Report ofthe Review and Support Mission prepared for the Government ofthe Netherlands
Item
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Report ofthe
Review and Support Mission
prepared for the Government ofthe Netherlands - extracted text
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WML SmLL & HKK-mTERFfflSES
bEVELOmEHT FKQMHnE
Report of the
Review and Support Mission
prepared for the Government of the Netherlands
i
I
i
October 1998
Foreword
The Indo-Dutch Project Management Society has been implementing the
“Rural Small and Microenterprises Development Programme” funded by the
Government of the Netherlands. The project has been in operation for a few years and
the Government of the Netherlands considered it desirable to have its progress
reviewed and, therefore, constituted a Review and Support Mission for this purpose.
This report presents the views of the Mission.
In the preparation of this report, the Mission has had to draw upon the
expertise and time of many professionals, institutions and agencies and acknowledges
with gratitude the ready assistance it received. In particular, the Mission would like to
acknowledge the support, cooperation and assistance it received from Mr. Sadananda,
Director of the Indo-Dutch Project Management Society and his colleagues, and
Dr. Shoba Raghuram and Dr. Ben Witjes of HIVOS.
The Mission interacted with the management and field staff of the NGOs
associated with the Project, and also with the officials of the Government and Banks.
The Mission thanks them very much indeed for the assistance received and the frank
exchange of views.
The Members of the Governing Council of the Indo-Dutch Project
Management Society generously gave of their time for discussions with the Mission.
These discussions were of considerable assistance in the work of the Mission.
The Mission had the privilege of meeting women members of the Self-Help
Groups and other beneficiaries of the Project. This interaction and the sharing of their
experiences and views were of great assistance in appreciating the dimensions of the
Project. The field visits were a unique experience and sharpened the perceptions of the
Mission of ground realities. The Mission places on record its deep appreciation of the
cooperation extended to it by the participants in the Programme and thanks them for
the time spared by them in meetings and discussions.
This report is presented in full awareness of the complexity of this Project in
terms of its novelty of approach and objectives, set against a backdrop of public.
particularly of women’s, participation. If the recommendations made herein result in
furthering the objectives of the Indo-Dutch Project Management Society, the Mission
would consider its efforts having been worthwhile.
Dr. Leela Gulati
Ms. Hedwig Siewertsen
P.Padmanabha
October 1998
Dr. J. Mohan Rao
CONTENTS
Executive Summary
i
Abbreviations
vi
Introduction
vn
Chapter I
Overview
1
Chapter II
Economic Considerations
15
Chapter III
Credit Issues
70
Chapter IV
Training Aspects and Gender Concerns
96
Chapter V
Institutional Linkages
111
Chapter VI
Management Aspects
116
Chapter VII
New Directions
124
Chapter VIII
Summary of Recommendations
127
Annex I
Terms of Reference
142
Annex II
Travel Itinerary of Mission
145
Annex III
Persons met
147
ANNEXES:
EXECUTIVE SUMMARY
The Indo Dutch Project Management Society, Bangalore (IDPMS) has been
implementing the “Rural Small and Micro Enterprises Development Programme”
(RSMEDP) funded by the Government of the Netherlands in selected areas of
Karnataka State. The project has been in operation for a few years and the
Government of the Netherlands considered it desirable to have its progress reviewed
and, therefore, constituted a Review and Support Mission for this purpose. The
Mission, between 3rd and 14th August 1998, held discussions with persons associated
with the programme and also visited selected project activities. On the basis of these
discussions and field impressions, the Mission has arrived at certain conclusions and
recommendations.
The long-term objectives of the RSMEDP are the creation of viable income
generating opportunities in the non-farm sector of the rural economy, the promotion of
sustainable self-employment and, the promotion of the development and establishment
of small and micro enterprises. The imparting of skills of entrepreneurship in the rural
community is a major focus. The activities are based on local resources and on skills
available. Where necessary, skills are imparted through training programmes. The
programme is being implemented in the erstwhile composite districts of Mysore and
Dharwad in Karnataka State.
The project ends in 1999. The total outlays are Rs. 411.54 lakhs for project
activities and Rs. 108 lakhs for the Programme Management Unit. Of the former, 85
per cent is funded by the Government of the Netherlands and 15 per cent by the
I
Government of Karnataka while the latter is folly fonded by the Government of the
Netherlands. Taking into consideration the current scale of expenditure, there is likely
to be a balance of unutilised fonds at the end of 1999 of Rs. 54 lakhs. It would be
necessary to ensure that the consolidation of the results of the project is not hampered
due to lack of fonds in the year 2000. This could be avoided by fonding continuing to
the extent there is a balance beyond 1999.
The outlay envisaged on the Programme Management Unit was Rs. 108 lakhs.
The expenditure till August 1998 has been Rs. 121.94 lakhs, in excess of the fonding
for the foil project period ending 1999. The enhancement of the outlay to Rs. 225
lakhs, or an additional Rs. 117 lakhs, is under the consideration of the Government of
Netherlands. It is hoped that the escalation would be sanctioned early.
The physical targets of the project can be said to have been achieved to the
extent of 61 per cent by the end of 1997. Given the same pace of performance, the
achievement would be about 90 per cent by the end of the project period. In evaluating
the project, it would be relevant to note that the IDPMS, in implementing the
RSMEDP, does not deal with conventional social aspects of the community. It is
rather unique in its attempt to enhance both skills and incomes in the rural community.
involving basic changes in social attitudes with regard to women’s participation in
group activities outside their homes. Though the programme was not planned
specifically for women, the larger proportion of participants consists of women. The
training in skills and entrepreneurship development has resulted in a social change in
these groups. The feeling of empowerment is visible and is a demonstration of the
benefits of economic development.
ii
The project has generated both direct and indirect benefits. Real benefits have
accrued in terms of income generation while the indirect benefits, even if the numbers
are currently small, include women’s empowerment and development of self
confidence. There would be a demonstration effect in the neighbouring areas. The
imparting of training to develop or sharpen skills has been a major achievement by
IDPMS
An important element of the RSMEDP is the access to credit that it provides.
The IDPMS has, through this project, made small and micro entrepreneurs aware of
the procedures and mechanisms for availing of credit facilities offered by the Grameen
Banks and Government programmes. It has assumed a role of advocacy on behalf of
these entrepreneurs by establishing the linkage between them and the managers of the
banks and by demonstrating that they are “bankable”. The bank managers have also
been sensitised to the needs of this sector. Self-reliant characteristics have been
inculcated in the Self-Help Groups which encourage savings and better management
practices.
The IDPMS has developed an expertise in credit systems that it offers to the
rural banks to increase both their reach and the availability of credit in the non-farm
sector. It could train non-govemment organisations (NGOs) so that they could extend
rural enterprise development programmes even after the project comes to an end.
The Self-Help Groups through which the RSMEDP has been implemented are
largely made up of women. The members of these groups have been empowered to
gain access to the credit facilities offered not only by the rural banking system but also
through various government programmes. The skills imparted to them and the
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ABBREVIATIONS
ASTRA
Application of Science and Technology in Rural Areas ( a Society)
Chit Fund
A rotating savings and credit fund
DIC
Districts Industries Centre
DWCRA
Development of Women and Children in Rural Areas
EDP
Entrepreneurship Development Programme
Grameen Banks Regional Rural Banks
IDPMS
Indo-Dutch Project Management Society
IGA
Income Generating Activity
IRDP
Integrated Rural Development Programme
Lakh
1,00,000
MFI
Micro- Finance Institutions
NABARD
National Bank for Agriculture and Rural Development
NGO
Non-Govemment Organization
NPA
Non Performing Assets
OBC
Other Backward Class
PMRY
Prime Minister’s Rozgar Yojana- to help unemployed youth to
take up economic activities
PMU
Project Management Unit, sometimes also
Project Monitoring Unit
REDP
Rural Entreprenuel Development Programme
RFI
Rural Finance Institutions
RMK
Rashtriya Mahila Kosh, a Government of India Scheme for
assistance to NGOs working with women’s savings / credit groups
RRB
Regional Rural Bank (also called Grameen Bank)
RSMEDP
Rural Small and Micro Enterprises Development Programme
Sangha
a Self- Help Group
SC
Scheduled Caste
SHG
Self- Help Group
SIDBI
Small Industries Development Bank of India
SME
Small and Micro Enterprise
ST
Scheduled Tribe
TRYSEM
Training Rural Youth for Self Employment
UBSP
Urban Basic Services for the Poor, now called Swama Jayanthi
Shari Rojgar Yojana. This is a scheme of the Government of
Karnataka
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INTRODUCTION
The Indo-Dutch Project Management Society (IDPMS) has been implementing
the project “Rural Small and Microenterprises Development Programme” (RSMEDP)
since 1995, after an interim phase between 1993 and 1995. The project, cited as
Activity No. IN00420, is funded by the Government of the Netherlands. It was
considered desirable to conduct a review of the project. Accordingly, a Review and
Support Mission was constituted with the following members:
Mr. P.Padmanabha, IAS (Retd), Mission leader
Dr. Leela Gulati, Centre for Development Studies, Thiruvanandapuram
Prof. J.Mohan Rao, Department of Economics, University of Massachusetts at
Amherst, USA
Ms. Hedwig Siewertsen, Associate Consultant, FACET BV, The Netherlands
The main objectives of the Mission were to •
assist RSMEDP in further improving the quality of its activities
•
make recommendations for the fixture of IDPMS
•
suggest improvements in financial reporting of the programme
•
indicate whether a more formal support structure to IDPMS is required and if so,
the broad framework of such support.
These broad objectives were spelt out in greater detail in the Terms of
Reference provided to the Mission. These are reproduced in Annex I to this report.
Briefly, the aspects that were included related to the economic and credit activities of
the project, the issues relating to involvement and participation of women in the
economic activities established, and the fixture directions of IDPMS itself.
The Members of the Mission held preliminary discussions with the Director and
other members of the IDPMS staff on July 29-30. Tentative plans for the field visits
were also drawn up at this time and required background materials were gathered
vii
and/or requested from IDPMS. The substantive part of the Mission - field visits and
discussions together with deliberations among the Mission Members - was carried out
from 3rd to 13th August starting with a formal briefing session with the Director,
IDPMS A debriefing session at New Delhi followed this phase in which the Mission
leader and Ms. Siewertsen participated. Subsequent weeks were devoted to drafting
the Report in several iterations. The places visited and related details are presented in
Annex II.
Discussions were held with NGOs associated with the project, representatives
of the banks concerned and officers of the Government of Karnataka. Interactive
meetings were also held with the women members of the Self-Help Groups (SHGs),
micro-entrepreneurs and others. Similar discussions were held with the professional
staff of IDPMS, followed by a meeting with members of its Governing Council. The
persons with whom discussions were held are indicated in Annex III.
viii
Chapter I
OVERVIEW
1.1
Brief history of the project
In 1980, the Government of Karnataka formulated a scheme called the
“Construction of Industrial Sheds Project” which envisaged the construction of work sheds.
work-cum-residence sheds, and common facility centres for the development of handlooms,
handicrafts, leather, sericulture, small scale industries and Khadi and Village industries. The
Government of the Netherlands funded this project. The project was to be implemented in
four years (1980-84) but, due to slow progress, this period was extended to 1987.
1.1.2
An evaluation of the industrial sheds project was carried out in 1986, which
raised certain basic issues with regard to the elements of the project and its progress. Based
on the recommendations of this evaluation, it was agreed that before a second phase was
contemplated, the gains of the project should be first consolidated during an interim phase.
This included completion of incomplete sheds, improving infrastructure at several locations
and the like. One of the important conclusions was that a Project Management Unit (also
referred to as Programme Monitoring Unit in one document) should be established for the
management of the interim phase and the second phase.
1.1.3
The latter recommendation was the genesis of the establishment of the Indo-
Dutch Project Management Society (IDPMS), first as a cell within the official structure and
later as an independent society in February 1988.
1
1.1.4
A further review mission was conducted in 1988, which recommended an
area approach in place of a sector approach. It also suggested that the activities should
harness and develop latent entrepreneurial talents in the local community and that, while
doing so should pay particular attention to women and the disadvantaged. On the basis of
these recommendations, the Rural Small and Micro Enterprises Development Programme
(RSMEDP) was formulated in 1991 and submitted for funding to the Government of the
Netherlands. Though the RSMEDP was considered as commencing in 1993, delay in formal
approvals till 1994 resulted in its actual commencement in 1995. It has been extended to
December 1999 as of now. The project period is from 1995 to 1999.
1.1.5
The RSMEDP is being implemented in the two districts of Mysore and
Dharwad. A conscious choice of these districts was made on the basis of various criteria of
development1. The latter included differentials in per capita income, levels of development
and potential for development, manageability, infrastructure facilities conducive to
implementation, presence of good NGOs and the like. Within these two districts, further
selection of the specific areas of operation of the project was made after detailed studies on
the potential for micro enterprise development. The latter included an assessment of
availability of resources for such enterprises and concentrations of appropriate skills in the
different taluks in these two districts. The types of possible micro-enterprises, based on
resource availability and local skills that could be established were assessed taking into
account (i) the availability of raw materials, (ii) the range of products that were being
produced or that could be produced, (iii) the technology available, (iv) the markets for
existing products and for new products, (v) the availability of support from banks for setting
1 This is discussed further in Chapter IV
2
up or running such enterprises, (vi) the management and technical skills available and
(vii) the employment potential.
Based on these considerations, the following taluks were selected2:
1.1.6
Mysore
Dharwad
(includes the new district of
Chamaraja nagar which was formerly
part of Mysore district)
(includes the new districts of Haveri and
Gadag which were formerly part of
Dharwad district)
Hunsur, Chamarajanagar, Nanjungud
Kundgol, Shirhatti, Haveri, Ranebennur,
and Kollegal
Savanur and Shiggaon
1.2
Objectives and Strategy
The long-term objectives of the RSMEDP are (i) the creation of viable
income generating opportunities, (ii) the enhancement of sustainable self-employment and
(iii) the promotion of the development and establishment of small and micro enterprises.
These objectives are expected to lead to the self-sustained improvement of the socio
economic conditions of the people in villages and smaller towns through their involvement.
The development of entrepreneurship in the rural community is a major focus. In other
words, the main objective of the programme is to encourage the establishment of either
group or individual economic enterprises in the rural community and in the smaller towns
and to demonstrate strategies for this purpose.
1.2.2
The economic activities envisaged in the project are in the non-farm sector of
the rural economy. These activities are based on local resources and on the skills available.
2 New districts have been carved out of the erstwhile districts of Mysore and Dharwad.
Chamarajanagar district was formed from part of the old Mysore district while Haveri and Gadag
districts were carved out of the old Dharwad district.
3
The latter would, in some circumstances, be developed through training and existing skills
would be enhanced.
1.2.3
The increasing involvement of women in these activities would be a major
element. Such involvement would be in an individual capacity or as part of a family
enterprise or in an economic activity managed by a group of women (the Self-Help Groups
or Sanghas). The other major elements include training for development of skills,
entrepreneurial training for management of the enterprises, and financial assistance from the
rural banking institutions.
1.2.4
The assistance and involvement of existing government and private training
institutions and organizations have been sought. The utilization of these institutional
capacities has contributed to the activities relating to human resource development. The
programme involves close association with both government and private organizations and
with the credit institutions.
1.3
Field Operations
The activities of the RSMEDP are carried out through NGOs already
operating in the area selected. The NGOs are inducted as partners taking into consideration
their experience, how long they have been in the field, their capacity in terms of staff and
credibility in the local community and other relevant factors. The strategy adopted by
RSMEDP is not to intervene directly in the field, but to introduce economic activities
through existing NGOs. In some cases, partner NGOs have had to be identified or changed
after selection of the area of operation. It has sometimes been a difficult task for IDPMS to
identify suitable partner NGOs for the implementation of the project's activities.
4
1.3.2
IDPMS has the skills in determining the appropriate activities in an area, the
ability to provide training for upgrading or inculcating skills and providing entrepreneurship
development programmes. It also has the links necessary with the banking system to access
credit. It makes these skills available to the NGO, which the latter translates into action.
IDPMS and the NGO concerned are, in effect, partners in the creation of enterprises and
entrepreneurs in the RSMEDP.
1.3.3
IDPMS operates the RSMEDP elements through the Self-Help Groups
(SHGs) already established by the NGOs as part of their normal activity in the community. It
also identifies individual micro-entrepreneurs with the help of the NGOs.
1.3.4
Generally, IDPMS avoids direct interventions in the field. Any interventions
that are considered necessary are usually with the assistance of and through the NGOs so as
avoid a multiplicity of approaches to the beneficiaries. However, there have been cases
where such direct interventions have been necessary but these have been undertaken only
where circumstances did warrant such direct participation. It need hardly be emphasised that
direct interventions are best kept to the minimum to avoid complacency on the part of the
NGOs and the possible creation of a dependency syndrome among the beneficiaries who, at
some time, would have to be on their own.
1.3.5
IDPMS started to work with about 10 NGOs in Mysore district, but the
collaboration was not always successful due to various reasons. This necessitated more
direct interventions by IDPMS staff because the beneficiaries had to be catered to. In this
district, RSMEDP activities are presently implemented through three NGOs. These are
(i) the PMSR (People’s Movement for Self Reliance), with the objectives of empowerment of
dalits through political action, community organisation and social education, (ii) S UMANA
5
(Society for Rural Development), with the objectives of empowerment of rural women
through socio-economic activity, community organisation and service activities in sectors
such as health, environment, literacy, and (iii) The Chamarajanagar Parish Society (CPS).
1.3.6
SUMANA and PMSR were introduced to the district authorities and the bank
managers, which resulted in refinancing possibilities from the National Bank for Agriculture
and Rural Development (NABARD) and under the Rashtriya Mahila Kosh (RMK) scheme
for the SHG's promoted by the NGOs. IDPMS assisted PMSR in the creation of a credit co
operative society of dalits. Other activities include development of skills and training, the
organisation of entrepreneurship development programmes, introduction of new products.
better exposure to markets and training of NGO staff in credit management.
1.3.7
In Dharwad district the collaboration with NGOs would seem to be more
impressive. The following NGOs work with IDPMS in the development of SMEs:
Indian Development Services (IDS)
Chaitanya Institute for Youth & Rural Development (Chinyard)
Karnataka Integrated Development Services (KIDS)
SPOORTHY, voluntary organisation for rural development
Charmodyog Kaigarika Sahakari Sangh Niyamit (CKSSN)
Grassroots Education and Environment Network (GREEN)
Ujwala Rural Development Service Society (URDSS)
Shri Lingabasaveshwar Gramodyoga Seva Sangh (SLIGS)
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1.3.8
The size, experience in the field and professionalism of these NGOs vary
considerably. Some of the NGOs are established recently, while others have been in Dharwad
for over 15 years. There are also differences in the size and financing among these NGOs.
For example, IDS and Chinyard receive funds from abroad; while the others are dependent
on local funding. Such differences in financial sources and strength seem also to influence
the agenda that NGOs pursue.
1.3.9
The activities undertaken in Dharwad are very similar to those in Mysore,
except that in Dharwad there has been a strong emphasis on technical skills training
(Spoorthy and Chinyard have training facilities) for unemployed youth and women. After the
training, the trainees are assisted in starting a business.
1.3.10
NGOs promote and create Self-Help Groups and identify people interested in
taking up income generating activities. IDPMS trains the members in credit management and
links the groups to the formal financial institutions or to the Government credit schemes. It
also organises and finances acquisition of technical skills and entrepreneurship development
training. The NGOs recruit field staff who are familiar with community work and group
formation, while IDPMS pays for and trains this staff in promoting economic activities.
1.3.11
The needs of the various NGOs are very different and depend on the
objectives, capacity and target groups chosen by the NGO. Nevertheless, IDPMS has
succeeded in implementing its activities through these organisations in a flexible way. The
representatives of NGOs confirmed that they benefited by their association with IDPMS.
1.3.12
IDPMS is often constrained to induct as its partner an NGO whose structure
or expertise may not be optimal for the implementation of the RSMEDP. From the point of
7
view of IDPMS, some of the NGOs lack professionalism in their approach and management.
are reluctant to maintain transparency in financial management, are likely, in a few cases, to
misuse funds, lack interest in economic activities or have an approach and attitude towards
enterprise development that differs from that of IDPMS (especially if they are financially
independent of IDPMS), and resent close monitoring of their activities even though the
IDPMS has functional responsibility for the RSMEDP. In some cases, IDPMS is looked
upon as a donor agency with the consequent assumption that the NGO has full operational
freedom. This could result in different perceptions of the methodology or sub-elements of the
programme.
1.3.13
Some of the NGOs, on the other hand, consider that there is too much
regimentation in the methods of working and too heavy a burden of reporting. The contract
period with the NGOs is also said to be inconveniently short, with the added constraint of
delayed release of funds, resulting in difficulties in building up the staff or operating with a
long-term perspective. IDPMS and the NGOs seem to share a ’’grey area" in which mutual
responsibilities are not clear. This grey area seems to relate mainly to areas of field
intervention, methodology applied and monitoring procedures. It would appear that there is
further scope for these differences and conflicting perceptions to be ironed out. Before a
partnership is developed and before the programme elements are sought to be implemented
in an area, it would be beneficial if a complete needs analysis of the NGO and its beneficiaries
is made by IDPMS and mutual confidence established.
8
Status of the project - Resources, Targets and Achievements
1.4
Financial Resources
1.4.1
The outlay on the RSMEDP for the five years 1995-99 is as follows:
Amount in lakhs
Programme Activities
Government of the Netherlands 85 % of
requirements
349.82
Government of Karnataka 15 % of
requirements
61.72
Total Outlay for Activities
411.54
Outlay on Programme Management Unit,
funded by Government of the Netherlands
108.00
The expenditure on activities has been as follows, in lakhs:
1995
1996
1997
1998 up to
August
Total
37.91
63.14
85.40
43.23
229.68
The maximum expenditure so far as been Rs. 85.40 lakhs. Assuming that the same scale of
expenditure would be incurred in 1998 and 1999, the total utilization of funds till the end of
the project would be about Rs. 357.40 lakhs as against the total outlay of Rs. 411.54 lakhs.
The balance of unutilised funds at the end of 1999 would be about Rs. 54 lakhs.
1.4.2
The RSMEDP activities would continue for a few months after the end of
1999. Also, it would be necessary to ensure that advances made to NGOs have been fully
utilized for project activities. There would thus be a phase of consolidation of the activities.
It would be unfortunate if this phase of consolidation were to suffer due to want of funds at a
9
time when they are critically needed. It is, therefore, recommended that the balance of funds
at the end of 1999 is made available to IDPMS for this purpose.
1.4.3
The cost of the Project Management Unit, which includes the costs of the
headquarters unit of IDPMS and its two district offices, was estimated at Rs. 108 lakhs.
These funds were provided fully by the Government of the Netherlands. By August 1998, the
expenditure on the PMU, was Rs. 121.94 lakhs which is in excess of the provision for the full
project period ending 1999. A proposal has been submitted to the Government of the
Netherlands for enhancement of the total allocation for the Project Management Unit from
Rs. 108 lakhs to Rs. 225 lakhs through additional funding of Rs. 117 lakhs (NLG 5,40,000).
This is still under consideration. It is hoped that this additional funding for the Project
Management Unit would be sanctioned early.
Physical Targets
1.4.4
The project envisaged that the programme would cover 5800 persons. Up to
the end of 1977, the number of persons inducted into the programme was 3576 of whom 27
dropped out. Of the 3549 that have directly benefited from the programme, 1357 represent
enterprises established, 2 have found independent employment, 827 have had their incomes
or skills enhanced, and 868 are expected to stabilize as enterprises shortly. In the case of the
balance of 495 persons considerable follow up work seems still necessary. Including the
latter, the achievement is about 61 per cent at the end of 1997, which is quite satisfactory.
1.4.5
The plan for RSMEDP in 1998 is to include 2316 persons within the
programme. Of these, 1159 would be enterprises which would be established, 936 would
need particular attention with regard to credit and marketing inputs before they stabilize.
10
while 221 would require considerable efforts before they could be considered as successes.
Even excluding the latter, if the programme inducts the others, the achievement would be
nearly 90 per cent.
1.4.6
The programme elements till the end of 1999 would include consolidation of
enterprises and the Sanghas, ensuring that the beneficiaries “in progress” are trained and
establish income generating activities, strengthening of the marketing mechanisms, etc. Also,
if the demand for the products of the leather and kasuti enterprises were to increase, it would
be beneficial to train some more women in these skills. In general, the coverage envisaged by
the project would be achieved.
1.4.7
In terms of the numbers covered, the RSMEDP could be considered
successful. The key issues would be the sustainability of the enterprises created, the retention
and upgrading of the skills imparted, and the replicability of the programme.
Achievements
1.4.8
In assessing the achievements of the RSMEDP it would be necessary to keep
in mind certain special features of the programme. These include the short time during which
the project has been implemented and its primary objective of establishment of enterprises.
