enterprises.
- Part 3: It provides access to growth capital.
Measuring everything
E+Co relies on concrete metrics to convince diverse investors to fund the organization. A triple bottom line scorecard rolls up data from 30 indicators across three categories: financial, social, and environmental. E+Co admits that it can be swayed by stories of lives improved, but he’s also hard-nosed about numbers, and so looks to the scorecard to see that the portfolio’s average annual return is 8 percent.
Grant funding has become a smaller piece of the pie now that loan repayments generate revenue to reinvest.
E+Co is similarly analytical when it comes to evaluating risk. Although the organization steers clear of untested energy ideas, it sometimes approves demonstration projects that bring proven products to new markets.
Growing the space between
E+Co must now make sure the funds keep flowing. Its loans fall into what its CEO calls the space in between: bigger than microfinance but smaller than corporate-size deals. This “missing middle” is unfamiliar territory for many public and private investors. The main goal is to start a movement, so that small and growing enterprises have ready access to capital. Global acceptance of microfinance has taught E+Co the value of aggregating players to speak with one voice.
Have you had any experience in supporting small businesses in the energy sector? Share your experience with us in the comments section.
Measuring Social Performance for Non-profits
Much has been written on the measuring of social value and impact derived from social ventures. However, there remain several limitations on how non-profits measure impact.
In their paper ” The Limits to Nonprofit Impact: A Contingency Framework for Measuring Social Performance,” Alnoor Ebrahim and V. Kasturi Rangan explore the debates surrounding performance and impact, based on three bodies of literature: philanthropy, nonprofit management and international development.
Based on this, the authors develop a contingency framework for measuring results. The framework suggest that some organizations ought to focus on long-term impact, while others ought to focus on shorter-term outputs and outcomes. The strategy adopted depends on the the operational strategy adopted as well as the “theory of change” that the organization subscribes to.
Read the paper here.
Towards Greater Inclusion of Small Holder Farmers
Last week Villgro held its annual Learning Week for its 2010 Fellows. Among the various issue-areas, we took a look at how businesses models can successfully engage with small holder farmers. We looked particularly at two models – contract farming, and deep procurement. In both models large agri-businesses engage with farmers directly to source raw material and products for consumer consumption. Both models seek to cut out the middle men, and create a more direct, uninterrupted line of supply. However, both models also tend to work with medium and large-scale farmers, rather than ones with smaller land holdings.
Traditionally these farmers have been shielded from interacting directly with retailers. Previous legislation in India that ostensibly sought to protect these farmers from unfair prices have now been lifted, allowing wholesale retailers to directly interact with farmers, rather than go through government-regulated mandis where middlemen acted as procurement brokers. This, combined with growing urbanizatio nand changing consumer patterns has allowed both large agri-businesses and farmers new opportunities to work together, and promises to change the way agriculture is done in India.
But where does the small farmer fit into this? Several examples have pointed to their incorporation under contract farming arrangements for food giants such as McCain, and Pepsi, and domestic agri-business firms such as Calypso Food and Suguna Poultry. Others have been engaged as sourcing channels for Indian retailers such as ITC, and Reliance Fresh. However, studies such as the Monitor Groups Emerging Markets, Emerging Models have shown that less than 50% of the farmers engaged currently are small holder farmers.
So how, can businesses move to being more inclusive of small farmers? Bill Vorley, Mark Lundy and James MacGregor in their paper, “Business Models that are Inclusive of Small Farmers” describe a range of business models for inclusive market development. The papers focuses specifically on models that improve inclusiveness, fairness, and financial sustainability of trading relationships between farmers and agri-businesses, whether processors, exporters or retailers.
The paper identifies three broad models through which this is possible.
- Producer-driven: This model is driven by small-scale producers or large farmers. The aims to create new markets, higher market prices and stabilize market positions for small producers, and large supply volumes for large farmers. An example of this model is the work of Cuatro Pinos, in Guatemala.
- Buyer-driven: This model is lead by processors, exporters and retailers who are looking for regular, reliable and quality supply to meet their supply-chain needs.
- Intermediary-driven: This model is driven by traders, wholesalers, and other traditional market actors, or by NGOs and allied support agencies, or as in the case of China, national and local government bodies. The objective of these actors are varied. trader and wholesale driven models tend to target discerning customers, while NGOs traditionally champion the cause of the poor farmers, and governments regional development.
The examples of several organizations are used throughout the paper to highlight these models. Cuatro Pinos, for example, is a cooperative that identifies existing farmer groups, associations and “lead farmers,” and works with them to test production schemes and provide production support to promising farmers. Credit and assistance is later discounted from the initial product deliveries.
MA Tropical Food Processing is a Sri Lankan firm that operates on the producer-driven model, providing extension services to farmers for production, record keeping, and post-harvest practices. It also acts as an intermediary for commercial credit from banks.
Impact
The authors also present a table compiling the impact on these farmers, using MA Tropical Food Processing as an example. The figures show an almost two-fold income level among farmers part of the MA chain as against those outside of it. Among common crops, farmers tend to receive a higher price per kilogram on average, when compared to other village traders.
Limitations
The models are not without their limitations though. In the buyer-driven model benefits can be limited by high transport charges and delayed payments. Also, producers also demand exclusivity in supply. Suppliers consequently also face the probability of side selling by producers, among other limitations.
The paper proceeds to lay out how small farmers can be prepared to join mainstream agricultural production and what businesses should consider in order to work successfully with small farmers. It also takes an in-depth look at the role of the public sector and donor organizations in supporting the greater inclusion of small-scale farmers.
To read more about the models suggested by the authors, click here.
Pro Poor Value Chains
ITC’s Choupal Fresh was one example discussed at the Villgro Fellows Week. The retail business in India has witnessed a boom in recent years. Securing adequate supply – particularly of fresh fruits and vegetables – however continues to be a challenge. A 2009 Case Study by Rewa Misra, of the Coady International Institute in Canada, looks at the ITC example of establishing supply chains directly from the farmer. This pro-poor method can successfully integrate smallholder farmer.
The case study uses value chain analysis to highlight three aspects. Firstly, which activities/types of firms/strategies yield higher value than others for small holders. Secondly, what forms of relationships, contractual and otherwise work in the value chain and, thirdly what models work best for service delivery.
The key fact established through the case study is that integrating small holder famers within the fruit and vegetable value chain is possible, if large firms such as ITC take a lead in playing a larger role by fulfilling key functions. It also posits that the model works if inter firm relations are purely market based and mutually beneficial.
Read the entire case study here.