Tuesday, 13 December 2011

We can sub-sell better

The major difference between a totally developed country like the United States and a country with large number of people below poverty line like India is that, in the former, almost everyone has access to products and services alike including but not restricted to healthcare, education, movies, taxes etc. According to 2007 estimates, India has about 25% population below the dreaded poverty line. Let's label that part of India as the "subsistence category". These people have money only for daily subsistence and not more.

In the recent past, India has been witnessing a swell in the number of people choosing the entrepreneurial path. In contrast to its definition in an empowered economic platform, the term entrepreneurship in the subsistence marketplace has a totally different definition. These entrepreneurs are not the usual literates with sharp business sense and superior technical prowess. They are local vegetable sellers, goods traders and petty shopkeepers. They are the people who can drive business in the aforementioned resource constrained contexts.

Knowing that, what stops these little "enter-preneurs" from growing and creating sustainable businesses? They face a heavy lack of resources that would enable them to sustain and expand. These resources include deep understanding of the market, cognizance of consumer behavior patterns, specialized and unique management techniques required for such scenarios and of course free flowing capital. When they ventured out, micro finance institutions resolved to address one part of this problem. They aimed at making capital easily available to small sellers in villages and towns. But that has not led to a success story of sorts in the few years of their operation. The reason for that is pretty much intuitive. Only one of the problems viz. availability of capital has been addressed and the rest of them still loom at large.In the process, these NBFCs (Non Banking Financial Corporations) have shown creativity and have invented as they increased their presence in various rural parts of the country. They provided highly interlinked and innovative insurance products with their micro loans. But they did not enable the consumers to innovate.

After witnessing repeated failures in the private microfinance sector led by SKC, government has come out with a new credit risk guarantee fund to enable established banks to lend to the poor. This, if implemented is definitely a step towards inclusive growth accompanied by the upliftment of a sizable number of people below poverty line. But, the other problems of market literacy and business strategy for subsistence marketplaces are being overlooked. Helping women to be part of this improvement cycle is a good strategy and many NGOs and microfinance institutions like IFMR have been exploring those options. It has yielded commendable results. But it has not created any sort of revolution per se.

The solution is to make these small businessmen understand the way in which low income households access and use the finances that are available to them. The bottom line is that besides providing capital, it is important to provide the awareness and teach the rural business people strategies and ways to use the capital in the best possible way so as to suit resource constrained markets and societies. Also, bigger businesses need to look at subsistence marketplaces as areas of possible growth. They should not only expand to such areas but also implement and teach selling techniques as they go about expanding. That would be an innovative version of a bottom-up approach in enabling growth and would teach consumers and sellers in the economically challenged geographies to buck up and be at par with the country's growth rate.


zaheer shaik said...

Sensible Post :). Will financial institutions like IFMR able to solve these problems?

Pradeep Sekhar said...

@Zaheer : They are on this path. But there is a long way to go. And they are staring at problems related to their own operational sustenance and the overall outlook for these microfinance institutions don't look great though they are trying to address the problems sensibly.