1.4.9
The project has been in operation over the last three and a half years. It still
has another year and a half for completion. While the learning process could be said to be
over, in assessing the results it would be realistic to recognize that the RSMEDP does not
deal with conventional social aspects of the community. It is rather unique in its attempt to
enhance both skills and incomes in the rural community, involving as it does basic changes in
11
social attitudes with regard to women’s participation in activities outside their homes and
coordination with numerous agencies, including rural credit institutions.
1.4.10
The primary aim of the project is to establish micro-enterprises in the non-
farm sector through the infusion or improvement of technical skills, facilitating access to
credit and markets and imparting entrepreneurial ability. Emphasis has, therefore, been on the
low and medium income strata of the rural population and not on the most disadvantaged.
The choice of groups has been mainly from those capable of responding to the mode of
operation of the programme
1.4.11
The project has had both quantitative and qualitative results. The former,
which are mainly economic, are discussed separately. The qualitative benefits include the
empowerment of women to the extent that the members of the Self-Help groups or Sanghas
are now able to articulate their concerns, have knowledge of elementary management
practices and the confidence to negotiate with local credit managers. Even if the numbers are
small, the project has demonstrated the link between economic advantage and empowerment
as reflected in attitudinal changes and assertive self-confidence. Even in cases where some
women have substituted manual labour with micro-enterprise with only marginal monetary
benefits, the fact that they now work under more congenial circumstances, with less
drudgery, and have a little more time for their household responsibilities, the results are
beneficial in social and health terms.
1.4.12
As mentioned earlier, the poorer sections of the community have not been
covered by the project. These sections do not have the economic strength to make even a
minimum contribution. In their cases, the scheme of establishment of enterprises which
requires a contribution in terms of either finance or time would not be suitable. The
12
establishment of credit co-operative societies may be a possible course of action. This could
be attempted as an experimental measure at some time.
1.4.13
The imparting of training to develop or sharpen existing skills is a major
element. The achievement in this regard is apparent and noteworthy. An innovative measure
has been the organizing of entrepreneurship training programmes in the Community
Polytechnic in Havanur for those who have acquired skills as students of the polytechnic.
This training would enable them to start enterprises of their own since they acquire
knowledge of elementary business organization, including marketing, and procedures for
accessing credit. It is recommended that this association with existing technical institutions
such as polytechnics be enhanced and such programmes instituted over wider areas.
1.4.14
Apart from training inputs, IDPMS has, through the RSMEDP, introduced
improved technologies in many cases. This is a significant contribution in the rural setting. It
would be essential for the participating NGO to ensure constant attention to both retention
of skills and upgrading of technology.
1.4.15
In the implementation of the project an area approach was envisaged.
However, within the two selected districts the activities would seem to be rather scattered.
adding to the costs of inspection and monitoring both in terms of outlay and time. The
demonstration effect is also weakened. It would seem desirable to spread the activities over
adjacent villages in an increasing circle so as to optimize resources in IDPMS of time.
expertise and funds. Admittedly, such an area approach presumes the presence of a capable
NGO. Where there is such an NGO, or more than one, the area approach in a more rigorous
sense could be adopted.
13
1.4.16
In some areas of Dharwad district new NGOs have been inducted into the
project. This had to be done because some NGOs opted out of the project. The performance
of these new NGOs would have to be particularly monitored in view of the short time left for
completion of the project. This is recommended to avoid overloading the elements in the
final phase of consolidation.
1.4.17
The RSMEDP could be said to have achieved its objectives in large measure
and demonstrated that its strategies are workable. Refinements and improvements are
certainly possible with regard to some elements, but the project indicates that the approaches
to the issues with which it is concerned are valid. In particular, it demonstrates the possibility
of creating jobs where the rural community lives, with consequent impact on migration to
urban areas.
14
Chapter II
ECONOMIC CONSIDERATIONS
2.1
Scope and Plan of the Chapter:
This Chapter analyses the main economic dimensions of IDPMS field
operations and makes a number of recommendations with a view to increasing the
sustainable net benefits of income and employment generation from enterprise creation. The
issues addressed in this Chapter include: (1) identification of the strategy or model and the
underlying economic rationale by which IDPMS conducts its field operations; (2) description
of programme inputs and outputs in both quantitative and qualitative dimensions; (3) analysis
of resource and market constraints on enterprise creation; and (4) examination of the
‘viability’ of enterprises created. Implications for the viability of the whole programme and
its replicability are considered separately in Chapter VI.
2.1.2
The contents of this Chapter may overlap with that of the other Chapters. It
hardly needs to be added that overlap is nonetheless inevitable if the integrity of the analysis.
argument and recommendations is to be maintained. This is especially the case in relation to
the ensuing Chapter which deals with questions of micro-finance and the experience with
self-help credit and banks in the project areas of IDPMS and, to a lesser extent. Chapter V
which focuses on the linkages with other institutions (banks, technical centres, government
agencies) that IDPMS has been able to establish.
2.1.3
A brief indication of the plan of the Chapter is in order. Section 2.2 examines
the IDPMS model in terms of its goals, instruments and basic rationale. In general, non-
15
governmental actions in economic development may be rationalised in purely economicefficiency terms on the grounds of both government and market failure and in socio
economic terms when the additional criteria of social equity and political viability are added.
Beyond this, however, IDPMS has also developed a unique vision and modus operand! in its
chosen sphere of small- and micro-enterprise (SME) development which this section
identifies.
Section 2.3 provides a selective description and illustrative analysis of the
economic activities pursued in a number of field projects that this mission visited. It is not
meant to be an exhaustive account of all the enterprises/areas the mission visited, much less
of the enterprises started up by IDPMS. Section 2.4 examines the main economic dimensions
of programme outcomes in terms of field inputs and field outputs, both direct and indirect.
Direct outputs include new enterprises created, employment generation and income
augmentation. Indirect outputs include the spread of better techniques that not merely add
income but also reduce effort and drudgery, skill upgradation even when there are no
immediate income gains, and employment gains for the educated in the NGO sector. Apart
from directly generating income and employment, field operations also have spillover benefits
beyond the project areas, in both economic and socio-political terms. Important direct inputs
are skill development, entrepreneurship training, group motivation and technical assistance in
enterprise formation. Indirect inputs include social empowerment and providing linkage with
banks and government organisations.
2.1.4
Section 2.5 identifies constraints on enterprise development based on an
analysis of findings from field visits.
The principal constraints are (1) scale and scope
diseconomies in IDPMS operations given the relatively small initial resource base, short time
horizon and learning costs, (2) the continuing difficulties of small- and micro-enterprises
(SMEs) in accessing bank loans and thereby graduating into more competitive and efficient
16
entities; and (3) problems of market demand: in demand management where markets are
local and in demand assessment and marketing where markets are non-local. Section 2.6
dissects the crucial issue of the viability of enterprises created by IDPMS. On the question
of economic viability of SMEs, certain conceptual issues are raised and addressed. The
assessment of enterprise viability is complicated by several considerations: the relatively short
duration over which IDPMS itself and most of the enterprises have been in operation and the
associated costs of learning; the prior expectation of relatively high rates of enterprise
mortality; the conceptual treatment of various components of IDPMS costs; the
incompleteness of the available data base on project benefits; the question of externalities and
spillover benefits (beyond project enterprises) generated by field operations; and the fact that
there may be a gap between social versus private benefits and costs in view of various market
failures. Conclusions on viability are based on best judgments of relevant parameters.
2.2
Goals, Instruments And Rationale
Goals
The principal goal of IDPMS is the creation of viable income-generating non-farm
employment opportunities in rural areas. This is sought to be done by enabling rural people
to employ themselves through the creation of small and micro enterprises. The distinctive
element in the IDPMS programme is the focus on creating rural enterprises which generate
self-employment and, where this becomes viable, wage employment. In this regard, it differs
from government programmes that are aimed at creating wage employment directly (e g..
food-for-work, rural public works projects or other wage-employment generating schemes).
The IDPMS approach requires that the beneficiaries themselves play a major role in initiating
17
a project idea, assessing its feasibility, putting it into operation and ensuring its economic
viability and sustainability. In other words, the approach requires that enterprise control or
effective ownership is in the hands of the beneficiaries themselves. The reverse side of the
coin is that risks associated with the enterprise are also to be shouldered mainly by the
beneficiaries.
2.2.2
The need to augment rural employment and income opportunities requires
little justification in the Indian context. Low incomes and pervasive poverty can be traced to
low productivity levels within and outside agriculture, endemic unemployment or
underemployment and sharp inequalities in asset distribution and social status. In such a
context, without efforts to enhance rural people’s incomes, most other development
programmes are likely to be stalled. For example, public investment in schools will not be
fully utilised if people lack private purchasing power to meet the out-of-pocket costs as well
as the opportunity costs of sending their children to school. Similarly, rural road investments
will not be economically viable if economic activity does not grow to generate sufficient
demand for transport. Even the success of programmes that are not primarily motivated by
income generation but rather by considerations of social or inter-generational equity and
sustainability (e g. the empowerment of women, reduced environmental degradation or
lowered fertility rates) hinge on achieving income gains.
2.2.3
As would be seen below, IDPMS operates preponderantly through the
intermediation of NGOs. Its effectiveness therefore depends to an important degree on the
capacities of NGOs. The latter is not a given parameter because IDPMS inputs are also
designed to build the NGOs’ capacities the better to fulfil its own goal of SME growth. The
NGOs that IDPMS has had to work with frequently have non-commercial activities such as
18
health as their main focus. Inducing them to move into SME development activities requires
motivating them to change their attitudes and training them in new tasks. In other words.
IDPMS operations require building up intermediary institutions as an intermediate product
in the pursuit of the basic goal.
2.2.4
Together with income and employment generation, IDPMS activities also
generate certain by-products or joint products such as increased empowerment of
beneficiaries, women in particular; a greater likelihood that beneficiaries will demand greater
accountability from local and higher-level government agencies; improved delivery of a range
of infrastructural, health and education services, etc. It is clear that such payoffs are not the
main focus of IDPMS interventions; indeed, they do not appear in the organisation’s formal
statements. Nevertheless, discussions with IDPMS staff revealed that such benefits that are
not specific to the production activity of any SME are nevertheless considered to be
valuable. The appropriate treatment of non-project-specific benefits will be considered in
Section 2.4 in conjunction with the question of economic viability of SMEs.
Instruments
2.2.5
IDPMS is fundamentally a technical services agency in the development of
rural small and micro-enterprises (SMEs) although it is also a donor agency since the
government of Netherlands is its chief source of finance. In a real sense, IDPMS is itself an
entrepreneur in the business of kick-starting rural SMEs. Given also that IDPMS has to
spread its activities over an environment lacking infrastructure, human capital and other
basics, its operations are rather decision-intensive. Decision areas may be classified under
three major heads: areas, agents and activities.
19
2.2.6
Following the recommendation of a previous evaluation mission in 1988,
IDPMS chooses geographical areas rather than economic sectors in which to promote
enterprises. The choice of areas is governed, ideally, by comparative advantages that may
arise from the availability of natural resources, of traditional skills and of underemployed
labour. The initial choice of districts was based on their ranking in terms of a range of
economic and social characteristics.
Following this ranking, Mysore, Dharwad, Bijapur,
Raichur and Gulbarga were selected as suitable for SME development. Operations since
1995 have been focused on the districts of Mysore and Dharwad. Mysore has a per capita
income close to the state average, a relatively high rate of poverty incidence and a
comparatively high allocation of Zilla Parishad development funds. Dharwad is rather more
backward. It was also chosen on the ground that Zilla Parishad funds allocation based on
need and potential was highest for the district and because it had better agricultural resources
than Bijapur and Gulbarga, factors believed to favour a greater probability of success in SME
development. In general, the IDPMS choice of areas is weighted in favour neither of the
most backward regions nor of the most developed districts but tends rather to focus on the
middling districts.
2.2.7
In practice, logistical reasons also enter in the choice of areas. The chief of
these is the availability of a minimal of what may be called “social infrastructure” i.e , a group
of people who have been brought enhance their general awareness and to create a modicum
of empowerment. In many cases, groups - now known as self-help groups or SHGs - are
organised to encourage collective saving and provide within-group credit for consumption
credit requirements. The development of social infrastructure paves the way for a variety of
development activities including SME creation. Without it, organising for entrepreneurial
and skills training or the provision of other technical inputs in SME development becomes an
20
uphill task. But the creation of social infrastructure is itself a specialised activity that is
largely beyond the IDPMS purview although IDPMS, in the early phase, did assume this
responsibility as well in a number of taluks. It is rather the province of social and political
movements, NGOs (particularly for SHGs) and, to an extent, government agencies. As a
consequence, IDPMS area choices have been strongly conditioned by the availability of
social infrastructure taking into account the compatibility of the goals of these other agencies
with the IDPMS objective.
2.2.8
In field operations, IDPMS has relied on a number of agencies including
NGOs, technical institutions, banks, government organisations and IDPMS itself. Figure 1
presents the channels through which IDPMS operations are (or may be) carried out. The
three possible channels are direct intervention, intervention through agencies such as NGOs
and banks, and intervention via model propagation and diffusion. As noted above, in the
early phase, IDPMS was directly involved in the organisation of SHGs and training their
members in SME operation. In addition, IDPMS has had to step in where other agents have
failed by design or circumstance. Such direct involvement with groups and individuals in
developing enterprises should be distinguished from IDPMS’ necessarily “direct”
involvement with beneficiaries in providing technical inputs. Properly speaking, this latter
type of involvement is indirect and arises from the fact that NGOs or movements that
organise beneficiary groups often lack technical expertise in providing training or other
inputs required to create enterprises.
21
Figure 1
CHANNELS OF INTERVENTION FOR SME DEVELOPMENT
IDPMS
Direct
Interventions
Intervention
through Agencies
Intervention via Model
Propagation and Diffusion
Soc-Pol. Non-Govemment Banking Government
Movements Organisations
System Organisations
Non-Credit
Groups
Credit Self-Help
Groups
Group Enterprises
Self-Employment
Individuals
Individual Enterprises
Wage-Employment
22
2.2.9
Intervention through other agencies has been the mainstay of IDPMS
operations and NGOs have been the chief direct agents of IDPMS in the field. IDPMS has
also played a key role in developing the NGOs own capabilities as institutions engaged in
creating SMEs. In addition, it has been instrumental in creating critical linkages between the
beneficiaries and beneficiary groups on the one hand and banks, technical institutions and
government agencies on the other. Especially in relation to NGO involvement, IDPMS has
relied on a flexible model of partnership without a rigid demarcation of tasks.
Finally,
IDPMS has not yet attempted to propagate and diffuse its own model of SME development
outside its own project areas, an option that deserves to be explored in the future.
2.2.10
The practically necessary reliance on agencies that develop the social
infrastructure also implies that IDPMS does not have direct control over the choice of
individual beneficiaries. This does not mean that IDPMS has no choice in the broad types of
candidate beneficiaries. In general, the groups described above as social infrastructure tend
to be fairly homogeneous internally since, in the Indian context of extreme social and
economic heterogeneity, this is virtually a sine qua non for their proper functioning. This
also means that subject only to the availability of diverse SHGs and other groups, IDPMS is
free to decide the sort of socio-economic groups with which to work. It is fair to say that
IDPMS does not have any socio-economic target group as such. Given its focus of SME
development, its choices appear to have been made primarily with that end in view. In short.
beneficiary choice is the result of a complex set of determinants including the types of groups
developed by available NGOs in the chosen project areas. Within these constraints, IDPMS
tends to choose groups and individuals that give SME development the best chance for
success.
23
2.2.11
Perhaps the most important decision in developing SMEs is the choice of a
set of economic activities appropriate to the area, agent and beneficiaries at a given project
site or village. This choice is the essence of the entrepreneurial content of SME development
since it implicates not merely the technical or production skills of the beneficiaries in their
capacity as workers but also, in their capacity as directors of the enterprise, their ability to
assess demand, costs, financing and marketing requirements both in the present and future.
Not surprisingly, this has proved to be one of the main stumbling blocks in the development
of SMEs and in sustaining them once developed.
Ideally, the decision is made by the
beneficiary rather than made for her even though IDPMS may play an important role in pre
project search for options, access to technology, etc. The difficulty arises not merely from
the risk and uncertainty of making an investment whose payoffs stretch into the future but
from the poor economic capacity of the typical beneficiary to shoulder the burden. In many
cases, therefore, overcoming the reluctance of trainees to become entrepreneurs has not
succeeded. Rather, would-be entrepreneurs have not infrequently turned to the NGO or
IDPMS itself for encouragement if not to have the choice of activity and the decision to
establish the enterprise taken for them.
Rationale
2.2.12
Any assessment of the rationale of the IDPMS model briefly described above
must take account of three issues: (1) the macroeconomic context within which rural
industries must be established; (2) the general rationale for non-market, non-state
intervention in micro-credit and micro-enterprise development and alternative models for
such intervention; and (3) the strengths and weaknesses, in relation to the opportunities and
constraints, of the specific model developed by IDPMS.
24
2.2.13
Consider first the macroeconomic context of rural India. The IDPMS focus
on employment and income generation through enterprise creation is especially appropriate
at the present juncture of rural development in India. Although food output grew at a robust
rate of 3.5 per cent per annum during the 1980s, the pace has slowed considerably during the
1990s to a mere 1.7 per cent per annum despite the unusual succession of ten normal
monsoons. Moreover, even the faster rate of output growth during the 1980s generated
employment growth that failed to keep up with labour force growth.
This failure is
especially worrisome for the already impoverished rain-fed regions in the country which have
not seen much of the benefit of irrigation or yield-advancing techniques. These are also the
regions where underemployment especially in the agricultural slack seasons is widespread.
These observations imply that non-farm output growth is a pressing imperative to lift people
out of poverty and to take up the underemployment and unemployment slack left by
agricultural labour shedding.
2.2.14
At the same time, there has been a significant rise in the non-farm share of
rural employment. As much as 70 per cent of the increase in the rural labour force between
1977-78 and 1989-90 was absorbed in the rural non-agricultural sectors even though the
average share of the latter was only about 15 per cent of the rural labour force at the
beginning of the period. Moreover, at an all-India level, this period was also marked by
rising real wage rates in rural areas. It might appear that rural industries have started to meet
the aforementioned imperative. While this obviously seems to be the case at least in part.
scholars have debated whether the relative rise in non-farm employment was due to the push
of poverty and “distress” i.e., the compulsions of survival of those left behind by a growing
but labour-shedding agricultural sector, or whether it was due to the pull of rising demand
and higher wages.
25
2.2.15
It has seemed natural to suppose that the association between rising wages
and rising non-farm employment must reflect the pull of demand. Further, the impetus to
non-farm expansion (which may come from within or outside the rural economy) has been
attributed to rising government expenditures in rural areas, on revenue and capital account
(Sen, 1996)1. But whatever be the source of demand, the demand-pull explanation also
implies that surplus labour had been exhausted and rural India had entered a new phase in
which wages are determined by demand and supply. However, it would be difficult then to
understand the continuing concern with unemployment and underemployment throughout the
period (not just in the post-1991 reform years).
2.2.16
Rising rural wages and slowed employment growth can be explained by an
alternative hypothesis which does not make the (implicit) assumption of full employment. In
this argument, an autonomous rise in rural wage rates (due perhaps to increased bargaining
power of labourers) explains both the falling ratio of employment to output within
agriculture as also the concomitant fall in poverty rates. A relative rise in non-farm
employment can still occur provided a source of demand can be identified. One such source
is government expenditure as argued by Sen. Another source is the rising share of real
wages in agricultural output that rising wage rates in fact imply. If the marginal propensity
to consume out of wages is higher than that for non-wages and if the propensity to consume
rural non-agricultural goods is particularly so, then the rising wage share would also explain
the necessary demand-side fillip to non-agricultural rural production (Rao, 1998). From a
policy standpoint, this undercuts the importance of allocative efficiency and restores the
importance of actions to promote rural employment, effective demand and the rate of
investment.
3
The reference cited are listed at the end of this Chapter.
26
2.2.17
Given the above-described context and trends, the IDPMS focus on rural
SMEs particularly in relatively backward rain-fed districts commends itself from a
development standpoint. For one, rural SMEs tend to be highly labour-intensive so they are
a useful vehicle for raising the employment gain from investment. Given that investments are
also often tiny, they lend themselves to seasonal and part-time employment, a flexibility that
the middle and lower deciles of the rural population would find attractive. For another, to
the extent that such gains in employment improve the bargaining power of workers in wage
determination, there is liable to be further income gains for these sections. Also, both of
these sources of income gain will tend to feed the rural demand for non-farm services and
manufactured goods and thus set up a virtuous circle of expansion. Finally, for many rural
areas, it is necessary to bring jobs and enterprise opportunities to where the people are rather
than hope that migrations will ensure equality of opportunities. People may be unwilling or
unable to migrate in ways that promote economic efficiency. This point is also tied to the
growing problems of India’s urban areas.
2.2.18
Consider next the general rationale for non-market, non-state intervention in
micro-credit and micro-enterprise development. Under textbook conditions, governments
are expected to provide a range of infrastructure services and the market to develop
enterprises suited to utilising these services and private resources fully and efficiently in
goods production. Given these ideal conditions, there would be little need for a third agency
such as non-governmental organisations at least for purposes of carrying out economic
activity. Such agencies arise, however, when these ideal conditions are not met.
2.2.19
The soil in which IDPMS functions is rife with market and state failures.
Market failures in the LDPMS areas include labour underemployment, insufficient creation of
27
human capital and monopolistic vested interests in labour, credit, marketing and other areas.
Underemployment implies that available labour resources command a price that does not
reflect their economic opportunity cost. Neither is the potential for SMEs and the associated
employment opportunities realised. The reason for these economic losses has to do with
market failures in respect of human capital, credit, insurance and market information. The
market neglects both general education and job-and-enterprise-specific training because
many of the benefits of such training accrue to the economy as a whole rather than to the
enterprise that would invest in such training (externalities). On the other hand, individuals
fail to invest in training for the same reasons and also because they lack access to finance to
carry them through the training period. Similarly, potential SME entrepreneurs lack ready
access to market information and marketing channels. The market may fail to furnish such
information because marketing channels are monopolised and the middleman would rather
keep his monopoly than part with market knowledge.
2.2.20
Banks too are notorious for their tight-fistedness in relation to potential SME
investors. In part, this is justified by the high cost of administering formal credit in small
doses to informally organised enterprises: there is a basic incompatibility between the modes
of organising formal banks and informal enterprises. Another reason usually cited is that
SMEs fail to satisfy the credit-worthiness criteria of banks.
But this claim bears closer
examination. To the extent that default rates are higher for SMEs (a ‘fact’ that can itself be
called into question in some contexts) and to the extent, in turn, that these higher rates of
default are due to the general environment of low human capital, poor market information
and other non-credit failures, the lack of credit-worthiness is itself a result of market failures.
Resolution of the latter would serve to reduce the default rates and thereby raise the
profitability of banks in SME lending.
But such a resolution is not in the interest of
28
individual bankers either since they would see no direct quid pro quo between expenditures
to reduce systemic failures and their private profitability. Credit-worthiness is also often tied
to the furnishing of collateral assets and/or personal guarantees of liability by third parties.
Lacking the requisite collateral, even very profitable SME investments must go unfinanced as
testified by the astronomical informal lending rates (in the range of 4-10 per cent per month)
cited by many of those interviewed by the Mission in the IDPMS areas.
Without
institutional solutions addressed to resolving these various market failures, the economic
potential of SMEs must remain unrealised. The local rural economy then remains trapped at
a low level of development. It must be noted that institutional solutions must not only be
technically adequate to the problems at hand but they must also overcome any political
resistance to mounting those technical solutions that is apt to arise from local vested
interests ranging from the employer-patron to the monopolistic middleman or moneylender
and also the family patriarch. Mr. C. Y. Bhardwad, an articulate trustee of NGO Chinyard, in
fact stated that organisers were sometimes forcibly prevented from carrying out the task of
bringing potential beneficiaries together.
2.2.21
The potential for SME development may also remain arrested due to
government failures
arising
from poor
design,
insufficient
resources,
improper
implementation, corruption and other resource leakages, and political interference in the
prosecution of programmes intended to provide infrastructure or resolve the sorts of market
failure noted above.
Such failures help account for the poor state of transport and
communication in many of the areas visited, the lack of proper sanitation facilities in villages
and the like. Even government programmes supposedly designed to help the poor and help
them employ themselves are often subverted. Thus, a good part of priority sector credit for
the rural poor that is channelled through IRDP, DWCRA and other similar programmes
29
either ends up in the wrong hands or, by encouraging default and political dependency.
scares away formal credit that would otherwise have reached people capable of starting up
SMEs. Government agencies, as indicated by the Chief Executive Officer of the Mysore
Zilla Parishad, are undergoing a “culture change” that is making them less critical and more
open to NGOs. A couple of well-known NGOs have been asked to take up, essentially on a
sub-contracting basis, the management of hospitals, community irrigation, primary health
centres and the like.
2.2.22
To be sure, the existence of IDPMS is not addressed to all these failures (e g..
lack of sanitation or schools, or the poor status of roads). The IDPMS approach must
necessarily function within the parameters defined by existing markets and existing state
agencies.
Rather, IDPMS selectively addresses some critical functions such as training.
credit, marketing, and technology diffusion or upgradation.
In each of these areas, the
justification for IDPMS intervention is that there are important externalities that neither
markets nor government have succeeded in internalising entirely. This is strengthened by
considerations of social empowerment and other joint products that intervention brings with
it. The choice of these specific functions for intervention rather than others is rationalised on
the grounds that effective resolution of market and government failures is both feasible and
desirable given adequate social infrastructure and a suitable agency.
2.2.23
The strengths and weaknesses of the IDPMS model will be taken up in more
detail in later Sections of this Chapter where its actual contribution is discussed.
It is
sufficient here to briefly note the distinctiveness of the IDPMS model against the backdrop
of existing approaches including new initiatives of donor-financed NGOs in the sphere of
micro-finance, programmes spearheaded by the government and its various agencies
30
including the banking system. On the side of government, rural non-farm development has
been addressed in part through the provision of wage employment directly and extending
credit assistance including subsidies to the poor to acquire productive non-land assets to
supplement their incomes. In addition, various supports and subsidies have been extended to
cottage industries including handlooms and handicrafts. While this approach has indeed
produced positive results in limited areas of traditional non-farm activity or otherwise created
employment, the production impacts have remained limited because of low accountability in
implementation leading to leakages. Moreover, these programmes do not seriously address
the problems of SME development in non-traditional activities or for new markets.
2.2.24
Many have come to accept the view that external intervention in micro-finance
is warranted by the overcautious attitude if not deliberate intransigence of bank managers in
lending to SMEs. NGO initiatives in micro-finance seem inspired by this hypothesis. While
there may be an element of truth in this proposition, it is scarcely the whole story as our
previous discussion makes clear. So long as the underlying weaknesses of market and state
remain, what is needed is a concerted approach to the linked failures in respect of human
capital, market information and credit rather than any one of these areas in isolation. A
concerted approach establishes linkages that serve to internalise external benefits which, in
turn, raises the prospects for SME viability. For the same reason, banking system initiatives
to address SME growth remain partial as they pay little attention to inputs complementary to
credit and are therefore unable to effect a real change in the volume of lending.
A
NABARD-initiated system of supplementary credit delivery through NGOs and SHGs
linking 4,600 SHGs with banks, has managed to disburse only Rs. 11.84 crores as at the end
of March 1997 (Agrawal, Puhazhendhi and Satyasai, 1997).
31
2.2.25
The IDPMS alternative consists basically in providing a co-ordinated set of
technical inputs that simultaneously address the various critical gaps that prevent SMEs from
achieving commercial viability. The IDPMS model correctly identifies key constraints on
non-farm enterprises in terms of empowered people, production and managerial skills, fixed
and working capital credit, and markets.
It aims to promote rural micro-enterprises by
(1) creating human and institutional capital; (2) breaking the constraints on credit; (3) playing
a catalytic entrepreneurial role; and (4) seeking to integrate broader basic needs into the
enterprise development programme. In summary, IDPMS is practically unique in filling an
important niche in the development of SMEs and rural industrialisation. In our view, its
model of operations is broadly appropriate to its chosen objective.
2.3 The Economic Activities of SMEs: Field Observations
This section provides a selective description and illustrative analysis of the
economic activities pursued in a number of field projects that this mission visited. It is
emphatically not an exhaustive account of all the enterprises/areas the mission visited, much
less of the enterprises started up by IDPMS. The visits were carefully planned to include
meetings with SHGs, NGOs, banks and other local experts. In several cases, we had the
opportunity to interview the entrepreneurs in some detail trying to understand the sort of
economic calculus they were employing and also to understand the business strengths and
weaknesses of their efforts.
Mysore District
2.3.2 Mallinathpura: The case of Mallinathpura (Hunsur Taluk, Mysore) typifies many self
employment activities that return subsistence rates or local rates of wages for IDPMS
32
beneficiaries. The village is peopled by a settled tribe of Kurubas and is, therefore, socially
homogeneous and devoid of caste distinction. Nevertheless, households differ in terms of
land owned which affects the extent of their employment possibilities within agriculture.
Being a dry area, male labourers find work for 6, at most 8, months while women can find
work for no more than 6 months. The Kurubas have traditionally also spun wool and woven
wool kamblis for sale in near and distant markets. IDPMS worked with three sanghas or
SHGs of 55 families at various stages in its involvement. Traditionally, women spin and men
weave.
Traditional spinning using hand and exposed thigh is laborious and frequently
interrupted by men walking in as women had to cover themselves. IDPMS introduced them
to a pedal-powered metal spinning machine, the Medleri Charaka (with a subsidy varying
between 75 per cent and 100 per cent provided by the Zilla Parishad), which raised per hour
productivity between 150 per cent and 250 per cent after training. The spindle also eased the
drudgery women faced with the old technique.
2.3.3
The enhanced spinning capacity of the sanghas allowed women as well as
their men (who wove the yarn into kamblis) to employ themselves fully in the lean season
even as they continued to work their fields in the agricultural seasons. Seasonality in wool
supply and in the kambli market (with kambli prices varying as much as between Rs. 170 and
Rs. 300 each) means that beneficiaries stock up on wool and hold back the blankets for best
economic results.
This means, in turn, that they must have adequate working capital.
IDPMS has been able to link the spinning sanghas with the Cauvery Grameen Bank (the
RRB for Mysore) which lends up to
Rs. 40,000 to each sangha based on initial sangha
savings (the IDPMS intermediation serves as signal of the sangha’s capability and good
credit to the bank). This service is valuable since the low rates of the RRB are not widely
accessible and credit is severely rationed. Although all loans are collateralised, movables
33
such as materials and finished goods are quite unreliable for this purpose. Nonetheless, the
bank tends to exclude from the SHG those who are essentially asset-less just as the sangha
membership is confined to the landed if small/marginal peasants.
2.3.4
The IDPMS contribution clearly includes introduction of the spindle, training
in spindle operation and maintenance and of course enterprise operation, linkage with the
RRB and follow-up advice on marketing, etc. For the beneficiaries, this has raised off
season employment and earnings with a spillover benefit to the underemployed outside the
project insofar as the limited existing employment opportunities get spread around. To be
sure, the sangha households are now exposed to the additional risk of the wool and kambli
markets but, as gathered from discussions with them, they seem willing to live with that.
2.3.5 Nanjangud: The women’s group in Nanjangud town were remarkable for two reasons:
they were from the dalit castes and had clearly benefited in terms of empowerment and self
confidence from joining the sangha and had gotten training from IDPMS.
They were
engaged in a collective enterprise to produce bags and products other products made from
rexine and jute, and also wood in-lay work. The enterprise was housed in a shed given rentfree by government and with sewing machines provided interest-free by IDPMS. What was
not very clear, however, was whether they were on top of the market in terms of responding
to changing demands and the competition. IDPMS was providing post-project support in
product design and marketing. The earlier group of 20 had already shrunk to 8 in 1997 in
the face of market and productivity problems when they were given a second round of
training (the first round was for 6 months) to make the switch to jute. This experience was
broadly reproduced in another group which had been trained to produce wood in-lay
products.
34
2.3.6 KuderuMole and Dasanur : Sisal products are produced from the fibre of sisal plants.
A mixed-gender group of twenty-two members of the Uppar Shetties of Kuderu Mole, a
people skilled in working locally available sisal, were selected by IDPMS for EDP training
and forming an SHG. The men, who cut the plants and extracted the fibre, were trained to
switch from manual to machine extraction of the fibre. Marketing is done by both sexes.
Besides increasing their incomes (albeit at prevalent wage rates of Rs. 25-35), the group has
been able to secure increases in its collective saving and also secure a revolving credit from
the government DWCRA scheme. A recurrent theme in many groups, including the Uppar
Shetties, is that younger women often leave on account of marriage. Some members also set
up shop on their own. The Mission was unable to study the group dynamics of collective
enterprises but learnt that they were rather more unstable in Mysore than in Dharwad.
2.3.7
A unique experiment in training is the case of the SHG at the nearby Dasanur
village. Unlike Kuderu Mole, the training was provided under IDPMS auspices by a woman
from Kerala to women who had no previous (traditional) skills in working sisal. The trainer
has herself become a resident in the village. Products made include coasters, mats and bags.
In recent months, the group has suffered reverses due to lack of group cohesiveness.
absenteeism and the like. Moreover, the enterprise’ came to be seen as an employer’ with
the women collecting standard wages at Rs. 15 a day unrelated to output produced.
2.3.8 Therambally : Situated in Kollegal taluk of Mysore, Therambally is part of a thriving
silk-reeling area. Prior to intervention, women had been wage workers in this local industry.
After IDPMS training, 12 silk-reeling enterprises were set up with labour being divided
within each family: silk reeling being conducted by women and men and cocoon procurement
and yam sales being the province of men. During the last 6 months, 8 of these units have
35
established a second charaka.
This intervention has been made through the People’s
Movement for Self Reliance (PMSR), an activist NGO which is part of the dalit political
movement. Over a 3-year period, IDPMS imparted SME training to 400 youths of whom
150 have established their own enterprises. Of these 150, 125 are dalits and the other 25
non-dalits. Apart from silk-reeling, a number of petty shops and service enterprises were
also set up by the trainees.
2.3.9
IDPMS has played an interesting role in the development of PMSR. Prior to
the IDPMS link, PMSR had been a political organisation with primary interests in social
welfare activities among the dalits. Exposure to IDPMS led them to take a leading role in
local SME development.
As disappointing experience accumulated in accessing outside
formal credit, PMSR set up its own credit co-operative society to which the trainees were
inducted. The Government of Karnataka contributed Rs. 50,000 as seed money and the
present fund is about Rs. 2 lakhs. The co-operative now follows the simple rule of providing
loans only for working capital leaving the enterprise to meet its own fixed capital
requirement.
2.3.10
The co-operative has 30 SHG members. Individuals are given loans ranging
from Rs. 500-3000 depending on their own equity investment. The typical self-employed
person earns Rs. 40 a day which is about twice the prevalent female wage and a little over the
prevalent male wage. However, individual enterprises suffered much instability (sickness and
mortality) in the first two years due to poor knowledge and experience in markets, products
and pricing. A radio-and-TV training programme was ineffectual chiefly for want of credit.
Since 1997, the record has improved considerably.
36
2.3.11
The silk-reeling enterprise of Prabhakara and his mother is a shining example
of success.
Besides the marketing and procurement services of Prabhakara himself, the
enterprise engages the labour of 4 relatives on wages. Yarn output and quality depend on
workers’ skills but also on weather conditions. Profitability also depends on Prabhakara’s
skill (and luck) in making yam purchases, playing the ups and downs of the market and
calibrating his purchases and production plans accordingly. Like other PMSR entrepreneurs.
Prabhakara got a loan of Rs. 3000 from PMSR. His own investment is Rs 15000 which he
has obtained by joining a rotating credit ('chit fund’) group. While the implicit interest rate
on this loan seems rather high, it is evidently justified by the rather high net profits that
Prabhakara (reluctantly) revealed he was making i.e., Rs. 7000 in 10 days which works out
to an annual profit of Rs. 231,000.
Even if Prabhakara’s accounting of net’ profits is
missing cost elements such as the true cost of the chit fund loan or the opportunity cost of
his own time, it is clearly a flourishing success by any standard.
Dharwad District
2.3.12
All of EDPMS operations in Dharwad are in the dry areas. The region has
undergone high rates of agricultural mechanisation in cash crops despite a large pool of
surplus labour of the numerous landless and marginal landowners.
2.3.13 Ranibennur : Spoorthy is an NGO intermediary at Ranibennur that works closely with
IDPMS particularly in the area of training.
Through SPOORTHY, IDPMS has been
organising 3 to 5 months residential training programmes for 18-25 year olds, both men and
women, drawn from the local villages and towns. These are people who have completed
high school and want to learn new trade skills as in radio-TV repairs, motor winding, screen
printing, etc. At the time of the Mission’s visit, there was a class of trainees in motor
37
winding most of whom seemed keen about the learning as well as the prospect of starting up
on their own. Although the training is largely free, trainees are required to pay Rs. 100 as
earnest money.
2.3.14
Ningraj Irani is a young man of 21 who underwent SPOORTHY-IDPMS
training in screen printing in 1996 and started up his own enterprise in August that year with
a total investment of Rs. 6000. The training programme was preceded by some market
research by SPOORTHY who also came up with the idea for the programme and identified a
class size of 20 as reasonable in relation to demand. The training lasted 2 months. Prior to
this training, Irani was engaged in signboard painting. The intermittent orders he got secured
him an average of Rs. 1000 per month. These days he carries on with that old job whenever
he has a slack in his main line business which is screen printing.
2.3.15
Irani’s screen printing business averages around Rs. 4500 in monthly sales.
Raw material costs amount to Rs. 2100, repairs add Rs. 200, rent and power total up to Rs.
230 and interest on loans adds another Rs. 50. Net monthly income is therefore Rs. 2000.
In other words, the enterprise has doubled Irani’s monthly income and keeps him fully
occupied.
Irani clearly enjoys good credit with the local private bank as also the co-
operative. While he owes nothing on his own business, he has lent out Rs 5000 to a friend
which will be returned to him in 1999 with approximately 36 per cent interest at which point
he will be able to build separate premises for his business (presently, the business is operated
in his father’s house). He has also been able to secure a Rs. 10000 loan from the bank for his
brother to purchase an auto-rickshaw.
2.3.16 Kanavalli : Sanjay Baligar got his electrical/electronic repairs training from Spoorthi
for 4 months in 1996 following a diploma in mechanics from a Haveri polytechnic institute.
38
Though he had held a job as supervisor in Bangalore in 1994-95, this returned only Rs. 1000
monthly. Besides he wanted to be his own boss. Following the training, Baligar set up a
small electrical repairs shop.
In 1997, he decided to diversify into cable TV with the
purchase of 2 dish antennas. He had needed Rs. 42000 for the total investment in the shop
and in the cable business.
But the bank rejected his application and so did the Prime
Minister’s Rozgar Yojana. This only steeled Baligar’s resolve to succeed. In the end, he
borrowed Rs. 17000 from his brother and phased out his investment plans.
2.3.17
Baligar makes a net total of Rs 2000 monthly from the electricals shop.
Indeed, he is able to employ an assistant who takes care of much of the repairs jobs while
Baligar attends to the cable business. The running profit from the latter is Rs 600 monthly
not counting the “income” that he will have from the Rs. 500 deposit that each customer is
required to make. It is clear that Baligar’s is a going enterprise except for one difficulty. He
now has a rival in the cable business. The rival is not technically competent which Baligar is
but is in it for the image that the business gives him. But the market will support only one of
them and Baligar stated that he is close to buying out his rival. He also has plans to diversify
as a selling agent for TV sets and other durables.
2.3.18 Haveri Polytechnic : An interesting recent development is that IDPMS has linked up
with a polytechnic in Haveri for the purposes of trade skills and entrepreneurship training.
Apart from bringing in young men and women from the surrounding areas, it is expected that
the polytechnic’s own graduates will also be trained to start their own enterprises which, in
view of their job market prospects, may be a very good thing.
2.3.19 Neglur : Several small entrepreneurs were met in the village of Neglur.
The
households that we met in the wool spinning-cum-weaving business were not dissimilar to
39
those that we met at Mallinathpura, Mysore. But the impression one gathered was that
levels of skill were higher and net incomes garnered more than just subsistence or prevalent
wages in the area. Thus, a blanket (of somewhat superior type than at Mallinathpura) that
sold for Rs. 400 cost 3 days’ labour in weaving and 2 days’ labour in spinning. Even taking
Rs. 50 as the wage rate and with raw material costs at Rs. 50, the enterprise returns a net or
pure profit of Rs. 50-100 per kambli depending on allowance for rent. This is a clearly
profitable enterprise. We were also surprised to learn that the village cobbler who recently
set up with IDPMS training makes Rs. 2500 per month which is assuredly more than the
prevalent wage rate.
2.3.20 Tadas : One of the most interesting groups we met is the Akkamahadevi SHG in
village Tadas started under the tutelage of an NGO named Chinyard. The sangha was 27
months old at the time of our visit and had been in the process of shifting from being a pure
credit co-operative to the business of starting up an enterprise. Members had been field
labourers for the rich even though they owned typically 2-acre unirrigated parcels. As a
thrift institution, the SHG gathered Rs. 10 per member on the 9th of each month; another
deposit of Rs. 10-25 was voluntary and collected on the 26th. The group had an internal
loan rate of 24 per cent per annum and sureties had to be provided by two other members.
Loans up to a maximum of Rs. 5000 were given for consumption and increasingly for
production purposes.
2.3.21
Under the NABARD refinance scheme, the SHG had also secured Rs. 45000
as loan (at Rs. 2250 per member) which was presently lent out towards petty businesses such
as provision stores, dairying and the like. But the SHG is seriously contemplating starting up
a chilli powder (pounding, packaging and selling) collective enterprise. To this end, it had
40
engaged in that business on a pilot basis renting pounding machinery from a nearby village.
One of the chief requirements of the business will be securing the grinding/pounding machine
for Rs. 16000 and securing a pukka building for operations and dry storage. The latter is
critical to the business from the viewpoint of securing quality and being able to make
advantageous seasonal purchases. The cost of the building will add another Rs. 10000 to
investment while working capital (mainly chillies in process) will amount to about Rs. 20000.
2.3.22
The women had done their homework very well.
At full operation, they
anticipated a net profit per member of Rs. 350 per week. At this rate, their total earnings
would rise substantially not only because of much reduced underemployment but also by
virtue of owning the enterprise. As for the internal division of labour within the SHG group
enterprise, the women expressed enthusiastic confidence that they would pull together as a
group. But it would seem that it is not organisation or credit mainly that is the constraint on
this enterprise. Rather, the constraints have to do with the extreme seasonality of the market
for the raw material, the business subtleties of material buying and the need to market
through channels that do not threaten to swallow up the main part of the profit. In other
words, it is the uncertainty of the market and of marketing margins that is presently holding
back the investment.
We were immensely impressed with the acumen the women had
already acquired and the zeal with which they reported the results of their pilot operations.
They were making fine calculations on the choice between having a sales person of their own
versus selling to a Hubli contractor. When the option of creating a small sales group within
the sangha was suggested, the women responded very positively. We found it fascinating to
see these women first-hand, both individually and collectively, coming to grips with the task
of taking an entrepreneurial leap into an uncertain but potentially profitable enterprise. We
were also struck by how well-knit the group was.
41
2.3.23
Another interesting enterprise started by Chinyard-IDPMS is that of training
for making compressed cement blocks or bricks for construction. The bricks have certain
clear advantages (such as not requiring plastering) over the conventional brick at roughly
similar prices.
At the time of our visit, training involving about 10 young men was in
progress with two compression machines. The machine had been devised at ASTRA, an
appropriate-technology research centre in Bangalore. A young trainee we spoke to had
recently turned trainer and spoke of his plans to start a brick-making enterprise.
The
enterprise would employ 4 persons and produce 500 bricks a day at Rs. 3.50 a piece or a
daily revenue rate of Rs. 1750. Costs total up to Rs. 1500 a day consisting of Rs. 400 for
sand, ash and mud, Rs. 700 for cement, Rs. 200 for the implicit rental price of the machine
and Rs. 200 for labour at Rs. 50 a day. At these costs, the net profit works out to Rs. 250 a
day. Capital investment consists of Rs. 50000 for 2 compression machines and another Rs.
15000 for building and land. Clearly, the enterprise is capable of returning a handsome rate
of return on capital. The technology has the characteristic traits of a local enterprise that can
go national: it uses local materials and local labour and indigenous technology to meet local
demand; but when generalised across the countryside, it could yield benefits (especially in
terms of both housing and employment) on a national scale. As learnt later from Director
Jagadeesh of ASTRA, the successful diffusion and dynamic adaptation of such technologies
depends on creating an infrastructure for on-going support and advice. Such infrastructure
ought to be seen as an investment for a whole process of industrialisation rather than specific
to any single activity.
2.3.24 Kabanur and Tumarikopa : Finally, we met three groups of women at Kabanur all
organised by Chinyard. Two of these were engaged in the skilled art of making embroidered
designs on sarees (Karnataka Kasuti as it is called); another was engaged in stitching inner
42
garments. The two groups engaged in Kasuti work were distinct from each other in that one
consisted of somewhat better off young women who engaged in the activity as a way of
meeting their discretionary expenses or saving prior to marriage. The other consisted of
erstwhile labourers for whom the earnings were part of their subsistence. The third group
was funded by the DWCRA scheme. While some had their own machines to stitch the
garments, they also shared those machines free with the other members of the group who
lacked the machines.
2.4
Economic Dimensions Of Programme Outcomes, 1995-98
Visits to the field showed clearly that the IDPMS contribution lies in both
economic and social areas, in quantifiable and non-quantifiable dimensions, and in direct and
indirect forms. Direct outputs have been most obvious in the form of generating increased
incomes and employment through SME development. Enterprises have been started by both
individuals and groups. They are to be found in the services sector as also in manufacturing.
While many have generated self-employment exclusively, others have also generated wage
employment. It is also noteworthy that IDPMS projects also generate employment in the
NGO sector.
In some notable cases, IDPMS generates for beneficiaries only a rise in
productivity which the latter may choose to realise at least in part as a reduction in drudgery
or work-time rather than as increase in income. Indirect outputs include the fact that some
IDPMS beneficiaries or ideas migrate or travel beyond the project areas which may have a
pollinating effect in the recipient areas. Another form of indirect output is the empowerment
of beneficiaries, especially women. Such empowerment was clearly visible in the boldness
and self-confidence, articulateness and high motivation that many of the women and men
43
evinced on our visits. Yet another important form of IDPMS benefit is the building up of
institutional capacities and insights (whether for the NGOs or the banking system). Such
institution-building is a form of investment whose payoffs are not necessarily immediately or
directly visible in the project areas only.
Direct Outputs
2.4.2
Having described the SMEs created in some detail, it is appropriate to
consider the overall output magnitudes involved. Table 2 1 presents data on the number of
enterprises created under IDPMS interventions in both Dharwad and Mysore.
TABLE 2.1 : ENTERPRISES CREATED UNDER IDPMS INTERVENTIONS
YEAR
DISTRICT
TYPE OF ENTERPRISE
INDIVIDUAL
1995
1996
1997
TOTAL
GROUP
Dharwad
141 (56%)
Mysore
110(44%)
TOTAL
251
Dharwad
69 (48%)
74 (52%)
143 (46%)
Mysore
109 (65%)
59 (35%)
168 (54%)
TOTAL
178 (57%)
133 (43%)
311
Dharwad
268 (88%)
36 (12%)
304 (39%)
Mysore
404 (86%)
65 (14%)
469 (61%)
TOTAL
672 (87%)
101 (13%)
773
1995-
Dharwad
588 (44%)
1997
Mysore
747 (56%)
TOTAL
1335
Note: In the last column, figures in parentheses give district shares of the total while those in
the other two columns give shares of individual and group enterprises.
44
2.4.3
The rate of growth in enterprise numbers rose from 24 per cent between 1995
and 1996 to 148 per cent between 1996 and 1997. However, though impressive in itself, this
rise in growth is tempered by the fact that the proportion of group enterprises in the new
enterprises created was considerably higher in 1996 (43 per cent) than in 1997 (13 per cent).
In terms of number of beneficiaries (people who received IDPMS training but who may or
may not have gone on to start an enterprise), there were 1086 in 1995, 932 in 1996 and 1582
in 1997 yielding a cumulative total of 3600 for the three years.
2.4.4
Turning to district-wise performance in terms of enterprise creation, the
number of new enterprises rose in both districts by a factor of about 6 over the 3-year
period. However, Dharwad’s share of total enterprises created fell sharply from 56 per cent
in 1995 to 46 per cent in 1996 and fell back further in the following year to 39 per cent. For
1997, both districts witnessed a fall in the proportion of group enterprises although the fall
was much steeper for Dharwad. The decline in the importance of group enterprises is a bit
worrisome not merely because group enterprises imply, other things remaining the same, a
greater beneficial effect on employment and incomes but also because when groups hang
together, they can more readily reap the benefits of co-operative procurement or marketing
or credit and also withstand market fluctuations better through mutual aid in times of
distress. That the decline itself may be a purely random outcome due to numerous individual
circumstances cannot be ruled out. Nevertheless, a systematic reason for the decline may be
the growth of fissures within beneficiary groups after the initial period of camaraderie
following training. Note also that the break-up of an existing group enterprise may be
followed by the creation of several new individual enterprises thus producing a multiplier
change in enterprise composition that exaggerates the real change. Another possible factor is
that there was a significant shift from direct IDPMS involvement to NGO mediation in the
45
creation and motivation of self-help groups.
It seems plausible that direct IDPMS
involvement tended to produce more group enterprises than was the case under NGO
direction.
The whole issue of the changing composition of enterprises needs to be
investigated more systematically with a view to identifying the factors that may account for
the sustainability of group enterprises.
2.4.5
Employment creation and income generation is the most important
contribution that IDPMS can make given the nature of the areas in which it operates. Both
Mysore and Dharwad districts have a number of taluks which are essentially rain-fed.
IDPMS operates mainly among these taluks. At most sites we visited, people told us about
the unemployment of the population, especially women, during the lean seasons. “Most
women are very idle but have no idea what to do.” But exactly how far such employment
creation will go over time and across space depends on the strengths of the roots of those
enterprises.
2.4.6
At this point, some relevant distinctions other than that between individual
and group enterprises may be made. Many IDPMS enterprises elicit non-farm employment
only or chiefly in the agricultural off seasons. In most such cases, it would be fair to say that
there is a quantitative addition to people’s incomes and employment but whether there is a
major qualitative rupture in the economic status of the beneficiary is apt to be a bit more
controversial. In other cases, the beneficiary (as with Prabhakara or Baligar) becomes a full-
time manager-entrepreneur-worker in his enterprise. In such a case, few would doubt that
there is a qualitative change in economic status. Even so, the distinction between the two
cases ought not to be exaggerated or rather is essentially quantitative rather than qualitative.
A further distinction is that some enterprises go on to employ others as wage labourers. The
46
distinction between surplus-producing and non-surplus-producing enterprises is not a
categorical one but a contingent, quantitative one. Finally, we may note the further point
that surplus-producing enterprises may go on to accumulate capital and therefore achieve
expansion or diversification. This would not be within reach for SMEs that only managed to
cover wage opportunity costs. Apart from the motive of accumulation, enterprises may also
be distinguished in terms of their ability to bear risk. In general, underemployed workers can
be expected to have a very low capacity to bear risk while their entry into an SME operation
may entail an indivisible commitment of their labour time which might impose a risk cost on
them that they may not be willing to shoulder. Such risk aversion makes for a low rate of
initial entry into SME ventures. Further, it also means that in the event of an adverse shock
from the market, the enterprise may very well fold rather quickly and the erstwhile
entrepreneur return to his labouring occupation. But whether accumulation or subsistence.
safety or risk exposure, the relevant distinctions are not categorical ones.
2.4.7
Apart from adding to people’s income and employment, there are also benefits
in terms of reduced drudgery of effort. An example is the gain experienced by the wool
spinners of Mallinathpura. These women not only increased their productivity 2-to-3 fold
but also were able to avoid the pain of the traditional model of spinning. In most cases
where people have switched from wage employment to self-employment, there is also a
qualitative gain in terms of a sense of autonomy and freedom in both work process and
income generation
47
Indirect Outputs
2.4.8
In any market-oriented enterprise, benefits and costs are confined to just those
that the enterprise itself must or will give recognition to. Typically, for an individualistic
entrepreneur (whether she cares for assuring her subsistence only or whether she also wants
to produce a surplus to augment her consumption or savings), this implies that any external
benefits produced or external costs incurred by her enterprise will be essentially ignored.
Thus, only actual and opportunity costs that the enterprise itself must pay for and only actual
and perceived benefits that she herself captures will be counted in. This distinction between
internalised benefits/costs versus externalities is not quite the same as that between
quantitative benefits/costs versus qualitative ones.
2.4.9
The most important point concerning the IDPMS projects is not merely that
the projects have generated indirect benefits in the form of women fs empowerment and
greater assertiveness in the public sphere. Wherever IDPMS has operated through SHGs or
indeed itself created SHGs from scratch, it has served to strengthen or even create social
infrastructure whose value cannot be measured only in terms of the SMEs created or
employment generated. For such social infrastructure pays off in a wide range of areas.
economic, political and social. It is also the case that the projects are beginning to have
demonstration effects in the surrounding areas. Thus, there are instances in the project areas
of women forming groups on their own and starting up group or individual enterprises.
2.4.10
Even where IDPMS operations do not generate a direct income gain, the
operations are not without benefit. Thus, many trainees fail to open up SMEs but have
nonetheless gained in terms of new production and economic skills which will help them
survive the market economy better. They may still go on to start up their own enterprises
48
though they may not have done so within the artificially restricted time horizon of the
project. Yet again, enterprises that fail for any reason need not be taken to be without any
positive benefit since failure does not mean that the entrepreneur will not be able to pick up
the pieces again.
On the contrary, failures may train entrepreneurs just as surely as
successes.
2.4.11
The IDPMS contribution to employment should not be viewed only in terms
of the “direct” beneficiaries. IDPMS also contributes to the employment of a number of
skilled personnel in the NGO movement. In another time and place, some of these people
may have gotten employed in government agencies or in the private sector. It is possible that
these other sectors are shedding labour owing to the compulsions of fiscal and market
pressure. If so, the employment generated by IDPMS in NGOs has genuine additionality.
2.4.12
It is reasonable to ask whether IDPMS projects help alleviate the incidence
of officially defined poverty or contribute to social objectives other than through the SMEs
created. It seems fairly clear that IDPMS does not have a fixed target group as such among
the rural population (whether these are the poorest people or poorest regions or skilled
artisans or even women). Rather, its objective is defined in terms of enterprise creation and
employment generation. As such, it chooses groups appropriate to each area, activity and
agent to achieve its own goal of generating rural employment and incomes by creating
SMEs. Any apparent selectivity must be understood to be the indirect fallout of constraints
on the ground rather than a planned result directed by objectives. Specifically, this has meant
that IDPMS has tended to select beneficiaries from the small and marginal land-owning
households rather than from the landless labour households.
49
2.4.13
Another apparent bias’ is the relatively high (close to 70 per cent) female
proportion of beneficiaries is relatively high. But this can be explained in terms of a number
of operational factors in implementation rather than as a clear objective of IDPMS although
the latter is, to some extent, acknowledged by the staff. First, women members preponderate
among the SHGs started by NGOs who may have women’s empowerment as a key
objective. Second, women tend to join EDPMS groups for SME development in greater
numbers and, as many told this mission, are as a rule more co-operative and achieve a higher
success rate. Finally, it has been stated that in the taluks IDPMS operates in, there is a
strong proclivity on the part of men to seek work largely in agriculture.
Financial Expenditures: Economies of Scale and of Learning
2.4.14
A variety of inputs from IDPMS serve to generate the outputs described
above . The most important of these inputs are skill acquisition and training, technology
difiusion and upgradation, entrepreneurial training, marketing, and the contribution of some
capital to the SMEs under its purview. IDPMS also establishes institutional connections
between beneficiaries and banks and government agencies that directly or indirectly helps the
promotion of SMEs.
The nature of these inputs and institutional linkages have been
described elsewhere in this report.
2.4.15
The structure of IDPMS financial expenditures and their trends over time are
now considered. IDPMS expenditures are conveniently divided into programme expenditure
and management (or programme management unit - PMU) expenditure. The former are
expenses clearly identified with field operations i.e., in enterprise development, whether
incurred by IDPMS staff or by IDPMS agencies.
50
PMU expenditures are “management
costs” whether they are incurred at the Bangalore headquarters or in field offices. This does
not mean that PMU expenditures are unrelated to enterprise development since they include
the costs of technical inputs that may be directly or indirectly supplied by headquarters
personnel. For example, they include salaries paid to a marketing consultant whose services
are utilised by the SMEs under IDPMS. It has not been possible to identify the fixed costs of
IDPMS or, conversely, the long-run variable costs that depend exclusively on the number of
SMEs created (or are in operation).
2.4.16
The programme and management expenditures for the three years 1995 to
1997 are indicated in Table 2.2.
TABLE 2.2: PROGRAMME AND MANAGEMENT EXPENDITURES
(Rs. Lakhs)
\
ITEM OF EXPENDITURE
PROGRAMME
MANAGEMENT
TOTAL
Actual Exp.
37.9
34.8
72.7
At 1995 prices
37.9 (15,406)
34.8 (14,146)
72.7
Actual Exp.
63.1
25.1
88.2
At 1995 prices
57.3 (14,580)
22.8 (5,802)
80.1
Actual Exp.
85.4
30.0
115.4
At 1995 prices
80.6 (11,225)
28.3 (3,941)
108.9 (15,166)
186.4
89.9
276.3
175.8
85.9
261.7 (19,285)
YEAR
1995
1996
1997
1995-1997 Actual Exp.
At 1995 prices
(29,552)
(20,382)
Note: (1) Actual expenditures have been deflated by the consumer price index for industrial
workers to get constant-price expenditures. (2) Figures in parentheses are expenditures per
new enterprise created in the relevant year.
51
\ ^80
2.4.17
For the three full years of operation 1995-97, Table 2.2 shows that
programme and management expenditures amounted to Rs. 175.8 lakhs and Rs. 85.9 lakhs
(in real terms) yielding a total of Rs. 261.7 lakhs. Total expenditures grew faster during the
last year than in the second year of the 3-year period. PMU costs as a proportion of total
expenditure have fallen from 48 per cent in 1995 to 28 per cent in 1996 and to 26 per cent in
1997. The falling ratio of PMU to field expenditures suggests that IDPMS has been riding a
learning curve. This is also indicated more directly by the real expenditure per enterprise
created which has fallen steadily from Rs. 29,552 in 1995, to Rs. 20,382 in 1996 and on to
Rs. 15,166 in 1997. For the 3-year period as a whole, per enterprise expenditure has been
Rs. 19,285. Note also that whereas programme expenditure per enterprise created in 1997
fell to 73 per cent of its 1995 level, PMU expenditure per enterprise fell to 28 per cent of its
1995 level. These trends reflect some combination of both learning economies and scale
economies in IDPMS operations. The relative importance of learning and scale could not be
deciphered since expansion in scale coincided with what was undoubtedly a period of
learning for the organisation. While learning economies can be expected to decline in the
future as IDPMS consolidates its projects rather than embark on new forms of field
operations, the extent of that decline is difficult to predict. On the other hand, there is reason
to believe that there remain unexploited scale economies that IDPMS could benefit from
especially in the matter of acquiring more specialised knowledge and expertise for
developing SMEs.
2.4.18
Much the same point (concerning both learning and scale economies) is
indicated by the breakdown of expenditures by agency - expenditures at headquarters, in
district offices and through NGOs - shown in Table 2.3.
52
TABLE 2.3: THE CHANGING STRUCTURE OF EXPENDITURES
(Rs. Lakhs)
PMU Expenditure
Programme Expenditure
1995
Headquarters
24.6
%
(64.9)
Districts
1.7
%
(4.5)
NGOs
11.6
: 1996
: 1997
[________ _
L___________
: 16.2
(_____
: (25.7)
1995
: 1996
: 1997
j_ _______
32.5
i 19.7
; 19.6
: (29.5)
(93.4)
: (67.7)
: (65.3)
2.3
: 8.1
(6.6)
: (32.3)
: 10.4
_
: (34.7)
34.8
: 25.1
: 30.0
; 25.2
L______________
: 65
: 9.1
X___ -_______
L_____________
: (10.3)
: (io.7)
: 40.4
: 51.1
U--.________
L______________
%
(30.6)
i (64.0)
= (59.8)
Total
37.9
■ 63.1
■ 85.4
Note: (1) Actual expenditures have been deflated by the consumer price index for industrial
workers to get constant-price expenditures. (2) Figures in parentheses are expenditures per
new enterprise created in the relevant year.
2.4.19
Expenditures on both programme and PMU were overwhelmingly
concentrated at headquarters in the first year. But thereafter there has been a sharp rise in
the share of PMU expenditures in the district offices at the expense of headquarters.
Similarly, programme expenditures accounted for by Bangalore have fallen significantly over
the period while expenditures through NGOs and at district offices have increased. The
initial concentration at headquarters may be explained by a combination of two factors.
First, the initial fixed costs of promoting the programme would have had to be concentrated
in Bangalore. As the scale of field operations expanded, headquarters inputs could remain
relatively constant thus realising scale economies. Second, a considerable amount of effort
was expended in 1995 at directly establishing self-help groups (SHGs) whereas in subsequent
years, IDPMS had learnt to rely much more on field staff and especially NGOs.
53
2.5 Constraints In SME Development: Credit, Marketing and Scale
SME development is held back principally by constraints of credit, marketing and
scale. Small- and micro-enterprises face continuing difficulties in accessing bank loans and
thereby graduating into more competitive and efficient entities. Problems of market demand
and market assessment hold back SME creation and raise the mortality rate of existing
enterprises. In many sectors, the small size of enterprises is a serious handicap in achieving
market competitiveness in the face of urban or modem-sector competition.
Credit
2.5.2
Credit constitutes a major constraint, perhaps the major one, on SME
development. This is no less the case with the SMEs developed or sought to be developed
by IDPMS. The specific issues connected with DDPMS experience and its evaluation are
taken up separately in Chapter 3. The present discussion is intended to place that experience
in a more general context of rural informal credit.
2.5.3
In the rural areas and groups which IDPMS deals with, the prevalent informal
lending rates ranges between 3 per cent and 10 per cent (sometimes more) per month. The
relatively high costs of administering micro lending and the difficulties of acquiring borrower
information or monitoring the use of funds have largely ensured a continuing role for
informal lending in rural India. While part of the premium in informal lending rates may be
explained along these lines, it is also the case that the moneylender, by virtue of his local
informational base, often enjoys a monopoly premium. This advantage accrues to him as the
incumbent lender or insider’. At these interest rates, many investment possibilities in the
rural SME sector cannot be realised even if they are highly profitable relative to investment
54
projects that are routinely funded in the formal sector. In addition, many rural people must
also confront the need for consumption loans arising from seasonality of employment and
incomes, and occasional lumpy expenditures.
Informal financing of these needs further
drains their incomes and thus limits self-financing of investment as well.
2.5.4
Subsidised credit through various government programmes have helped to
some extent in reducing dependence on informal credit. But these programmes have run into
problems arising from poor design, leakages or corruption, and politically-motivated credit
allocation and loan moratoria. Moreover, financial sector reforms introduced since 1991
may lead to further marginalisation of rural areas and their poorer populations.
Some
erosion in the resource flow to rural areas has already occurred in the period 1991-96
(Majumdar, 1997). It is in this context that new initiatives have been undertaken or are
being proposed to tackle the credit constraint on SMEs. The new initiatives in micro-finance
entail lending through NGOs at market rates of interest. The funds are secured through both
donors and corporate investors. Much of this is aimed at the poorest including women. The
SEWA bank, NGOs like MYRADA and the NABARD-initiated SHG-Bank Linkage Project
are the ones usually mentioned in the Indian context. SEWA has been able to reach about
50,000, mostly urban-based women borrowers, MYRADA has reached about 60,000
borrowers under the NABARD SHG-Bank link formula. Together with a sprinkling of
similar NGO-based initiatives, these add up to just a few hundred thousand of micro
borrowers (Kaladhar, 1997).
The more formal rural financial institutions such as the
Regional Rural Banks follow rather more straightforward banking practice in insisting on
collateral assets and third-party guarantees. Thus, in the (old) integrated Dharwad district.
micro-lending during 1997 constituted a mere Rs. 9 lakhs involving some 150 SHGs out of a
total lending of Rs. 315 crores.
55
2.5.5
What the new initiatives aim at is a quantum change in the quality and
quantity of credit reaching the poor.
This is to be achieved alongside the commercial
viability of the lending agency thus avoiding any interest subsidy and implying interest rates
considerably lower than the moneylender’s but also substantially higher than the formal rate.
High quality credit’ meaning very low rates of default (in the lender’s perspective) and
money available for both consumption and production (from the borrower’s viewpoint) is
also to be ensured. Superior delivery is to be achieved by avoiding the old government
financial institutions and relying on more agile NGOs.
2.5.6
However, given the still very small volume of microfinance passing through
either the NGO or the banking system, two issues arise: (1) what are the operational
constraints to higher volume? (2) what institutional framework can be employed to raise the
volume to significant levels?
2.5.7
Evidence suggests that NGO-SHG intermediation has helped banks reduce
transactions costs by about 20-40 per cent as compared to direct lending (Majumdar, 1997).
Default rates have also been similarly reduced from about 22 per cent to negligible levels
while transactions costs of borrowers have been reduced by about 85 per cent. But the issue
that has not been addressed is the costs at which these improvements have in fact been
achieved. Unlike reduced transactions costs, reduced default rates are not social gains to the
extent that they involve pure transfers from borrowers to lenders.
2.5.8
While intra-SHG lending has surprisingly low default rates, it also tends to be
at rather high rates of interest (often 36 per cent) and mostly for consumption purposes. The
high interest rate is of course lower than the informal rate and encourages saving. But a
56
lower rate would presumably help raise investment. One hypothesis to explain the high-rate
policy is that the SHGs do not expect high-productivity investment to take place.
2.5.9
The main assumption of recent banking and NGO initiatives appears to be
that commercial viability of lending is compatible with rural agricultural and non-agricultural
SME lending. The conditions that might make this so, however, have received far less
attention. Much of the attention has been focused on the purely micro-administrative aspects
of lending such as accessibility, flexibility and low-cost operations. While these are indeed
important elements of any serious reform, they scarcely exhaust all the economic
considerations relevant to the objective.
Put differently, the new initiatives focus on
minimising administration costs and raising loan recovery rather than improving the viability
of the SMEs and thereby achieving an increase in loan demand, greater scale economies in
administration and lower rates of default, whether wilful or otherwise.
2.5.10
What the existing approaches ignore is that viability is also a systemic issue.
not just an individual bank or individual enterprise issue.
Market failures in terms of
unemployment, underinvestment in human capital and training, local monopoly in marketing
or information together with government failures must be addressed if SME credit is to
achieve a quantum leap.
The IDPMS approach, as described in Section 2.2, may be
understood as an appropriate though small-scale effort in the right direction.
Markets and Marketing
2.5.11
SME activities in IDPMS areas include both the provision of services and the
production of manufactured goods. The former typically have highly local (usually village)
markets while the latter may have village, area (taluk) or more distant markets. Services
57
demand are somewhat easier to anticipate than is the case for manufactured goods and
marketing itself is not typically a problem. On the other hand, the viability of enterprises is
easily threatened by excessive competition given the narrow local market. Finally, service
activities are typically subsistence enterprises and so there is not much prospect of a
substantial return to managerial or entrepreneurial skills.
2.5.12
Table 2.4 provides a classification of the main SME activities in EDPMS
areas
Activities are classified in terms both of nature of product (manufactured goods
versus services) and proximity of market (village, district and extended areas).
TABLE 2.4 A MARKET-BASED CLASSIFICATION OF ACTIVITIES
SERVICES
MANUFACTURED GOODS
VILLAGE
TALUK/DISTRICT
EXTENDED MARKET
Retail shops
Jute-rexin bags
Wool yam
Service shops
Sisal products
Wool kamblis
Screen-printing
Chilly powder
Wood inlay
Desk-top publishing
Silk reeling
Cable TV
Cocoons
Motor rewinding
Dairying
TV and radio repair
Lambani crafts
Kasuthi
Compressed Bricks
Cement bins
Leather products
Musical drums
2.5.13
The problem posed by narrowness of local markets in services is illustrated
easily. In the case of Sanjay Baligar’s cable TV operation, the entry of just one other player
was sufficient to spoil the highly local market for the service. While Baligar expects to
58
emerge successful from this contest, it could easily have been otherwise. Ningraj Irani’s
screen printing business is clearly a success case. But he was quick to point out that many in
his training cohort who had started similar shops suffered from want of steady demand. In
short, the local market for these and other services tends to be plagued by instability so that
SMEs are apt to suffer high rates of mortality or sickness.
2.5.14
In the case of already established small manufacturing businesses, middlemen
often control access to market information and markets and thereby exact a high margin from
the SMEs. As for new areas or new markets for established crafts, market assessment is
tricky business and individual micro entrepreneurs may end up in the thrall of these
intermediaries unless innovative channels are devised. While it is clear that IDPMS projects
should aim to tap not local markets alone but also urban or distant markets, the marketing
means for achieving this are not easy to come by.
Greater reliance must be placed on
exhibitions, emporiums and showrooms rather than contractors, merchants and other
traditional channels IDPMS beneficiaries clearly have a tough time anticipating or judging
the markets they face. For example, in the case of traditional artisanal products such as
lambani crafts, there is need to distinguish between market segments that want functionality
and standard patterns and those that can appreciate the idiosyncratic creativity of individual
artisans. IDPMS projects could collectively tap the institutional market by appealing to
image advertising i.e., the customers could be persuaded to buy the products and advertise
the fact that they use only rural-artisanal products. Another example is the case of chilli
powder where the fear of adulteration is very real and reliance on middlemen suspect. In this
instance, co-operative marketing channels need to be devised that avoid excessive middlemen
margins at the same time as they achieve scale economies.
59
Scale of Operations
2.5.15
This brings us directly to the question of the scale of SME operations. It is
almost an axiom of the modem world that large scale confers competitive advantages not
only in production itself but also in marketing, finance, and the ability to adapt to changing
conditions.
High-volume production confers many economic advantages.
Nevertheless
there are sectors of manufacturing which support a wide array of techniques and production
scales. SMEs can and do achieve competitive niches based on the local availability of natural
resources, specialised, often traditional, skills and the advantages of flexible production that
small scale brings.
2.5.16
The IDPMS experience appears to have engendered support especially among
NGOs working for IDPMS for the view that only individual small enterprises had any real
prospect of success since group enterprises had routinely run into self-management
problems. While this seems evidently to be the case in the sphere of production (where we
saw only a few group enterprises), the NGOs also conceded that the scope for co-operation
in the pre- and post-production activities had not been given sufficient opportunity. Group
enterprises in procurement, marketing and, of course, credit would seem to have a clear
comparative advantage.
The case of PMSR whose effort at building a credit co-operative
has been quite successful illustrates the possibilities.
2.5.17
More generally, sickness and mortality among SMEs in sectors where they
have some clear basis for competitive advantage in production appears generally to be
related to constraints of marketing and finance. But these are also problems that may be
amenable to solution through co-operatives which can achieve scale economies. This is not
to say that scale diseconomies in production do not matter. But these diseconomies cannot
60
be easily separated from the actual arrangements for marketing or finance that exist. That is
to say, there may be a Catch-22 sort of dilemma: efficient marketing requires high volume
and reliable production whilst high volumes and continuous output in turn require efficient
and reliable marketing.
This is equally true for agro-products as for the
artisanal/manufactures sectors.
If SMEs are to develop in their areas of natural’
comparative advantage, the dilemma would obviously have to be resolved at the marketing
and credit ends by introducing larger scales through co-operative arrangements.
2.5.18
Especially in manufacturing, rapidly evolving consumer preferences and
production technologies entail quickly changing market conditions. For SMEs to adapt and
survive in these evolving markets, it is obviously necessary that they are able to modify and
improve their production skills and technologies. Hence, the introduction of a new technique
may not be enough to ensure the sustained viability of SMEs. Once again, co-operative
institutions must be created to meet the dynamic technology and training needs of the
producers. Once again, the provision of such overhead services involves scale economies
which the individual enterprises could not by themselves achieve.
2.6 Viability & Replicability
The purpose of this section is to analyse the crucial issues of the viability of
enterprises created and the replicability of the IDPMS model. On the question of economic
viability of SMEs, certain conceptual issues are raised and addressed. The assessment of
enterprise viability is complicated by several considerations: (1) the relatively short duration
over which IDPMS itself and most of the enterprises have been in operation and the
associated costs of learning; (2) the prior expectation of relatively high rates of enterprise
61
mortality; (3) the conceptual treatment of various components of IDPMS costs; (4) the
incompleteness of the available data base on project benefits; (5) the question of externalities
and spillover benefits (beyond project enterprises) generated by field operations; and (6) the
fact that there may be a gap between social versus private benefits and costs in view of
various market failures. Conclusions on viability are based on best judgments of relevant
parameters.
2.6.2
As to replicability of the model, this is of course closely tied to enterprise
viability on the one hand and, on the other, the resource base of IDPMS.
Our
recommendation for the near term (through 1999) is that IDPMS consolidate its efforts and
experience by concentrating on existing areas/projects rather than expand into new ones. But
there are also indirect methods of replicating success via institutional development, training
of NGOs and government agencies, and refinement and diffusion of the model through
research and dissemination of lessons learnt. This is dealt with in Chapter VI
2.6.3
The question of viability is, in one sense, easily resolved. A firm is viable if
and only if it has the ability to meet its costs and survive in the market. This is the criterion
of market or financial viability. Costs and benefits are just those resource expenditures and
revenues respectively which the firm itself must reckon with. In particular, all costs incurred
in establishing and maintaining the firm as a going business constitute the firm’s costs. But
basic questions may be raised regarding the adequacy of this criterion in regard to the
appropriate notion of costs and the nature of markets involved.
2.6.4
Nature of Markets Involved Financial viability is not necessarily the same as the
criterion of economic viability, much less can it be equated to a criterion of socio-economic
viability. Differences among these notions arises depending on the nature of markets and
62
social or economic context in which the enterprise operates. These differences ultimately
show up as different lists and/or valuations of the benefits and costs involved.
2.6.5 The Range of Costs and Benefits If an enterprise is financially viable, then, so long as
there are potential entrepreneurs capable of recognizing and willing to respond to the
opportunity for financial gain, it ought to be able to come up on its own. But if financially
viable firms must nonetheless be externally coaxed into existence, then, should the external
costs of intervention also be included in the costs of start-up? In the present context, this
translates into whether and, if so, what portion of IDPMS costs should be recovered by
firms’ revenues.
2.6.6
Before addressing these substantive issues, it is useful to clear the deck of
certain other, relatively technical complications. One such complication has to do with the
potential for wide variability in enterprise performance. In any given period of time, we
ought to expect some enterprises to be making losses and turning sick, even ceasing to exist.
while others flourish making profits in excess of all normal costs. Focus must therefore be
on average performance of all SMEs in a particular activity or even in the whole
programme, not individual enterprises.
2.6.7
Even so, a bad (good) year for an industry may show up an abnormally large
(small) proportion of sickness so that even the average for a particular year may be
misleading. Allowance has therefore to be made for the state of an industry in the year of
evaluation relative to its long-term average state. A particular instance of this complication
arises in the case of IDPMS enterprises all of which have been in existence for at most three
years. One may reasonably expect that some part of this period (perhaps all of it particularly
in the case of more recently started SMEs) involved a learning process during which
63
performance will not fully reflect potential. The learning in question here is not confined to
the SMEs themselves but also includes learning on the part of IDPMS and its agencies.
Errors in this process must therefore be allowed for.
2.6.8
A related observation is that, especially in the case of SMEs, mere short-term
sickness may nonetheless kill off an enterprise with a healthy future. Even if an enterprise
can expect to survive through the long-term, any adverse movement in the short run may kill
it. This is symptomatic of the failure of the market for capital or insurance. The point is that
financial liquidity problems put an SME’s future in jeopardy much more quickly than is the
case with large enterprises with diversified outputs and/or ready access to bank credit. This
is a primary reason why SMEs experience a higher rate of normal’ mortality compared to
large firms.
2.6.9
This last point about market failures brings us to the more general
consideration of the nature of markets raised above. This has been discussed at some length
in Paras 2.2.12 to 2.2.25 so that it is sufficient to state the general conclusions without
repeating that discussion here.
Market failures in the IDPMS areas include labour
underemployment, insufficient creation of human capital and monopolistic vested interests in
labour, credit, marketing and other areas. Such failures imply that SMEs that are in fact
economically viable’ may turn out to be financially unviable.
The former assesses the
resource expenditures at their true opportunity costs to society rather than at prices paid in
imperfect markets.
2.6.10
When economic viability of an activity differs from financial viability, state
action in the form of subsidies or taxes is considered appropriate. If an activity provides
greater net benefits than is directly captured by the enterprises engaged in it, a subsidy equal
64
to the difference is optimal. If an activity entails costs that enterprises engaged in it do not
themselves incur, then, those enterprises ought to be taxed to that extent. A clear case.
perhaps the most important in the present instance, of market overvaluation of a resource is
the case of underemployed labor that finds employment in the SMEs initiated by IDPMS.
The market wage overstates the true cost of labor. However, setting the wage cost equal to
zero is also problematic. A zero accounting wage does not take account of the fact that it
would justify drawing capital away from more capital-intensive into these labor-intensive
activities on a large scale the consequence of which will be to reduce surpluses over wages
and thus the rate of investment in the economy.
Hence, a shadow wage’ somewhere
between the market wage and zero is usually recommended in economic evaluation of
viability in these market conditions.
2.6.11
Apart from the matter of proper economic valuation that arises due to market
failures and imperfections in the rural Indian context, three other questions are also relevant.
2.6.12
The first has to do with the hidden subsidy’ that the SMEs under IDPMS
aegis do receive at least in their start-up phase. Apart from some exceptions where some
government subsidy is also tapped, most of this subsidy is from IDPMS itself in the form of
its own management and operating or field costs. One question here is how much subsidy is
in fact involved to ensure market viability. This cannot be easily identified without more
detailed data and analysis, for example of the startup and on-going subsidy elements involved
and of IDPMS costs that are properly allocable to its SMEs. The other, more important
question is to determine whether the SMEs created have been viable after taking into
account the appropriate amount of IDPMS costs that represent the hidden or startup subsidy.
65
2.6.13
A second issue, a more special case of the first issue above, is whether the
costs of creating social infrastructure’ in its areas should be included among the costs of
SME development by IDPMS. As with all infrastructure, it would be erroneous to attribute
and recover such costs from the enterprises benefited because no one-to-one identification
between costs incurred and beneficiaries can be made. Rather, such infrastructure costs are
best met as a general social subsidy where considerations of ability to pay and socio
economic equity alone would be relevant. Again, available data preclude separation of the
costs associated with social infrastructure creation from those of SME creation proper.
2.6.14
Finally, it is certainly possible to go even beyond economic viability to
social-political benefits and costs. From a social-political standpoint, viability has not merely
an economic-efficiency dimension but also the dimensions of internalising social concerns in
economic calculation and ensuring the political viability of the whole social order. At least in
this context, whether economic calculation can be separated from the socio-political is open
to doubt. Thus, should the economic viability criterion be extended to include such benefits
as women’s empowerment or the potential costs of social disruption that might result in the
absence of the interventions being evaluated?
2.6.15
In view of the many considerations that appear relevant to evaluating
enterprise viability and the paucity of adequately precise data on enterprise performance.
IDPMS costs and the market context, only a broad indication regarding viability is possible
at the present time. A particular difficulty is that the precise extent of employment gains has
not been easy to determine. Nor do we have a break-up of the SMEs created in terms of the
range of their financial profits or surpluses over costs. Nevertheless, it is possible to go
some distance toward saying something meaningful about the overall viability of the SMEs
66
created by the programme on the basis of assumptions that appear broadly applicable to the
rural Karnataka context..
2.6.16
Within the project areas, female daily wage rates range between Rs. 20 and
Rs. 30 in the lean season; the corresponding range for male wage rates is Rs. 30 to Rs. 40.
The beneficiary gender ratio is approximately 70 per cent female. Applying this ratio to the
wage rates, the weighted average project wage rate works out to Rs 28 daily. As regards
rural underemployment, beneficiary responses generally suggest that females are
underemployed for about 6 months in the year and males are underemployed for about 4
months. Hence, the weighted average project underemployment rate works out to 5.4
months per annum or, say, 135 days (assuming a working year of 300 days).
Thus, a
subsistence enterprise in the project area which we define as one that gives its owner year-
round employment, yields on average Rs. 3,780 per annum. These numbers seem broadly
applicable to a majority of the SMEs created under the programme. Moreover, most such
enterprises appear to be able to meet their on-going material and capital costs although there
are others which produce a definite profit over and above wages for their owner and some
others that appear to be unable to cover their own capital costs.
Hence, a broad
generalisation that the SMEs created are financially viable on their own without counting any
of the costs of IDPMS seems applicable.
2.6.17
However, the latter costs are far from being negligible at least relative to the
revenues of the SMEs. The total cost of IDPMS operations works out, when reckoned on a
per-enterprise-created basis, to as much as Rs. 19,285 (see Table 2.2). This is about 5 times
as much as the annual net revenue of Rs 3,780 for a subsistence enterprise noted above. It
does not seem unreasonable to suppose that a high proportion of IDPMS costs are indeed
67
allocable to the SMEs created. If so, the 'typical’ (subsistence) enterprises created must be
reckoned to be financially non-viable. But it turns out to be otherwise, at least under the
parameters assumed, when we consider the economic viability of these SMEs.
2.6.18
If we assume that all of the IDPMS costs or investments’ incurred to date
have been necessary to the development of the SMEs created to date and that no further
supports are called for in respect of those SMEs, that all of the enterprises created are oneperson subsistence enterprises which afford only lean-season employment for that one
person, and that the shadow wage is half the wage prevalent, then, the net economic profit of
the average enterprise is Rs. 1,890 (one half of the net income of Rs. 3,780). If we further
suppose that the social discount rate is 12 per cent, then the net present value of the average
IDPMS-SME is Rs. 15,750. Given that the various assumptions made above probably err on
the side of underestimating the net benefits of the SMEs created, this figure compares quite
favourably with the total cost of IDPMS operations of Rs. 19,285. Recall that the social
benefits of empowerment and any economic spillover benefits have not been included in the
above calculation. In addition, all of IDPMS costs have been taken to be attributable to the
SMEs.
Hence, within the limitations of available evidence, we would be justified in
concluding that the SMEs created have, on average and in rough terms, achieved economic
viability.
68
REFERENCES
Agrawal, K.P., V. Puhazhendhi and K.J.S. Satyasai. 1997. Gearing Rural Credit for the
Twenty-First Century. Economic and Political Weekly. 32:2717-2728.
Kaladhar, K. 1997. Microfinance in India. Design, Structure and Governance. Economic and
. Political Weekly. 32:2687-2706.
Majumdar, N.A. 1997. Overhauling the Somnolent Rural Credit System. Economic and
Political Weekly. 32:2707-2710.
Rao, J Mohan. 1998. Food, Agriculture and Reforms: Change and Continuity. Economic
and Political Weekly. 33.
Sen, Abhijit. 1996. Economic Reforms, Employment and Poverty: Trends and Options.
Economic and Political Weekly. 31:2459-2477.
69
Chapter III
CREDIT ISSUES
3.1.
Introduction, Rural financial services in India and Karnataka
Background on the rural financial sector:
Over the past decades, formal financial services in the rural areas consisted
mainly of directed lending programmes focusing on agriculture, and to a limited extent.
savings mobilisation. Currently the mandate concerning directed credit requires that
commercial banks lend 40 per cent of net bank credit to the priority sector with sub targets
of 18 per cent to agriculture, 10 per cent to weaker sectors and different sub-targets under
the small-scale industries sector, linked to the loan size. The priority sector also includes the
Government directed programmes which involve provision of capital subsidy along with
credit and a major role to the Government agencies in the identification and selection of
borrowers. However, in the implementation of Government sponsored schemes the results
have not always been as expected. Instead of developing a sustainable ongoing client -bank
relationship, the Integrated Rural Development Programme (IRDP) and other Government
sponsored programmes have tended to become ad-hoc, temporary operations in lending.
3.1.2
Since the nationalisation of the major commercial banks (1969), the number
of bank branches in the rural areas has increased substantially. Although this enhanced
outreach of the financial sector has led to an increased credit flow in agricultural and related
activities, the performance of the rural financial institutions turned out to be poor. A high
level of overdues, political interference, subsidised uneconomic interest rates, high
transaction costs and pressure to write off non -performing assets have led to the non-
70
viability of many of the rural financial institutions. Despite the large rural banking network in
place (more than 153,000 rural credit outlets in India), the vast majority of the rural
population still has limited access to formal financial services.
New Developments:
3.1.3
The reform of the financial sector in India started with the Narasimham
Committee report in 1991 which stated that the performance of the commercial banks, co
operatives and Regional Rural Banks (RRB) should be improved. A number of measures
have been taken, including deregulation of interest rates, financial and managerial
restructuring, including recapitalisation of RRBs, and introduction of prudential accounting
norms. As increased recovery rates and reduced risk in lending operations have now become
the main focus of those involved in formal lending operations in rural areas, the credit needs
of the rural poor which are small, frequent and involving high transaction costs, are hardly
met.
3.1.4
Bank managers who in the past were evaluated on the amount of credit
disbursed in the priority sector, are now evaluated on the repayment rate and the decrease in
Non Performing Assets (NPAs) in their area of operation. The reform measures should lead
to a better performing financial sector where the frill responsibility for all aspects of the credit
decisions remains with the banking sector and where sustainable client-bank relationships can
be built up.
3.1.5
Since the early nineties, there has been an increasing interest in developing
microfinance markets. Studies and pilot projects have indicated that the poor are bankable
and as a consequence, rural alternative financing schemes have emerged rapidly. The latest
71
report on banking sector reforms (April 1998) recommends that the banking policy should
facilitate the evolution and growth of micro credit institutions including Local Agricultural
Banks (LABs) and specialised NGOs.
Micro finance schemes implemented by banks:
3.1.6
Today there are two micro finance schemes which operate nation wide and
which are not implemented through governmental organisations. Both the National Bank for
Agriculture and Rural Development, being an Apex level financial institution (NABARD)
and the Small Industries Development Bank of India (SIDBI), a subsidiary of the Industrial
Development Bank of India, started a microfinance scheme involving Self-Help Groups
(SHGs), Nongovernmental Organisations (NGOs), Micro-Finance Institutions (MFIs) and
Commercial Banks. The objective of the schemes is the creation of supplementary credit
supply for meeting the needs of the rural poor, by combining flexibility, sensitivity and
responsiveness of the informal credit systems with technical and administrative capabilities of
professional financial institutions.
NABARD schemes.
3.1.7
The NABARD- SHG linkage scheme was launched in 1991-92 and has the
following characteristics:
•
NGOs promote, train, organise and monitor the SHGs, consisting of 10 to 25 members
(with financial support of NABARD);
•
After 6 months of saving and internal lending, the SHG is eligible for a bank loan (12 per
cent interest/year). The loan amount depends on the needs of the SHG within a
prudential framework based on the amount of savings collected by the group.
•
The bank loan is repaid half yearly with a total repayment period of 5 years. The loan can
revolve in the SHG according to the policies of the group members. The interest income
thus generated (between 24 per cent and 36 per cent/year minus 12 per cent to be paid to
the bank) accrues to the group.
72
n
3.1.8
NAB ARD refinances commercial banks (6.5 per cent/year) which lend to the
SHGs (12 per cent/year). The banks can also lend their own funds to the SHG without
NABARD refinance. It assists in the organisation of exposure and awareness programmes
for bankers with the help of NGOs and MFIs.
3.1.9
Another scheme of NABARD is the support and bulk lending programme
aimed at NGOs. NABARD provides Revolving Fund Assistance to selected NGOs at a
service charge (interest is 10.5 per cent/ year, NGO onlends for 12 per cent/year).
3.1.10
The purpose of both schemes is to improve access to financial services for
(poor) people in rural areas. Under the last scheme it is envisaged that NGOs become
sustainable financial intermediaries through the bulk-lending programme. The other scheme
targets SHGs as future clients with direct access to commercial banks. In this case the NGOs
assume the role of promoting, training and monitoring of the SHGs.
3.1.11
So far the experiences gained countrywide are encouraging. The repayment
rate is close to 100 per cent. A total of 150,000 families have benefited from the scheme.
9000 SHGs have been linked to banks, and Rs. 250 million have been lent (of which half is
lent under the bulk lending scheme through 15 NGOs).
SIDBI scheme.
3.1.12
The more recent SIDBI microfmance scheme operates solely through NGOs
and MFIs. SIDBI funds are lent to NGOs (9 per cent interest) with a good track record, who
onlend these funds to SHGs (at interest rates not exceeding 15 per cent). SIDBI finances
capacity building activities for NGOs, in the form of a grant, in order to create more
professional financial intermediaries. However, following the financial sector reform policies,
actually most of SIDBI's efforts are geared towards monitoring and controlling activities, in
73
Financial Services in the State of Karnataka:
Lead Banks -
3.1.14
The State of Karnataka is divided into areas which are assigned to a specific
Lead Bank. The Lead Banks for Mysore and Dharwad districts are the State Bank of Mysore
and the Vijaya Bank respectively. The Lead Bank is responsible for the supervision of the
Regional Rural Banks (Grameena Banks) in the area, and for the transfer of loan capital to
the Regional Rural Banks (RRBs). NABARD covers the losses made by the RRBs, the Lead
Bank not having a financial responsibility for the losses of the RRBs.
Regional Rural Bank.
3.1.15
The RRB in Mysore District is the Cauvery Grameena Bank with a network
of 51 branches. In Dharwad District the RRB is the Malaprabha Grameena Bank with a
network of 215 branches, out of which 143 branches are profit making. This RRB is among
the best performers in the country. Since 1994 the bank has set off its accumulated losses
and since then has made a profit. Every rural field branch of the bank has a fixed service area.
which comprises between 20 and 70 villages.
3.1.16
Karnataka has a better banking network than many other States, with 19
nationalised banks, the State Bank of India and its 7 associate banks, 25 private sector banks
and 13 Regional Rural Banks. A total of almost 4500 (1075 RRB and 3425 commercial
banks) bank branches have been set up, of which more than 2300 are in the rural areas.
There are almost 4300 primary co-operative agricultural credit societies at village level, 177
primary co-operative agricultural and rural development banks at taluk level, 19 district
75
co-operative central banks and one Apex co-operative bank at State level. The co-operative
banks provide long term credit for agricultural activities.
3.2.
Financial schemes being used by RSMEDP beneficiaries:
3 .2.1 Description -
The RSMEDP beneficiaries use the following financial services (formal and
informal):
i) SHG linking programme of NAB ARD, described in para 3.1.7
ii) Dalit Women’s Multi-Purpose Co-operative Society This is a co-operative bank of scheduled caste and scheduled tribe members which has been
I
established in Kollegal in Mysore district with the support of IDPMS because formal bank
credit has been restricted due to a high default rate in the area. It is also called the Dalita
Mahila Vividha Uddesha Sahakara Sangha.
iii) DWCRA -
The Development of Women and Children in Rural Areas (DWCRA) scheme is UNICEF
fonded and provides revolving funds to SHGs consisting of rural women, who want to
undertake productive activities. The fond is implemented by the District authorities through
the Block Development Officers, who select the beneficiaries and appraise the loans. The
maximum amount of the revolving fond lent to an SHG is Rs. 25,000.
iv) Rashtriya Mahhila Kosh-
This is a programme of the Central Government to assist NGOs working with women's
saving and credit groups. The scheme provides the NGOs with capital (at 8 per cent
interest/year) which can be used for onlending to the SHGs (at 12 per cent interest/year).
76
This scheme has been taken advantage of in Mysore district by SUMANA, a partner NGO of
IDPMS
v) Prime Minister's Rojgar Yojana Scheme -
This is a Central Government sponsored scheme designed for unemployed youth to take up
economic activities. The scheme is implemented by the District Industries Centre (DIC) and
focuses on manufacturing and services activities. Proposals for setting up agricultural and
trading enterprises are not considered. Beneficiaries are entitled to receive other support
services in the field of marketing, infrastructure and technology, via the DIC.
vi) Chit funds and money lenders (informal financial services) A Chit Fund is the Indian version of a ROSCA (Rotating Savings and Credit Association),
whereby a group of people get together to save fixed amounts. The pooled contributions are
lent to the member who offers the highest interest. The interest amount is often deducted
from the amount and distributed among group members after giving a cut to the "organiser”
(often a local businessman). Interest rates charged by moneylenders vary between 3 per cent
and 100 per cent per month.
vii) Individual loans -
Individual loans can in principle be obtained from all the bank branches. The loans require
collateral (fixed assets) up to 100 per cent of the loan amount and a guarantor. Many bank
branches do not give individual credit to small or micro entrepreneurs as a result of the strict
criteria concerning recovery rates, which are defined by the banking sector reform
committee. The risk of default is considered too high.
77
3.2.2 Assessment ofperformance of the various schemes in the RSMEDP in Mysore
and Dharwad districts i) SHG- bank linkage scheme -
In Mysore district most well established SHGs are refinanced through the RMK and
DWCRA schemes. The SHG-bank linkage scheme has not yet been implemented, which can
be explained by the poor performance of the RRB, contrary to the performance of the RRB
in Dharwad District.
The credit disbursed by banks through the SHG linking scheme in Dharwad district is
Rs. 900,000 for 106 SHGs (97/98). Most of the credit was disbursed through the
Malaprabha Grameena Bank (RRB). The total number of SHGs in the district is 540, of
which 90 per cent consists of women’s groups. The SHGs are promoted and supported by 3
NGOs (India Development Services (IDS), Chaitanya Institute for Youth and Rural
Development (Chinyard) and Bharatiya Grameena Seve Samsthe (BGSS), the first two
NGOs being partners of IDPMS).
In 1998, IDPMS conducted a survey to study the impact of the NAB ARD- SHG-
Bank linkage in Mysore and Dharwad districts. The survey covered 77 bank branches in rural
and semi-urban areas, out of which 40 branches were implementing the SHG scheme. The
major reason for the scheme not being implemented by the other banks is the non-existence
of SHGs, which can be explained by the absence of NGOs.
Presently the motivating factors for bankers to lend under the SHG scheme are the
targets and directives given by the Regional Office which oblige them to lend to SHGs. If it
can be proved that lending to SHGs is profitable, an attitudinal change in field level bank
managers can be achieved. The success of the SHG - bank linkage scheme is highly
dependent on their willingness to lend.
78
ii) The Dalit Women's Multipurpose Co-operative Society in Kollegal in Mysore district.
which includes a co-operative bank, has 600 members, Rs. 400,000 in liabilities (shares.
savings and seed capital from the Co-operation Department ) and till date the bank has
provided 225 loans varying from Rs. 500 to 3,000. The instalments are monthly and the
interest rate is fixed at 24 per cent per year. Loans should be used for productive purposes.
The advantage in this type of institution is that it is a members based bank (self managed and
financed), and there would be transparency in management and exercise of prudence in
borrowing external capital. However, its establishment requires a long period of group
promotion and training, and due to the small size of capital only a limited number of small
loans can be given.
iii) DWCRA, PMRY and RMK schemes -
There are some positive points to the DWCRA, PMRY and RMK schemes. These
include increase in availability of working capital for rural women and youth, enhanced
access to bank credit for those who normally would not have this advantage, promotion of
SHG methodology through subsidised schemes, and familiarisation of bank managers with
group lending schemes. Poor people also get an incentive to save. However, certain
deficiencies in these schemes need attention. These include the absence of a building up of a
clear bank-client relationship, the lack of a technical and financial appraisal of credit needs,
and long time for processing and disbursement of credit resulting in credit not being available
when needed. The selection of beneficiaries is often influenced by local politicians, with the
possibility that SHGs are especially created for accessing credit. There is also lack of support
services for improvement of skills, training and marketing which are needed to successfully
use the credit in enterprise development.
79
iv) Chit Fund and informal sector lending -
One entrepreneur (silk reeler in Kollegal) made use of credit from a Chit Fund in
order to meet his credit need. Many poor people in rural areas make use of such informal
lending to meet emergency needs or on special occasions such as wedding. Chit Funds and
other informal schemes help rural people to overcome occasional cash shortages in a flexible
way and can improve thrift among poor people. However, interest rates are often high, there
is dependence on other participants in the Chit Fund and the reliability of the organiser is
crucial.
v) Bank loans for individuals The Mission met only one entrepreneur (male) who had received an individual bank
loan. Individual loans are tailor made financing, obtained after technical screening of the
proposal and carry relatively low interest rates. However, they require collateral which
makes it very difficult for poor people and women who do not generally have household
assets in their name. Bank managers are reluctant to give individual loans due to repayment
problems, and the high transaction costs of micro credits for the banks.
3.3
Findings and observations on credit activities of IDPMS under the
RSMEDP:
The credit component of the RSMEDP was reviewed through discussions
with EDPMS staff, interviews with financial services users in the project area, meetings with
bank branch managers at field level, lead bank managers, NABARD managers and others
involved in microfinance, interviews and meetings with NGOs managers and field staff, and
through documentation on the financial sector reforms, district credit plans, SHG schemes
and IDPMS' monitoring reports.
80
3.3.2
The role of IDPMS in the delivery of financial services with a view to
developing small and micro enterprises has evolved in the following activities:
•
Introduction of economic activities in programmes of NGOs
•
Creation of awareness on credit issues in NGOs and entrepreneurs.
•
Advocacy and lobbying for micro finance policy and credit for the nonformal sector
with bank managers and authorities.
•
Sensitisation of bank managers on gender issues and the SHG methodology
•
Linking SHGs, NGOs and banks in order to enhance credit disbursement to poorer
people involved in SMEs.
•
Providing linkages between small and micro entrepreneurs and banks through
entrepreneurship training programmes.
3.3.3
In order to achieve these objectives IDPMS has undertaken activities based
on the credit push and credit pull strategy, which includes entrepreneurs being made aware of
the existence of financial services and their characteristics, and bankers being convinced that
SMEs in the rural areas are bankable. In practical terms IDPMS staff has undertaken the
following activities in the past 3 years:
•
Acting as resource persons in training of SHGs
•
Organising and conducting training in credit management for SHGs
•
Organising and conducting training in gender issues for bankers
•
Assisting NGOs and SHGs in having enhanced access to formal credit
•
Organising network meetings with local bank managers and NGOs.
•
Promoting SHGs and stimulating them to undertake saving and credit activities
•
Assisting in the creation of a co-operative bank for the dalits in Kollegal.
•
Introducing SHGs to the idea of using their own savings for credit purposes.
•
Evaluating the impact of the NABARD-SHG linkage scheme in the two districts
covered by RSMEDP.
•
Linking SHGs to existing (governmental) credit schemes.
81
3.3.4
The SHGs are encouraged to make regular savings, draft their internal rules
and regulations, hold regular meetings, lend funds internally before availing of bank loans.
and to use credits for productive activities.
3.3.5
Besides these direct interventions, EDPMS also supports NGOs financially
and technically, in promoting, monitoring and training SHGs. NGO field staff is paid for by
IDPMS, but employed by the NGO.
3.3.6
The results achieved by RSMEDP in the period 1995 - 1998 is as follows. In
Dharwad district, as of June 1998, 95 SHGs have been formed and trained with around
1,500 members, the total savings is Rs. 577,000, the cumulated amount of internal loans is
Rs. 774,545, DWCRA loans of Rs. 472,400 have been obtained by 25 groups, and 12 groups
obtained loans from a commercial bank under the SHG linking scheme, totalling Rs. 116,000.
In Mysore district, as of March 1998, 46 SHGs were formed and trained with 784 members
(95 per cent women), the total savings achieved is Rs. 163,000, and 18 groups have been
linked to the DWCRA scheme with loans varying between Rs. 5,000 and 40,000.
Assessment of achievements:
A change of attitudes .
3.3.7
When RSMEDP started its intervention in SME development, the attitude of
bankers towards financing SMEs was one of over caution. SMEs were generally disqualified
from obtaining loans because the potential micro-entrepreneur lacks technical skills, might
have a relative who is a defaulter to the bank, does not have collateral, and is likely to
become a defaulter. Against this scenario, the main achievements of IDPMS under the
82
RSMEDP are that the attitude of bankers regarding micro entrepreneurs has changed, the
gap between the credit providers and the potential borrowers is reduced, and NGOs have
strengthened their expertise in micro finance issues.
3.3.8
The IDPMS has also made entrepreneurs aware of the existence of the
various credit schemes and assisted them in the credit application procedures. Through
IDPMS about 50 SHGs have gained access to external finance. Through improved cash flow
management, the dependence of entrepreneurs on the moneylender has been considerably
reduced. Bankers have been sensitised to the idea that rural (and/or poor, and/or female)
entrepreneurs are bankable. Bank managers have been familiarised with gender issues and
IDPMS has introduced well functioning SHGs to the bankers for refinancing. Through
IDPMS, bank managements in Dharwad and Mysore district are more open and willing
towards financing SHGs.
The beneficiary groups
3.3.9
i)
IDPMS has reached a variety of beneficiary groups. These include:
Some clients who are subsistence producers, who work in a group enterprise, have
low entrepreneurial skills or business characteristics. Examples are the leather group
in Laxmeshwar and the bag producers and wood inlay manufacturers in Nanjangud.
These women’s groups do not have access to resources. The machines are provided
by IDPMS, raw material is bought for the groups and marketing of the products is
done with the assistance of either IDPMS or the NGO. The beneficiaries have no
vision on enterprise development and can be considered as employees in an income
generating activity, which is set up by IDPMS and/or the NGO. The women are
merely interested in improved living conditions through the generation of higher
income (socio-economic empowerment).
83
ii)
Most of the beneficiaries of the RSMEDP are so-called pre-entrepreneurs with little
business experience, a short-term view on enterprise development, little or no
assets/collateral and with a limited economic focus. Through skills upgrading,
entrepreneurship training and business development services (marketing) these
entrepreneurs can
eventually
overcome barriers towards becoming micro
entrepreneurs. The benefits from the SHG scheme for these "pre-entrepreneurs" are
obvious: through a reduced dependency on money lenders in case of emergencies
they do not lose their working capital and, therefore, their income.
(iii)
Some beneficiaries are micro entrepreneurs with a full time business activity and a
mid term vision on enterprise development. Such persons have some assets and a few
employees (relatives or wage earners). Examples are the cable television provider and
screen printer in Ranibennur and the silk reeler in Kollegal Their products have a
local market, which is easily accessible without assistance. This type of beneficiary
has access to normal bank loans as they own assets which can be used as collateral.
3.3.10
The RSMEDP has a wide range of beneficiaries. The question is whether
IDPMS and the NGOs have adopted, even if unconsciously, a selective approach in
providing assistance to the various types of beneficiaries, with consequent constraints on
replication of RSMEDP activities.
3.3.11
In some cases IDPMS has provided enterprise groups with equipment and/or
raw material. The groups are expected to repay these investments as soon as the enterprise
starts making a profit. In the case of some of the beneficiaries, who could be described as
subsistence producers, the return of the equipment or its cost is doubtful. Such groups would
appear to be more "grant worthy". The main objective of their activities is not the generation
of a profit that can be reinvested in the enterprise. The women members of the mentioned
SHGs seem to have joined the enterprise in order to gain self-confidence and improve their
living conditions. The credit can become a burden that the women’s group cannot bear, and
84
the enterprise becomes dependent on the assistance of IDPMS and/or the NGO for its
continuation.
3.3.12
As against such direct assistance by IDPMS, in most cases the funding of the
SHGs is partly through their own investment and partly through credit. This differential
treatment may give rise to problems since other SHGs could view this as discriminatory.
While noting that the SHGs to which assistance by way of equipment has been directly given
by IDPMS are very few, it is recommended that it would be best to avoid the adoption of
different approaches for similar types of entrepreneurs in the same area.
3.3.13
IDPMS has to distinguish between the provision of demonstration equipment
for training purposes and actual investment, by way of equipment, in enterprises. The
purchase of the brick-making machine for the trainees in building materials in the Chinyard
training centre is typically an investment in technical training. The trainees should be able to
purchase the machine themselves if they start an enterprise. IDPMS should avoid
unconsciously creating a dependency syndrome.
3.3.14
Enterprises which depend on the financial support of IDPMS for the purchase
of raw material and marketing of their products are not economically viable and cannot be
replicated elsewhere. Financial support can only be justified in the case of investments for
training and at the most, as a means to kick-start enterprises.
3.3.15
IDPMS should be careful in linking SHGs to Government sponsored
programmes like DWCRA. As the appraisals of these credits are not based on technical and
financial criteria or the amount of savings, the risk of excessive credit being granted to
relatively young SHGs exists. Although the demand for easily accessible financial services
85
may appear to be considerable, the absorption capacity of those involved in income
generating activities and micro enterprises, is often limited.
3.3.16 Validity of the approaches:
(i). What is the role of the NGOs?
The role of the NGOs in a programme such as the RSMEDP would vary within
districts and over time. They should not need to do “hand holding” of the SMEs or to
monitor the saving and credit groups indefinitely. The self-confidence to manage production
and marketing and ability to directly access the formal banking system should have been
inculcated in them by the time the IDPMS withdraws. However, the NGO, whose presence
in the area would continue, could assume a role of adviser and consultant if called upon to
do so.
Some NGOs might be interested in becoming financial intermediaries. NGOs that
specialise in financial intermediation can, in the long run become sustainable through the
margins made on lending operations. Other NGOs are interested in the promotion of SHGs
as a means to empower the beneficiaries. Such NGOs could, as suggested above, continue to
have a monitoring and consultant’s role in financial intermediation activities and would have
to attract funds (local or international) in order to be able to pursue their activities.
(ii) Did IDPMS reach the right target group?
In the NGO approach applied by IDPMS, it has had to accept the beneficiaries
identified by the former. The NGOs that are active in the areas of intervention selected in the
beginning of the RSMEDP did not have enterprise development and financial services as
86
their core activities. Their main focus was on social issues. It is to the credit of IDPMS that it
has been able to orient and train these NGOs towards economic development through
promotion of SMEs.
For some of the beneficiaries the economic approach of ’'their” NGO came just in
time. The Dalit Movement, supported by PMSR in Kollegal, Mysore district which started
10 years back as a social empowerment programme and has recently been looking for
opportunities in economic activities is an example of this scenario.
Other SHGs are still in the stage of gaining self-confidence and becoming
empowered. It is questionable whether such weak groups should start with economic
activities which might turn out to be not viable. (Examples would be the wood inlay and bag
producer groups in Nanjangud).
On the other hand, some entrepreneurs may have been excluded from the services of
IDPMS, because the NGO’s initial activities like social empowerment were not geared
towards them. Existence of professional organisations like business associations, chambers of
commerce or organised groups of trainees with skills acquired from technical training
institutes could become another target group for establishing bank linkages.
(iii) Did the credits enhance enterprise development?
The credit component of RSMEDP consists mainly of the organisation of saving and
credit groups. For a woman who is member of a SHG, her membership is the only means of
having capital which is controlled by herself. The group's capital cannot easily be withdrawn
in order to be used as household income. The members of SHGs become less dependent, in
87
case of emergencies, on other informal sources of credit like moneylenders. Most of the
loans given within the SHG are used for emergencies or consumption.
The money obtained from external sources is most often used to increase the amount
of working capital: wool, chillipeppers or leather can be purchased when available. In these
cases the credits are of great benefit to the enterprises, creating economies of scale and being
able to purchase raw material when it is cheap, being important factors in enhanced profit
generation.
In order to enhance enterprise development the following salutary rules could be
suggested:
•
IDPMS should only link SHGs or SMEs to financial institutions, if the beneficiaries
have some kind of business orientation, such as an idea or a skill or financial
resources, or a combination of these.
•
Credits from formal financial institutions should be used for productive purposes
only. If the beneficiaries do not have an entrepreneurial spirit the credit can become a
burden because of misuse and / or wrong investment decisions.
•
In order to avoid misuse of external credits IDPMS should convince the banks that
credit made available when necessary and quickly is likely to be used for the
proposed investments. When disbursed in the wrong period, the chance of default
increases.
Efficiency of financial services delivery:
3.3.17
The SHG-banks linkage established by IDPMS has resulted in lower
transaction costs for the banks in lending to the rural people. The extemalisation of some
elements in the credit cycle (appraisal, disbursal, supervision and repayment) makes it more
likely that bankers would favourably consider the rural poor as future clients.
88
i) Programme costs
The costs of organising the SHGs, training the bankers and linking the two in order
to create a client - bank relationship should also be considered. The investments in terms of
time and money to undertake these activities are worthwhile if the beneficiaries actually
establish activities that would need credit. It is, therefore, recommended that the IDPMS
should assess the fixture needs and intended productive activities of the beneficiaries before it
starts establishing bank linkages.
ii) Bank's costs.
If the NGO withdraws from an area where it has been promoting SHGs, the costs to
the bank of managing SHG credit would increase (loan recovery, monitoring, identification
of new groups). The SHG linkage has to be proved profitable to the bankers. Only on this
basis can the sustainability of the programme be guaranteed. It is recommended that IDPMS
should assist the banks in conducting studies on viability of the SHG linkages. Issues, in this
context, would include, for example, minimum outstanding amount of credit needed in
order to cover the costs of lending (break even portfolio), the number of groups which could
be dealt with by one bank field staff member (credit officer).
Another cost element for the banks is the identification of NGOs that can become
financial intermediaries. SIDBI and NABARD have funds for training and monitoring for
NGOs. In this context, lessons could be drawn from the experience of M-cril. This
organisation developed a rating system for financial intermediaries, which is now the main
instrument of SIDBI in the identification of partner organisations. It is recommended that
IDPMS could take up such assignments in assessing the strengths of the NGO and training
the staff of potential financial intermediaries.
89
SHG lending can be made more cost effective if the SHGs are clustered in, for
example, federations or so called "NIDHIs”. IDPMS could play an important role in this
clustering process.
iii) NGO asfinancial intermediary.
If banks are only willing to lend to SHGs through NGOs (as is the case with SIDBI
and in the RMK scheme), the NGOs should make an income-expenses analysis before the
decision to become a financial intermediary is made. Simulations done by Rajasekhar (April
1998)4 suggest that without grant money an NGO cannot run a SHG programme on a
sustainable basis. Therefore, it is recommended that IDPMS assists its partner NGOs in
making the calculations and drawing conclusions on whether or not the NGO should become
a specialised agency for micro finance.
3.4.
Future of financial services for SME and IGA:
National policy level:
The Committee on banking sector reforms states in its report of 1998 that the main
issue in rural and small industrial credit is to evolve a system whereby the rural finance
institutions (RFIs) at the district and subdistrict level can be constituted into a third tier of
banking. According to the Committee this requires a banking policy which facilitates the
emergence of microfinance institutions which are autonomous, cost-effective and
competitive in their operations. Therefore, they should be linked with the rest of the financial
system through equity and resource linkages. NAB ARD and SIDBI provide assistance
through funds and institution building support. In other words, the present priority sector
4 Rajashekhar, D. 1998. Donor Loans and Sustainability : Simulation Exercises. Paper prepared for
a workshop on Donors’ Loan Policies: Constraints and Fund Management, DSI, Bangalore and
ISEC, Bangalore.
90
lending may be given up in favour of microfinance. Furthermore, the Committee states that
growth in the number of accounts held by poor people can become a main target, instead of
the present target of 40 per cent of the outstanding credit which should be geared to the
poor.
Scope and need for credit:
3.4.2
External credit is mainly needed to finance working capital (wool, chilli
peppers, silk cocoons), which enables entrepreneurs to make use of economies of scale and
seasonal availability of raw material. A condition is that the credit should be available at the
right moment, that is to say when the raw material is available at optimum cost. This ’’right in
time" argument should be stressed in the training of field branch bank managers. Credit,
which is made available at the wrong moment, may lead to misuse and as a consequence
result in default problems.
3.4.3
Trading activities, which cater for the local village market, are much easier to
finance through the SHG as they do not need a careful costing and pricing analysis.
Moreover there is no dependency on an (risky) external market and marketing skills.
3.4.4
Credit needs for consumption and emergencies can be met by the internal
funds of the SHGs made up of savings. The credit amounts needed by the actual beneficiaries
of RSMEDP vary most often between Rs. 5,000 to buy, for example, a pushcart to
Rs.50,000 to buy a stock of, for example, chillipeppers or silk cocoons.
The bankers policies:
3.4.5
The reluctance of bankers towards the SHG linking programme is caused by
the mix of evaluation criteria which is actually applied. On the one hand, as suggested by the
91
Committee on bank reform, bankers are evaluated on financial criteria like recovery rate and
the decrease in NPAs. On the other hand, bankers are evaluated on the basis of social
oriented objectives of achievements of targets set for priority sector lending. The mix of
these two sets of evaluation criteria makes field branch bank managers reluctant to deliver
financial services. They consider SMEs as high risk clients who might default, and as a
consequence, decrease the performance of the portfolio of the bank manager. Incentives to
field branch managers to implement the SHG linkage scheme should not be based on socially
oriented criteria. It should be demonstrated to them that financial services delivery to SHGs
can be profitable and that, through product development, new markets can emerge.
3.5.
Proposed interventions and recommended future orientation:
IDPMS has developed an expertise in credit systems that can be the basis of future
interventions in the field of financial services. First of all IDPMS has to define its strategy in
the field of SME financing. It is recommended that IDPMS should carry out a needs
assessment with those involved in the field of micro finance. If the needs are identified.
IDPMS should assess whether these could result in a demand for the expertise that it has
developed. In other words, it should be determined whether the target groups/ future
beneficiaries are prepared to pay for the proposed services of IDPMS.
Possible interventions of IDPMS at the level of the beneficiaries:
3.5.2
On behalf of the banks, the IDPMS could market the services that the banks
offer, for a service fee It could also conduct credit management training for SHGs and
assist them in the write up of credit request and bank procedures. Also, while avoiding direct
intervention with issues relating to credit, grants or venture capital, it could assist the SHGs
92
in the procedures. To achieve economies of scale it could organise SHGs in clusters or
associations.
Possible interventions of 1DPMS at NGO level:
3.5.3
NGOs whose objectives are compatible with the IDPMS’ objective of creating
enterprises and enhancing credit access for potential entrepreneurs, should be supported.
NGOs and IDPMS should interact as complementary organisations. NGOs are people based.
they know the field reality and IDPMS has technical expertise and funds for pilot actions.
3.5.4
It should not present itself as a donor. Being a service-based organisation.
the emphasis should be on transfer of technical expertise and project management. Activities
undertaken by the NGOs should not depend on long term financing of IDPMS. From the
beginning it should be clear that IDPMS can only finance pilot actions to demonstrate the
effectiveness of its approach. IDPMS fimding should only be used to reduce risks at the
NGO level. However, IDPMS could link NGOs to donor agencies interested in enterprise
development and micro finance.
3.5.5
IDPMS should stress the importance of SHGs becoming independent clients
of the banks (if the NGO does not have the intention to become a specialised financial
intermediary).
Possible interventions of IDPMS at bank level:
3.5.6
Bank management could be sensitised on issues relating to SME financing
through exposure visits, networking, seminars, and orientation workshops. IDPMS should
demonstrate to bank managers that financing of SHGs can be profitable.
93
3.5.7
Banks should be trained in proper matching of financial services as, for
example, determining which client needs what type of credit. The bank management could be
advised on the manner of expanding the market for credit through closer contacts with future
clients. At the same time, they should avoid "overfinancing" of SHGs which means giving
large external credits with long repayment periods.
3.5.8
IDPMS could suggest to government the advantages of adopting a policy of
subsidising training rather than subsidising interest.
New products and Services of IDPMS:
3.5.9
IDPMS could become a rating agency for NGOs specialising in financial
intermediation on the basis of an acceptable approach and methodology.
3.5.10
IDPMS can also become a capacity building institution for NGOs that are
interested in developing their knowledge of and skills in economic activities such as
enterprise development and financial services. It could also develop into a training institute in
financial and credit management for SHGs.
3.5.11
The IDPMS should market its services based on its unique experience in
operating the RSMEDP. Its services can be "sold" to either local institutions like banks.
NGOs, Government Institutions and Technical Institutions or donor agencies.
3.5.12
It should not try to become a financial institution but should rather make use
of existing institutions which have much more resources and experience in this field. It
should attempt to tap NABARD funds to enhance credit facilities for SMEs and IGAs in
rural areas. In this context, the experience in other States of organisations such as EDA,
M-cril, PRADAN and MYRADA could be studied
94
3.5.13
IDPMS could undertake consultancy assignments in financial viability issues
as described earlier.
3.5.14
In order to implement these recommendations, IDPMS would have to
strengthen its staff and acquire strong financial expertise. It does not have specialists in micro
finance. To acquire such expertise it would be necessary to invest in staff training and
external expertise. The special budget line said to be available from the Government of the
Netherlands for obtaining external expertise could be used to buy expertise on micro finance
methods and management from India or abroad. Product development would also need
attention. Expertise could be inducted for carrying out the needs assessment and "market
research" which would result in new products and suggest new markets for the future
financial intermediation services of IDPMS.
95
vast majority of the programme’s beneficiaries, were from either landless families or families
with marginal or small holdings, part or whole of which had to be sold or pledged.
4.3
Training
Given the above background, the focus of the programme has rightly been on
technical and entrepreneurial training. More than 70 per cent of the trainees have been
women with their proportion in 1998 as high as 85 per cent. As can be seen from Table 4.4,
3600 men and women have been trained during 1995 - 1997. If we add the numbers trained
in 1998 as well, the total goes up to 5707.
TABLE 4.4
TOTAL NUMBER OF PERSONS TRAINED 1995- 1998
Districts
1995
1996
1997
Total
(1998)
Dharwad
513
472
775
1760
(1057)
Mysore
573
460
807
1840
(1050)
Total
1086
932
1582
3600
(2107)
Source : RSMEDP at a glance, IDPMS, Bangalore , 28th July, 1998
4.3.2
The distribution between the districts is more or less even, with 49 per cent
located in Dharwad and 51 per cent in Mysore.
The number appears to have increased
substantially in both districts during 1997 -1998. In both Dharwad and Mysore, the number
trained in 1998 was twice as large as in 1995.
4.3.3
Figures of the choice of trainees by gender is available for some selected years
for the two districts. Table 4.5 presents this dimension on the basis of available data.
100
DISTRIBUTION OF TRAINEES BY GENDER 1995,1997
TABLE 4.5
Per cent
Total
Mysore
Dharwad
Year
Men
Women
Men
Women
Men
Women
Women
1995 *
142
605
287
255
429
860
67%
1997
104
671
145
662
249
1333
84%
1998
321
736
165
885
486
1621
77%
Total
425
1407
310
1547
735
2954
80%
Source :
Note : *
Activities by years and Districts, RSMEDP for 1995.
RSMEDP at a Glance for 1997 and 1998
1995 calculated from activities sheet.
The proportion of women trainees has fluctuated somewhat between the three
4.3.4
years for which figures are available but over the three year period 80 per cent of the trainees
have been women. It is worthwhile noting, however that the numbers of male trainees in
Dharwad tripled in 1998 compared to that in 1997 and exceeded the number in Mysore by
100 per cent.
4.4
Enrolment and Drop out
It is noteworthy that while a much larger number of persons were enrolled
initially for training the number actually undergoing training was less. Table 4.6 gives details
of the total number enrolled and the drop outs in the two districts for 1995 and 1996. For
the subsequent two years 1997 and 1998, information is not available.
101
I T-H 8 0
^3
TABLE 4.6 ENROLMENT, DROPOUT RETENTION OF TRAINEES
Dharwad
Mysore
Year
Total : Drop out ■ Retention
Trainees :
: No
%
1995
1309
:
818
: 491
37%
Total : Drop out ■ Retention
Trainees :
: No
%
530
1043
: 513
49%
i 472
65%
■!
1996
475
45
\ 430
90%
250
772
I
■!
Total
1784
i
863
: 921
52%
1765
780
i 985
56%
Source : RSMEDP at a glance, IDPMS, Bangalore , 28th July, 1998
4.4.2
The number of drop outs as well as their proportion were rather large in
1995. Mysore seems to have done rather badly in 1995 with only 37 per cent of those
enrolled being retained. Dharwad did better with the retention ratio of 49 per cent. The
situation improved remarkably in 1996 with retention ratio of 90 per cent in Mysore and 65
per cent in Dharwad. Obviously, what seems to have happened is that in the year 1996
better selection procedures were followed in enrolling members as compared to the initial
year of 1995. Performance in both districts was better with smaller enrollment. Of the total
number of trainees of 3549, the overall retention rate over the two years was 1906 or 54 per
cent.
4.4.3
The issue of very high drop out rates, has still to be addressed seriously.
Some analysis and information on those women and men who leave after joining would be
worthwhile. Do they leave immediately or give up sometime after the training has started?
What are the factors that force them to give up? These social and cultural issues need to be
understood to improve the performance of the programme in the future.
102
4.5
Enterprises Established
Between 1995 and 1997, the number trained annually increased by 50 per
cent from 1086 to 1582, with the total number trained adding up to 3600
During these
three years, the number of enterprises established has also been steadily increasing. In 1995
only 23 per cent of those trained could form enterprises whereas in 1997 virtually half the
number trained could establish enterprises. This can been seen from the Table 4.7. The
proportion of members who could establish enterprises over the three year period was 37 per
cent.
TABLE 4.7
ENTERPRISES ESTABLISHED
Year
Total Trained
Enterprises
Established
Per cent
1995
1086
251
23%
1996
932
311
33%
1997
1582
773
49%
Total for 3 years
3600
1335
37%
Source : RSMEDP at a glance, IDPMS, Bangalore , 28th July, 1998
4.5.2
It can be seen from Table 4.8 that there was difference between the two
districts in regard to the proportion of trainees setting up business. Educational levels and
literacy skills are much better in Dharwad as compared to Mysore but the success rate in the
establishment of enterprises was higher in Mysore and the gap became even larger with the
passage of years in this regard . By 1997, while in Mysore 58 per cent of the trainees in that
year could set themselves up in business, in Dharwad the corresponding rate was only 37 per
cent.
103
TABLE 4.8 DISTRIBUTION OF ENTERPRISES - MYSORE & DHARWAD
Year
Total No. of
Trainees Enterp.
Total
Dharwad
Mysore
%
Total No. of
Trainees Enterp.
%
Total No. of
Trainees Enterp.
%
1995
(573)
141
25
(513)
110
21
(1086)
251
23
1996
(460)
168
37
(472)
143
30
(932)
311
33
1997
(807)
469
58
(775)
304
39
(1582)
773
49
Total
(1840) 778
42
(1760)
557
32
(3600)
1335
37
(1995- 97)
Source : RSMEDP at a glance, IDPMS, Bangalore , 28th July, 1998
4.6
Individual and Group Enterprises
Overall it would appear on the basis of the figures available for 1996 and
1997, that far more persons trained get absorbed in individual enterprises than group
enterprises. This can be seen from Table 4.9.
It is also notable that between the two
districts, it was in Mysore that relatively far more individual enterprises could be established
than in Dharwad.
TABLE 4.9 INDIVIDUAL AND GROUP ENTERPRISES
Dharwad
1996
1997
Year
Individual
Enterprises
69
Group
Enterprises
74
Total
Enterprises
143
268
1996
1997
404
178
672
79%
101
43%
773
71%
109
(850)
(513)
(337)
36
59
65
133
(234)
(124)
(HO)
304
Per cent
Total
Mysore
1996 1997
168
469
311
(1084)
Note : Figures in parenthesis are totals
Source : RSMEDP at a glance.
104
While only 25 per cent of enterprises established in Dharwad during the two
4.6.2
completed years of 1996 and 1997 were individual businesses, the corresponding proportion
in Mysore district was as high as 81 per cent. Such a pronounced preference for individual
enterprises or group enterprises in Mysore as compared to Dharwad has possibly much to do
with the differences in the type of activity that was promoted and taken up in the two
districts.
4.7
Enterprises in Progress
The proportion of trainees who succeeded in setting up enterprises, individual
or group had, as already stated, improved from 23 per cent in 1995 to 49 per cent in 1997,
taking both districts of Mysore and Dharwad together. The position in 1997 was still better
if note is taken also of enterprises reported to be in progress. As against 773 enterprises
established in that year, 631 were reported as in progress. Thus the total fruition rate, that is
the proportion of trainees absorbed in enterprises, would improve for 1997 from 49 per
cent to 90 per cent
once the enterprises in progress actually get established.
The
comparable proportions for 1995 and 1996 work out to 35 per cent and 46 per cent
respectively.
4.8
Income Generation
Right from the outset, since the project was intended to impart training and
technology upgradation and business management, it was reasonable to expect that those
who receive training and then set up their business would normally gain in terms of
additional income generation. Also, since the trainees were to be mostly women, it was also
105
fairly reasonable to expect that the principal
beneficiaries of such additional income
generation would be women. Of course, through these women the benefit would accrue to
the household to which they belonged.
4.8.2
Although no disaggregated information was readily available about the gender
dimension of the enterprises that were established by the trainees, it would appear that
women trainees did not lag behind male trainees in this matter.
In fact,
going by the
information supplied about the formation of self help groups for gaining access to formal
credit, it would appear that the women might have proved themselves to be ahead of their
male counterparts in not only setting up enterprises but also participating actively in those
related activities which would ensure the success of their enterprises
4.9
Choice of Activities
An assortment of 23 crafts or trades and 6 credit raising groups have been
identified for income and skill generating interventions in the group formations under the
porgramme. The number enrolled in each of the trades and activities appears to fluctuate
over the three year period.
4.9.2
About 681 persons were trained under the Rural Entrepreneurship
Development Programme under the RSMEDP. Of these, 243 were only given the
entrepreneurship training and were not trained in a skill. However, they have used the
entrepreneurship training they got to set up enterprises on their own. The rest, namely 438
have set up individual micro enterprises by obtaining credit on their own and not as members
of any credit group. The latter have been classified as “integrated service centres” which is a
106
misnomer. They are, in effect, individual entrepreneurs who have been given both
entrepreneurship and skill training.
Table 4.10 indicates the number of micro enterprises assisted as members of
4.9.3
credit groups, under the various schemes.
TABLE 4.10 CREDIT GROUPS - MICRO ENTERPRISES ASSISTED
UNDER VARIOUS SCHEMES
1
REDP
243
2
DWCRA
289
3
Mahila Samakhya
60
4
UBSP
60
5
Grameen Banks - IG thro’ SHG
551
960
Total
MEs = Micro enterprises, IG = Income generation
Source : RSMEDP hand out on activities and total expenditure
4.9.4
Of all the persons in credit groups, the one with the largest members is that of
SHGs. Of the 1621 who joined credit groups, 551 opted to join SHGs possibly because of
two reasons.
First, perhaps they could not join government schemes like DWCRA, REDP
or ISC. Second, the incentives offered by NABARD in terms of credit for the micro level
groups,
the members commit themselves to regular savings and collectively guarantee
individual borrowings of members. The programme has been able to nurture the SHGs very
successfully. This is a painstaking and time consuming process in which formal institutions
can play only a limited role.
107
4.10
Self Help Groups
The number of persons who have joined SHGs is still considerably smaller
than the number of enterprises which have already been set up. In addition, a large of
number of enterprises are in the process being established. So the scope for expanding the
coverage of SHGs is still wide. Even those who benefit initially from governmental schemes
need to be covered in due course.
4.10.2
Government schemes like DWCRA, REDP, UBSP also involve formation of
groups of women with the idea of giving them technical training and then setting up group
income generation activity. With the beneficiaries of these schemes also joining SHGs, the
culture of collective commitment to honouring of individual obligations of members
combined with regular savings can be spread. Perhaps this can be achieved through more
active co-operation with government officials and agencies.
4.10.3
Given the ground reality that a substantial portion of
rural women in
Karnataka are illiterate, particularly those who need income and employment desperately, the
task of building the capabilities must be extremely challenging.
4.10.4
Even those who may have had some little schooling as children may have
lapsed into virtual illiteracy.
It is therefore for urgent consideration whether as part of
training in craft and entrepreneurial skills, separate components to impart functional literacy
should also be included. This will also reduce considerably the dependence of those trained
on outside help for maintenance of accounts. Alternatively and so as not to reduce the focus
108
of the RSMEDP, the official agencies in charge of literacy development could interact with
the SHGs separately.
On the basis of information supplied to the Review Mission, it is found that
4.10.5
some 76 SHGs involving 963 women and 90 men are currently active, as indicated in
Table 4.11.
TABLE 4.11 DETAILS OF SELF HELP GROUPS
Districts of Mysore and Dharwad
Activities
Groups
Total
Wool related
14
188
Savings groups
16
251
Lambani craft
11
171
Miscellaneous
35
443
Total
76(M 7, W 69)
M 90, W 963=1053
Source : Status of Self Help Groups June 98, IDPMS
Note : Activities in which there are only men are footwear, vermi-composting, rope
making, pipe making, wool weaving, etc
4.10.6
groups range from making foot wear.
The activities of these
vermicomposting, rope making, wool weaving and pipe making. Women and men engage in
different groups and activities. Only in one activity are men and women involved in the same
group. In all, there were 7 men’s groups and 69 women’s groups. Of these, 91 per cent of
the SHGs were of women and only 9 per cent were of men. The groups were spread over
the entire districts of Mysore and Dharwad.
The largest number of these groups was
engaged in activities related to wool spinning and weaving followed by Lambani craft.
109
4. 10.7
In the discussions at both Dharwad and Mysore with the banking and
NABARD officials the assessments
were very positive in regard to the role of the
programme in motivating members and ensuring that they fulfilled their commitments
4.11
Concluding Observations
It has taken four years of hard and painstaking dedicated work to identify
committed NGOs and mobilise persons who could be trained to set up and manage small
enterprises. Getting women from these villages to come out and join groups must have been
the hardest of tasks. The project now has been able to make its presence felt and strike
roots in both districts, but perhaps more so in Dharwad.
motivate the groups have been different.
Several
The strategies to initiate and
approaches have been attempted
depending upon the circumstances in the villages. In some places, the intervention is through
NGOs, in some direct. In others, interventions have been through the government initiated
poverty alleviation programmes. In still others the banks have come forward. Almost all
approaches have been tried. New NGOs who are committed and are willing to co-operate
wholeheartedly and help with the programme are also reported to be coming forward.
110
Chapter V
INSTITUTIONAL LINKAGES
Creation of awareness of economic opportunities and providing information on the
mechanisms of availing of such opportunities are essential elements of the RSMEDP. To be
able to do so, strong links would have to be developed with organizations and agencies
involved in closely associated activities that could support, augment and sustain the activities
of IDPMS. These would include the credit institutions, the NGOs, and various official
agencies. The development and strengthening of such institutional links is an essential part of
the strategy of the project.
5.1
Links with NGOs:
The RSMEDP is implemented through NGOs. The choice of the NGO in an
area would be guided by the experience it has in field work, its capacity in terms of personnel
and communication skills and its acceptability by the community in which it operates. None
of the NGOs now associated with the programme have had experience in income generating
activity through establishment of micro-enterprises, accessing credit or developing and
providing entrepreneurial guidance. The IDPMS has had, therefore, to inculcate these skills
in the NGO itself. In this sense, the programme has involved institution building within the
associated NGO. It is necessary that the thinking and approaches of IDPMS be
institutionalized within the NGO so that both may work successfully as partners in
implementing the RSMEDP.
5.1.2
The interface between the IDPMS and the NGOs is well established.
Experience would seem to indicate that it is more effective to operate through well run and
111
similar minded NGOs. One or a small number of such NGOs operating in a larger area would
achieve both purposes of strong institutional links and development of an internalized
common approach.
5.2
Links with Credit Institutions:
The IDPMS has developed fairly strong links with financial institutions such
as NABARD, the Grameen Banks and official agencies that provide assistance. These links
must not only be strengthened but also sustained by continuous interaction with these
institutions. As suggested elsewhere, the association with these institutions and ability to
liaise with them could be enhanced through induction of their representatives on the
Technical Advisory Committee.
5.2.2
In particular, strong links with NABARD would be of great advantage. The
information available in the NABARD documentation would help in formulating field plans.
Also, NABARD has innovative schemes for development of expertise within IDPMS and for
the rural banking sector. The IDPMS could explore how it could avail of these schemes.
5.2.3
At this point a question could be raised whether IDPMS should charge a fee
for the services it renders to the rural banks. The latter have benefited from the expertise of
the IDPMS in enhancing their business through induction of new clients and have derived
benefit from associating with it in sensitizing themselves to rural credit needs. In a sense, the
IDPMS has been performing services, which would normally have been paid for by the banks
if carried out by their field agents. It could be argued that IDPMS would be entitled to some
compensation from the banks for its contribution. However, this is a question that needs
careful consideration. A demand of this nature could weaken the links now established and
112
erode the confidence that the rural banks currently repose in the IDPMS. It would be rather
premature to assert that IDPMS has established itself either in size or capacity to be able to
influence a decision on this matter in its favour. This point would merit consideration only at
a more appropriate time.
5.3
Links with official agencies:
The core of the RSMEDP is the setting up of enterprises in the rural areas.
Major elements in this process are the development of skills of the beneficiaries and
imparting of training in management of such enterprises. There are many training
programmes relating to skill formation and entrepreneurial development in existence. These
are provided by the Department of Industries and Commerce through the District Industries
Centres. There is also a wide network of Rural Industrial Training Centres, Industrial
Training Institutes, and Polytechnics.
5.3.2
The IDPMS has established liaison with the District Industries Centres and
has been taking advantage of these facilities. Such an association must be sustained and
strengthened. Assets already created in the public sector would be intensively utilized and it
would also facilitate the official agencies in performing their role to a greater degree.
5.3.3
There are other programmes that are relevant to the RSMEDP. These include
the schemes of IRDP (Integrated Rural Development Programme), TRYSEM (Training
Rural Youth for Self-Employment) and DWCRA (Development of Women and Children in
Rural Areas). The IRDP has many elements, including attention to rural industry. The
integration of some of the activities of RSMEDP with the IRDP would be advantageous.
Under TRYSEM, rural youth are trained in various crafts but there is no post-training
113
mechanism to help the trainees establish their own enterprises or businesses. They could be
inducted into the RSMEDP. Under DWACRA women are trained in activities similar to
those envisaged in the RSMEDP. However, as in the case of TRYSEM, there is no follow
up. This gap could be filled by RSMEDP
5.3.4
Other official agencies whose experience in skill formation and marketing
could be of advantage would include the Coir Board, the Sheep Development Board, and
similar organizations. Assistance for enhancement of technology could be had from the
Regional Design Technology Development Centre, the Karnataka Council for Science and
Technology and the Society for Application of Science and Technology in Rural Areas
(ASTRA). These are premier institutions in the development of appropriate technologies.
5.3.5
There are private institutions with which IDPMS could establish links in
furtherance of the objectives of RSMEDP. These include the private polytechnics and
training institutions. Links with local established industrial units and factories could also be
developed. The latter have a legal obligation with regard to the training of apprentices, which
could be gently taken advantage of.
5.3.6
Similar links would have to be established with cooperative organizations for
credit and marketing purposes to ensure long term sustainability of the enterprises created
under this project.
5.3.7
There are constraints in the establishment of small and micro-enterprises in
the rural setting. The activities include both the provision of services and manufacturing.
The former typically have highly local (usually village) markets while the latter may have
village, area (taluk) or more distant markets. The demand for services are somewhat easier
114
to anticipate than is the case for manufactured goods.
On the other hand, demand
management becomes more of a problem in the case of the narrow local market. Finally,
service activities are typically subsistence enterprises and so there is not much prospect of a
substantial return to managerial or entrepreneurial skills. It is in this context that the linkages
need to be developed with all similar minded organisations or institutions that are supportive
of such activities.
5.3.8
IDPMS ought to make greater use of the banking system in creating training
opportunities, in tapping market information and even creating a marketing infrastructure
and of course in ensuring access to credit for its project areas.
5.3.9
The IDPMS has already developed many of these links. Excellent personal
equations have also been established in most cases. The continuation of these links and their
enhancement would be of great advantage to the RSMEDP.
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Chapter VI
MANAGEMENT ASPECTS
The IDPMS was established as an independent society under the relevant law
in February 1988. When the RSMEDP was first formulated in early 1990, the Programme
Management Unit (PMU) was structured to include (i) an Indian co-team leader, (ii) an
expatriate co-team leader, (iii) a senior financial expert, (iv) a senior economist, (v) a senior
rural development expert, and (vi) district coordinators. There was no expertise relating to
marketing even in the original formulation. However, due to delays in approval of the project
and other reasons, this structure was given up.
6.2
The Governing Council initially included senior government officials such as
the Director of Industries, the Director of Sericulture, the Economic Adviser to the
Government of Karnataka and the Deputy Secretary of the Finance Department. The
Director of Industries was, in fact, the Chairman for some time. It also had three local
prominent persons nominated by the Government of the Netherlands, and a Secretary.
However, during the interim phase its internal structure was weak. Its staff consisted of
persons deputed from different organizations, it worked on a highly centralized basis and
functioned as an extension of government. However, the implementation of the RSMEDP
required a different work culture with the IDPMS having to interact with NGOs, Zilla
Panchayats, rural banks and local community groups. Basic structural changes were.
therefore, considered necessary.
6.3
In April 1994 the Government of the Netherlands commissioned a study of
the management structure of IDPMS. A follow up study was conducted in March 1995.
116
Based on the recommendations of these studies, the Governing Council was reconstituted
with a nonofficial Chairman and an Executive Committee was formed for day to day
functioning of the IDPMS. Certain internal restructuring was also carried out. The present
structure of the IDPMS is illustrated in Figure 2 . At present, the positions of Deputy
Director, Programme Manager ( Women in Development) and Programme Manager
(Planning and Development) are vacant.
6.4
The structure of the Programme Management Unit (PMU) of the IDPMS is
crucial to the efficient implementation of the RSMEDP. While the Executive Committee and
the Council provide the necessary administrative approval and support, the expertise
available to the PMU is entirely within itself. For example, the areas in which the IDPMS
could with advantage induct expertise include marketing, credit, and liaison with other
institutions and the like. Its character is essentially that of a technical support team to rural
enterprises and to be able to discharge this role, it must have the necessary expertise at all
times. Systems would have to be set up which would provide expertise in various matters
when required without adding to the costs in terms of permanent staff positions. To be able
to access such expertise and technical advice, it is suggested that a Technical Advisory
Committee could be constituted in which, apart from the Programme Director, experts could
be invited to join. The latter could be paid sitting fees and provided transport for attending
meetings. Also, other experts in specific areas could be invited for meetings. Members of this
committee could be drawn from NABARD, training institutions and marketing
organizations. This should fill the current gap in induction of expertise, at a reasonable cost.
117
Figure 2
INDO-DUTCH PROJECT MANAGEMENT SOCIETY
Organisation Chart
Governing Council
Executive Committee
Project Management Unit
Director
Deputy Director
I
Programme Manager
(Women In
Development)
Programme Manager
(Co-ordination &
Implementation)
Programme Manager
_ Marketing Officer _ Accounts Officer
(Planning &
Development)
Accountant
Programme
Officer
Mysore
Programme
Officer
Chamarajanagar
Programme
Officer
Dharwad
Programme
Officer
Haveri
Sr. Secretary
Gen. Asst.
Drivers
Positions
vacant
118
6.5
The issue of strengthening the technical level and enhancing the expertise
within the IDPMS is important from a long-term point of view. The enhancement of the
current level of competence within the IDPMS, high as it is, would still be necessary to
render it combatively competitive in the fixture.
6.6
The IDPMS has had considerable success in transfer or induction of
technology to the rural areas. One such example is the introduction of the compressed brick
making equipment. However, technology does become obsolete or needs to be upgraded if
the enterprise has to be competitive in the market. Systems must be developed for this
purpose. While the IDPMS would be able to provide the necessary information while it is
still present in an area, on its withdrawal it would have to be the mission of the NGO
concerned to ensure that the enterprise is advised regarding new developments in technology
or marketing. It would be necessary for IDPMS to discuss this with the NGOs and sensitize
them to the technology issues. It could develop an information bank on such appropriate
technologies which could be available “on tap” to NGOs.
6.7
The identification of products that would be marketable, of the markets and
access to the latter needs more professional attention. Currently, the availability of skills is a
primary criterion for location of project activity without a deeper study of the availability and
extent of the market for the goods produced. The elements of training and skills would vary
depending on whether the markets are local or distant. Also, the characteristics of the small
enterprise include - easy taking up of the activity, reliance on local resources, ownership by
family or by some members, small scale of operations, labour intensive, use of improved local
technology, skills acquired outside the formal educational system, and working in an
unregulated but probably competitive market. It would be necessary to conduct appropriate
119
studies for this purpose. The expertise is available in the IDPMS in its field offices but would
seem to need the support of a marketing consultant. It would be desirable to induct expertise
for this purpose through appointment of a middle level marketing expert in the headquarters.
Experienced persons would be available from recent retirees from NABARD, Regional Rural
Banks or marketing organisations.
6.8
The establishment of stronger links with NABARD through such mechanisms
would also help IDPMS in using the very informative data bank of NABARD. The Credit
Plans of NABARD, for example, would be very useful in the determination of location and
nature of activities relating to establishment of enterprises.
6.9
The IDPMS would, as mentioned earlier, benefit through the induction of
external expertise. In a similar manner, it should seek advice and assistance on the various
elements of the programme such as design of products, marketing strategies and training
from established institutions which have experience in such matters. The improvement of
design of the products and better marketing, with constantly enhanced skills, would augment
the returns from the enterprises and also ensure their long-term sustainability. The
institutions with which collaboration for this purpose could be established include the Design
Centres of Government, National Institute of Design, the Khadi and Village Industries
Commission, Institute of Rural Management, and the Enterprise Development Institute.
Some of these, such as the KVIC have training programmes also. A dialogue could be
commenced by the PMU with such organisations which have expertise useful to IDPMS.
6.10
Organising a wing for this purpose as part of its structure could enhance the
marketing and training capability of IDPMS. Funding for this purpose could be solicited from
120
NABARD by way of seed money. A professional from NABARD deputed to IDPMS can
manage the wing.
6.11
The PMU monitors the RSMEDP through a system of internal reporting.
Monthly reports are obtained from the Programme Officers in the districts, who are expected
to compile these reports on the basis of information from the NGOs. However, in actual
practice, the reports from the NGOs are said to be neither systematic nor complete, casting
an extra load on the Programme Officers.
6.12
A half-yearly report is sent to the Netherlands Embassy at New Delhi. This is
in a narrative form. It used to be very elaborate till recently but the current half-yearly report
is in a simpler format.
6.13
A review meeting is held every month in Bangalore of the Programme
Officers. The current progress of the activities, the corrective measures to be taken and other
issues are discussed at these meetings.
6.14
The forms provide information on the basis of which annual figures are
aggregated. The information on physical achievements is generally complete but information
on qualitative results is meagre. In particular, it is difficult to assess economic results of the
programme. While recognising that it would be difficult to obtain monthly quantitative
information on qualitative aspects, it is suggested that six monthly case studies could be
conducted in selected areas to obtain such information. Periodic in-house training on
reporting requirements would seem useful and necessary.
121
6.15
Constant sharpening of the skills of the professionals in IDPMS would be
desirable. For this purpose, in-house training programmes could be started with the inputs
from the experts of the Technical Advisory Committee suggested earlier.
6.16
The IDPMS has a distinctive character which sets it apart from other NGOs
that operate in the rural areas. It does not deal with social issues, or health, nor does it seek
to promote social change. It is, as mentioned earlier, in the business of demonstrating that
economically viable small and micro-enterprises can be set up and run successfully, with
adequate inputs of training, credit and marketing support. The enhancement of the
programme or its establishment in other areas would imply that the IDPMS as an
organisational structure could be replicated. In considering the possibility of such replication,
the strengths and weaknesses of the IDPMS, as illustrated below, would bear consideration.
STRENGTHS AND WEAKNESSES OF IDPMS
THE SHORT RUN PROGRAMME
Strengths
THE LONG RUN PROGRAMME
Weaknesses
Weaknesses
Strengths
Short time horizon
Training and skill
development
Weak linkage to markets
and marketing
Planning uncertainty
Filling a crucial niche
Insufficient visibility and
diffusion
Learning costs
Institutional
development (NGOs)
Diseconomies of scale
and scope
Links with Govt, offices.
Banks, Tech. Instns.
Activity selection:
dynamic viability
Activity selection: static
viability
Area selection: geo
graphical fragmentation
Area selection: social
infrastructure
Decision rules not
always clearly defined
(Same as the Uncertainty of costs
Long Run)
Technology upgradation
122
6.17
The weaknesses would seem to be the lack of sufficient expertise within the
organisation and absence of a mechanism for induction, at optimum cost, of such expertise
when needed. Also, the NGOs associated with the programme have insufficient skills
regarding the business management aspects of small and micro-enterprises, including designs
and marketing. This casts an extra responsibility on the IDPMS which necessitates its
operating directly in the field.
6.18
The short time horizon of the project of five years is also small but the
experience gained would permit the taking of a long -term view. The issue of replicability of
the IDPMS as a model could be looked at from three perspectives as follows:
•
The IDPMS could expand its area of operation - this would need expansion of
professional and supporting staff, enhancement of liaison with related organisations and
better control over the activities. It would also presume that capable NGOs are available
for partnerships to be developed. This is an option that, with sufficient organisational
restructuring, would be acceptable. To this extent, replicability of the activities would be
achieved but it must be recognised that too vast an area would tend to dilute
effectiveness of the IDPMS.
•
Another organisation similar to the IDPMS could be established with specific area
jurisdiction. This would seem appropriate if one were considering replicating the
activities of RSMEDP in other States. The experience of IDPMS would be of great
assistance in establishing such a new organisation of similar character. Replicability
would be possible through this option too.
•
The activities of the RSMEDP could be taken up by an existing NGO after being trained
by IDPMS. This would seem the worst option since it would be an attempt at grafting a
totally new mind-set in an organisation that has had a different agenda so far.
6.19
It would seem that the IDPMS model could be replicated subject to careful
planning and with an assurance of adequacy of funds and expertise.
123
Chapter VII
NEW DIRECTIONS
The IDPMS is a niche organisation with a character and an area of interest
and expertise that NGOs conventionally do not have. It provides a model for the
development of small and micro-enterprises in the non-farm rural sector. Doubtless it has
certain strengths and weaknesses but these do not detract from its rather unique character.
The strengths include a decade of activity in the field, the last three years of which have had a
specific focus of economic interventions, linkages with both official and nonofficial
v
institutions including banks, strong internal capacity in training and skill development and
experience in institution building through working with NGOs. It would, therefore, be
reasonable to expect the IDPMS to mitigate its weaknesses and build on its strengths.
7.2
The IDPMS would do well to conduct internal brain storming and draw up a
perspective of its future in the long term. The Mission has not had the time to deliberate
upon the new directions that the IDPMS could consider or the choices that are appropriate.
However, some general observations that the Mission arrived at are presented for
consideration. It must be stated that there is no prioritisation in what follows.
7.3
One obvious suggestion would be that IDPMS could expand its horizon by
extending its activities into other development sectors such as health, literacy, women’s
empowerment and the like. However, such expansion into totally new sectors would only
result in diversion of attention from an activity in which it has rich experience and expertise.
It would dilute its unique character with little benefit. This course of action is not
recommended. The future of the IDPMS would clearly lie in enhancing its current role.
124
7.4
It would seem the opportune moment for the EDPMS to identify and tap new
opportunities and forge new directions, which would give it greater visibility and influence in
the task of development of rural industries. The RSMEDP as a concept would merit
expansion both in scope and area.
7.5
The IDPMS has functioned mainly as a funding agency but has experience in
developing field level organisations also, even if the latter is one step removed. Its
experiences, including that of building up NGOs in this specialised programme, would be of
value to similar organisations that may get established in the future. It is suggested that
documentation of this nature should be prepared.
7.6
A data and information bank could also be built up on the basis of its
experience, that would help other NGOs in learning of and sourcing assistance in training.
credit, marketing and associated aspects.
7.7
There are well established official training facilities and rural banking systems
but these do not always function in a client-friendly fashion. The IDPMS has had years of
experience working the systems and has been able to establish effective linkages with the
institutions concerned. It has an advantage that could be used to assist other NGOS, Self-
Help Groups and associations of micro-enterprises that may not have been part of its
programme to access and utilise these facilities. By doing so it would be enhancing its role in
development of rural entrepreneurs.
7.8
Through association over the last few years, the credibility of the IDPMS in
the view of these institutions and agencies has been established. It could play a supporting
role to the latter and also sensitise them to field realities through seminars and workshops.
125
some of, which could be interactive with the client groups. Funding for such purposes could
be sought from NAB ARD and official development agencies. This would add visibility to the
IDPMS
7.9
There is often little input in policy making from NGOs. The IDPMS could
seek to fill this gap through the preparation of policy papers that reflect its experiences.
These could be on specific aspects related to its expertise and activities. The Members of the
Governing Council could intervene in this task for ensuring that these papers get due
attention at the appropriate levels. The IDPMS could develop an advocacy role.
126
Chapter VIII
SUMMARY OF RECOMMENDATIONS
The report discusses various issues relating to the RSMEDP and the IDPMS
in considerable detail and many conclusions and recommendations have been presented. The
rationale for these conclusions and recommendations is given in some detail in the main
chapters. This chapter presents a summary of the recommendations but the conclusions have
not been repeated here. It is suggested that the conclusions should be read as important
elements of this report. Detailed analytical presentations on the various elements of the
RSMEDP are also included in the substantive chapters. These would also merit attention.
8.2
A brief indication of the rationale for each recommendation has been
presented to render this chapter “reader friendly”. The substantive reasoning is in the relevant
paragraphs of the concerned chapters. The paragraph numbers have been indicated for
reference.
8.3
The IDPMS implements the RSMEDP through NGOs. It often has to induct
as its partner a NGO whose structure or experience may not be optimal for the
implementation of the RSMEDP. This sometimes gives rise to a grey area of unclear
responsibilities and differing perceptions of the elements of the project and the methodology.
It is recommended that before a partnership is established and before the programme
elements are sought to be implemented, it would be beneficial if a complete needs analysis of
the NGO and its beneficiaries is made by the IDPMS. [Paras 1.3.4 to 1.3.13]
127
8.4
The balance of unutilised project funds at the end of 1999 would be about Rs.
54 lakhs. The RSMEDP activities would continue for a few more months thereafter. There
would be a period of consolidation of activities. To ensure that the phase of consolidation is
not adversely affected due to lack of funds, it is recommended that the balance of funds at
the end of 1999 is made available to the IDPMS. [Paras 1.4.1 and 1.4.2]
8.5
The allocation to meet the costs of management, in other words of the PMU,
needs to be enhanced. A proposal has been submitted to the Government of the Netherlands
for an additional allocation of Rs. 117 lakhs or NLG 5,40,000. It is recommended that this
additional funding be sanctioned early. [Para 1.4.3]
8.6
The establishment of group enterprises is a strong element of the RSMEDP.
They not only have a greater beneficial effect on employment and incomes but also an
advantage in availing of the benefits of cooperative procurement and marketing or credit.
However, there has been a fall in the proportion of group enterprises in 1997. This could be
a random outcome but there could be other reasons such as the development of fissures
within the groups or the shift from direct involvement of the IDPMS. The issue of the
changing composition of the enterprises needs to be investigated more systematically with a
view to identifying the factors that influence and sustain such enterprises. It is recommended
that such a study be instituted by IDPMS. [Paras 2.4.2 to 2.4.4]
8.7
The narrowness of local markets for services or some types of goods
influences the stability and sustainability of the SMEs. Middlemen often control access to
market information and the markets and thereby erode the margins available to the SMEs.
Assessment of markets and ability to access these are usually beyond the capacity of the
SMEs. It would be necessary for IDPMS to devise innovative channels of marketing,
128
including reliance on exhibitions, show rooms and emporia. IDPMS could tap the
institutional market by appealing to image advertising i.e., customers could be persuaded to
buy the products and advertise them on their unique character that they use only rural artisan
products. Cooperative marketing channels could also be established to mitigate the influence
of middlemen. It is recommended that IDPMS consider these marketing possibilities further.
[Paras 2.5.11 to 2.5.14]
8.8
Large scale operations confer comparative advantages not only in production
but also in marketing, finance and ability to adapt to changing conditions. Group enterprises
in procurement, marketing and credit would seem to have such a clear comparative
advantage. The enhancement of scale of operations could be achieved by adoption of
cooperative arrangements for procurement, marketing and credit. The increasing adoption of
this course is recommended. [Paras 2.5.15 to 2.5.18]
8.9
The RSMEDP covers a wide range of beneficiaries. In some cases,
equipment and/or raw material has been provided by IDPMS though in most cases the
investment has been met partly through investment by the members of the SHGs and partly
through credit. Such differential approaches could be viewed as selective and inhibit the
replication of the activities of the RSMEDP on a wider scale. It is recommended that it
would be best to avoid different approaches for similar types of entrepreneurs in the same
area. [Paras 3.3.10 to 3.3.12]
8.10
The provision of equipment for demonstration and training would be quite
justified. However, providing such equipment to enterprises as part of investment or making
available finance for purchase of raw material could create a dependency syndrome and, in
the long run, weaken the SMEs. The adoption of such approaches could also reduce the
129
possibility of replication of the activities of the RSMEDP. The adoption of such approaches
is best avoided. [Paras 3.3.13 and 3.3.14]
8.11
The appraisals for credit available from official programmes such as
DWCRA are often not based on technical and financial criteria. There is, therefore, the risk
of excessive credit being availed of because it is available. This could result in excessive
credit burdens on relatively young SHGs due to lack of absorption capacity. It is
recommended that care would have to be exercised while linking SHGs sponsored by
IDPMS with such schemes. [Para 3.3.15]
8.12
It is to the credit of IDPMS that it has been able to train and orient NGOs
towards economic activity through the establishment of SMEs. In course of time, the role of
these NGOs would be transformed from one of “hand holding” to providing guidance in
management and financial consultancy. In this process, it is recommended that their role as
adviser and consultant should be encouraged. [Paras 3.3.16 (i) and (ii)]
8.13
The management of credit is crucial to the successful operations of the
SMEs. In this context, in order to enhance enterprise development the adoption of the
following salutary rules is recommended:
•
IDPMS should only link SHGs or SMEs to financial institutions, if the beneficiaries have
some kind of business orientation, such as an idea or a skill or financial resources, or a
combination of these.
•
Credits from formal financial institutions should be used for productive purposes only. If
the beneficiaries do not have an entrepreneurial spirit the credit can become a burden
because of misuse and / or wrong investment decisions.
130
•
In order to avoid misuse of external credits IDPMS should convince the banks that credit
made available when necessary and quickly is likely to be used for the proposed
investments. When disbursed in the wrong period, the chance of default increases.
[Para 3.3.16 (iii)J
8.14
The IDPMS in fact incurs some costs in organising the SHGs, orienting the
bankers and linking the former with the latter. These costs, which involve both time and
money, would be justified if the beneficiaries actually establish enterprises that would need
and utilise the credit facilities. To ensure that these costs are optimised in terms of results, it
is recommended that IDPMS should evaluate and assess the needs and prospective activities
of the beneficiaries before establishing the linkages of the latter with banks. [Para 3.3.17 (i)J
8.15
If a NGO were to withdraw from an area where it has been promoting SHGs,
the costs to the bank of managing SHG credit would increase with regard to loan recovery,
monitoring and identification of new groups. It is, therefore, essential that the profitability of
the SHG linkage be proved to the bankers so that the sustainability of the programme could
be guaranteed. It is recommended that IDPMS should assist the banks in conducting studies
on the viability of the SHG linkages. Issues, in this context, would include, for example,
minimum outstanding amount of credit needed in order to cover the costs of lending (break
even portfolio), the number of groups which could be dealt with by one bank field staff
member such as the credit officer. [Para 3.3.17 (ii)]
8.16
Another cost element for the banks is the identification of NGOs that can
become financial intermediaries. SIDBI and NABARD have funds for training of NGOs to
function as such intermediaries. It is recommended that IDPMS could assume such a role of
a rating agency and take up assignments in assessing the strengths of the NGO and training
the staff of such potential financial intermediaries. [Para 3.3.17 (ii)]
131
8.17
SHG lending can be made more cost effective if the SHGs are clustered in,
for example, federations or so called "NIDHIs". IDPMS could play an important role in this
clustering process. [Para 3.3.17 (ii)]
8.18
If banks are only willing to lend to SHGs through NGOs (as is the case with
SIDBI and in the RMK scheme), the NGOs should make an income-expenses analysis before
the decision to become a financial intermediary is made. Simulations suggest that without
grant money an NGO cannot run a SHG programme on a sustainable basis. Therefore, it is
recommended that IDPMS could assist its partner NGOs in making the calculations and
drawing conclusions on whether or not the NGO should become a specialised agency for
micro finance. [Para 3.3.17 (iii)]
8.19
External credit is mainly needed to finance working capital which enables
entrepreneurs to avail of economies of scale and seasonal availability of raw material. It is
important that credit is available when needed as, for example, when raw material is available
at optimum cost. The importance of the credit being needed at such critical points of time
should be stressed in the training and orientation of bank personnel. [Para 3.4.2 to 3.4.4]
8.20
The apathy of bankers towards SMEs is, apart from other reasons, because
they consider SMEs as high risk clients who might default and, as a consequence, decrease
their performance. It is necessary to demonstrate that providing of financial services and
assistance to SHGs can be profitable and that, through product development, new markets
can emerge It is recommended that the IDPMS could play a major role in this context.
[Paras 2.2.20, 2.2.24, 3.4.5]
132
8.21
The IDPMS has developed an expertise in micro credit systems and
procedures which few other similar organisations possess. This expertise could be made
available to interested institutions and NGOs by way of a consultancy. It is recommended
that the IDPMS could conduct a study of the need for this expertise and market its unique
skills in this regard. [Para 3.5.1]
8.22
The IDPMS could market, on behalf of the banks and for a fee, the financial
services that they offer. It could also conduct credit management training courses for SHGs
and assist them in formulation and submission of credit proposals. In this context, to achieve
economies of scale, as mentioned earlier, the IDPMS could organise SHGs into clusters or
co-operative associations. [Para 3.5.2]
8.23
In the implementation of the RSMEDP, the IDPMS and the NGOs are
partners, with the former playing the catalytic role. The IDPMS should not view itself as a
donor but as a purveyor of technology and entrepreneurship ability. It is, therefore.
recommended that the IDPMS should continue to play this role and act as an effective liaison
between the banks, the NGOs and the beneficiaries. [Paras 3.5.3 to 3.5.5]
8.24
It is recommended that the EDPMS continue to play, and enhance, its role in
sensitising bank management to SME financing and demonstrating that financing of SHGs
can be profitable. It could do so, among other things, by training bank managers in
determination and matching of credit and financial services to actual needs of SHGs and how
to develop and maintain contact with such groups. [Paras 3.5.6 and 3.5.7]
8.25
Training is one of the most important elements of the RSMEDP The IDPMS
has valuable experience in organising training and utilisation of available training facilities.
133
Experience indicates that training is often the critical input, probably more valuable than
interest subsidies. In this context, the IDPMS could, based on its experience, suggest to
Government ways and means of enhancing both availability and quality of training facilities
and better use of existing ones as a possible alternative to direct subsidising of interest.
[Para 3.5.8]
8.26
The IDPMS has, as mentioned earlier, developed unique skills and expertise
with regard to SMEs and SHGs. It is recommended that this expertise should be exploited by
the IDPMS by way of enhancing its role as a nodal agency for such activity. The way in
which this could be done could include the following [Paras 3.5.93.9.13] :
•
The IDPMS could establish itself as a rating agency for NGOs that specialise in financial
intermediation, based on an acceptable approach and methodology.
•
It could function as an institution that provides training and capacity building to NGOs
that are interested in developing their knowledge and skills in economic activities such as
setting up enterprises and financial services. It could also provide training in financial and
credit management to SHGs.
•
Its expertise could also be made available to institutions such as banks, other NGOs and
donor agencies.
•
It should further strengthen its association with NABARD and seek to enhance credit
facilities for SMEs and IGAs in rural areas.
•
It could undertake consultancy assigments relating to determining financial viability
issues.
8.27
If the enhanced role envisaged for the IDPMS has to be implemented, it
would have to strengthen its in-house financial expertise, particularly that relating to micro
finance. To acquire such expertise, it would be necessary to invest in staff training and
induction of external experts. For this purpose, it is recommended that the possibility should
134
be explored of obtaining assistance from the special budget line said to be available from the
Government of the Netherlands for induction of such external expertise. [Para 3.5.14]
8.28
The choice of the taluks and of the villages within these has been largely
conditioned by local factors, including the need to operate within areas in which the
programme would have assured success. This is understandable in the initial stages of the
RSMEDP. However, this has resulted in a wide dispersal of both the taluks and, within the
taluks, of the villages. Such a dispersal has imposed extra costs in terms of travel, control
and supervision. It is recommended that, to the extent possible, it would be advantageous to
select areas which are contiguous for more cost-effective management. [Paras 2.2.6, 2.2.7,
4.1.1 to4.1.5]
8.29
The objective of the RSMEDP is rightly the creation of economic
opportunities in the non-farm sector of the rural economy. However, the IDPMS does not
have any socio-economic target group as such among the rural population, whether these are
the poorest people or the poorest regions or women. In particular, while there has been no
deliberate targeting of women, they form a high proportion of the beneficiaries. Given its
focus on SME development, its choices appear to have been made primarily with that end in
view. Any apparent selectivity is more an indirect result of operational factors. However, it
would be necessary to consider how far an element of deliberate selectivity that favours the
poor and women could be introduced. It is suggested that, in future, the possibility of such a
conscious orientation be also considered. [Paras 2.2.1, 2.2.10, 2.2.12, 2.2.13, 2.2.17 and
4.2.2]
8.30
Training has been a strong element of the programme. However, the drop out
rate is high. This issue of drop out rates would have to be addressed. There could be a
135
variety of reasons for dropping out and it would be usefill if these reasons could be identified
with a view towards mitigating high drop out rates. It is recommended that a study be
conducted on this issue. [Paras 2.2.18, 2.2.19, 4.4.1 to 4.4.3]
8.31
Women’s groups are also formed under government schemes such as
DWCRA, REDP and UBSP similar to those organised by the RSMEDP. The dissimilarities
between the official programmes and the RSMEDP are recognised, particularly with regard
to perceptions of the character of the financial help made available. However, the increasing
induction of such women into the SHGs formed under the RSMEDP would help in
developing and enhancing the culture of collective commitment to honouring individual
obligations and of savings in the community. The possibility of such induction would merit
consideration. [Para 4.10.2]
8.32
The SHGs could be very effective lines of communication for enhancing
awareness of social and health aspects or for enhancing levels of literacy. How far such
components, including imparting of functional literacy, could be built into the training
programmes of the RSMEDP without diluting the latter would need consideration.
Alternatively, and so as not to reduce the focus of the RSMEDP, the official agencies in
charge of such programmes, including literacy development, could interact with the SHGs
separately. It is recommended that the IDPMS could, in relation to this interaction, function
as a facilitator. Such a role would also enhance the profile of the DDPMS in the local area.
[Paras 4.10.3 and 4.10.4]
8.33
The RSMEDP is implemented through NGOs. The choice of the NGOs is
based on various criteria. Since the NGOs associated with the programme have had
experience in income generating activity through establishment of micro enterprises, the
136
IDPMS has had to inculcate these skills and the appropriate attitude in the NGOs. In this
sense, the IDPMS has been involved in institution building. For a successful partnership to be
evolve, it is necessary that the thinking and approaches of the IDPMS are institutionalised
within the associated NGOs. To establish such a partnership, it is suggested that the IDPMS
work with a small number of NGOs operating over a wider area. This would permit the
development of strong institutional links and a common approach. [Paras 2.2.3, 5.1.1, 5.1.2]
8.34
The IDPMS has developed fairly strong links with financial institutions such
as NABARD and the Grameen Banks. It is recommended that these links be further
strengthened through the induction of the representatives of some of these institutions in the
Technical Advisory Committee suggested to be constituted within the IDPMS. [Para
5.2. land 6.4]
8.35
The information available in the documentation produced by NABARD
would be of great help in formulating field plans. Also, NABARD has many innovative
schemes for development of expertise that could be taken advantage of for developing
expertise within the IDPMS. The IDPMS could explore how it could avail of the benefit of
these schemes and of the information available within NABARD. [Para 5.2.2]
8.36
The rural banks have benefited from the expertise of the IDPMS in enhancing
their business through location of new clients and becoming sensitised to rural credit needs.
It could be argued that IDPMS would be entitled to charge for this service. However, this is
an issue that needs careful consideration. It is rather premature to assert that IDPMS has
established itself either in terms of size or capacity to be able to charge for such service. It is
suggested that this aspect be kept in mind for possible adoption at the appropriate time.
[Para 5.2.3]
137
8.37
The IDPMS has developed effective links with official agencies and has taken
advantage of officially established training facilities. It is recommended that these links must
be maintained and enhanced to the advantage of the IDPMS. The agencies with which these
links exist and should be maintained include [Paras 5.3.1 to - 5.3.9] :
•
the Department of Industries through the District Industries Centres and the wide
network of training institutions;
•
the agencies in charge of programmes such as IRDP, TRYSEM, DWCRA, to explore the
possibility of inducting the trainees of these programmes into the RSMEDP;
•
agencies such as the Coir Board, the Sheep Development Board which have experience
in skill formation and marketing;
•
agencies such as the Regional Technology Development Centre, the Karnataka Council
for Science and Technology, the Society for Application of Science and Technology in
Rural Areas, for information on and adoption and upgrading of appropriate technology;
•
private training institutions and local industries for training of apprentices;
•
co-operative training institutions for credit and marketing skills.
8.38
The structure of the PMU of the IDPMS is crucial to the efficient
implementation of the RSMEDP or similar programmes. Systems would have to be set up
which would provide the PMU the expertise it may require at various points of time without
adding to costs in terms of permanent staff positions. To be able to access such expertise and
technical advice, it is suggested that a Technical Advisory Committee be constituted
consisting of experts who would be invited to join. [Paras 6.2 to 6.5]
8.39
The IDPMS has considerable success in transfer or induction of technology in
the rural areas. It would be useful to develop a system for identification of such technologies
and for their upgrading. Such a system would also be of great assistance to other NGOs. It is
recommended that the IDPMS consider the development of an information bank on such
138
appropriate technologies which could be available “on tap” to NGOs and other interested
organisations. [Para 6.6]
8.40
The strengthening of the expertise on marketing in the PMU of the IDPMS
would appear urgently necessary. It is recommended that a marketing consultant could be
inducted in a middle level position for which experienced persons would be available from
recent retirees from NAB ARD, RRBs or marketing organisations. [Para 6.7]
8.41
Induction of experts from NABARD on the Technical Advisory Committee
or by recruitment of its staff as suggested above, would help in strengthening the links of the
IDPMS with NABARD. This would enable using the very informative data bank and the
Credit Plans of the NABARD for formulation and implementation of plans under the
RSMEDP. [Para 6.8]
8.42
Collaboration with institutions such as the Design Centres of Government,
National Institute of Design, the Khadi and Village Industries Commission, Institute of Rural
Management and the Enterprise Development Institute would be very useful. Such
collaboration would help in improving the design of products, strengthening market
strategies and enhancing both content and quality of services. The IDPMS could consider
establishing a wing for this purpose as part of its structure for which seed maoney may be
available from NABARD. It is recommended that the IDPMS commence a dialogue with
such institutions for advice and assistance on these elements relevant to its activities.
[Paras 6.9 and 6.10]
8.43
The reporting systems established for monitoring the activities of RSMEDP
are adequate. However, they necessarily concentrate on physical and financial aspects and do
139
not provide qualitative information. In particular, it is difficult to assess the economic and
possible social benefits of the programme. It is recommended that case studies could be
conducted periodically, say every six months, in selected areas to obtain such information.
Also, periodic in-house training on reporting requirements would need to be established.
[Paras 2.2.4, 2.4.1, 2.4.8 to 2.4.11, 6.11 to 6.14]
8.44
Constant sharpening of the skills of the professionals in the IDPMS would be
desirable. In-house training programmes could be introduced with the assistance of the
members of the Technical Advisory Committee suggested earlier. [Para 6.15]
8.45
It would seem that the IDPMS model could be replicated subject to careful
planning and provided there is an assurance of adequate funds and expertise. The latter the
IDPMS could provide. If the IDPMS model is sought to be replicated, it is recommended
that either the IDPMS itself could expand its area of operations or a new institution on
similar lines could be set up. The former has the disadvantage of possible dilution of control
but the advantage of vast in-house experience. [Paras 2.2.9,2.2.25,2.6.1 to 2.6.18, 6.16 to
6.19]
8.46
The IDPMS is a niche organisation with a character and area of interest and
expertise that NGOs do not conventionally have. This would be the opportune moment for it
to identify and tap new opportunities and forge new directions, which would give it greater
visibility. In this context, the following recommendations are made [Paras 7.1 to 7.8]
•
The IDPMS should not expand its activities by entering new areas such a health, literacy,
women’s empowerment and the like. This would only dilute its unique character;
•
The documentation of the experiences of the IDPMS, including that of building up NGOs
and orienting them to this special programme, would be a useful contribution;
140
• A data bank could also be built up on the basis of this experience that would help NGOs
in learning of and sourcing assistance in training, credit, marketing and associated
aspects.
•
The experience and advantage that the IDPMS has in locating and using training facilities
and rural credit systems could be made available to NGOs, SHGs and associations of
SMEs through training and orientation programmes. This would enhance its visibility;
• The IDPMS could organise workshops and seminars for the managements of rural banks,
official agencies concerned and NGOs to sensitise and orient them with regard to the
elements of the RMSEDP and similar programmes;
8.47
There is often little input in policy making from NGOs. The IDPMS could
seek to fill this gap through the preparation of policy papers that reflect its experiences. Such
papers could be on specific aspects related to its expertise. It is recommended that the
IDPMS attempt to develop such an advocacy role. [Para 7.9]
141
Annex I
REVIEW AND SUPPORT MISSION FOR
RURAL SMALL & MICROENTERPRISES DEVELOPMENT
PROGRAMME (RSMEDP)
TERMS OF REFERENCE
1. The Review and Support Mission (RSM) will broadly cover the following topics in
respect of Rural Small & Microenterprises Development Programme (RSMEDP) now
being implemented by the Indo-Dutch Project Management Society (IDPMS).
Background Note CB’ (placed below) gives the salient features of RSMEDP and
Background Note ‘A’ (placed below) gives some details of the evolution of IDPMS and
the steps leading to the formulation of RSMEDP.
2. The RSM will commence this assignment on 29th July 1998 with a briefing session at the
Royal Netherlands Embassy (RNE), New Delhi and will end this assignment on 14th
August 1998 with a debriefing session at RNE. During that period, the RSM will visit the
RSMEDP areas in the State of Karnataka, hold discussions, assess and report on the
points noted in Clause 3 below.
The main objectives of this Mission will be
•
•
•
•
To assist RSMEDP in further improving the quality of its activities.
To make recommendations for the future of IDPMS.
To suggest improvements in financial reporting of the programme.
To indicate whether a more formal support structure to IDPMS is required and if so,
the broad framework of such support.
3. The main points to be covered by the Mission are as follows
L
Overview:
The Mission should;
•
•
•
•
•
Review the model and the approach followed by RSMEDP.
Indicate whether the model offers scope for replication in the other districts of the
State and in other States with regard to timeframe, feasibility, investment, quality and
quantity of services to be provided with separate focus on gender.
Review the achievements of the programme vis-a-vis the long term / short term
objectives.
Discuss the possibilities of integrating the basic needs with proper enterprise
development.
Suggest where possible, benchmarks for actions / results based on Indian conditions.
142
IL Economic:
The Mission should ;
•
•
•
•
•
•
•
•
Discuss whether microenterprises generate employment and economic growth.
Discuss the challenges and possibilities for microenterprises in the new economic
order.
Comment on the mortality rate of microenterprises (taking into account the opinion
emerging through international debate in this regard).
Discuss the possibilities of pricing the support services provided and if so, how it
should be made cost effective vis-a-vis the approaches - market determined or social
and equity empowerment route.
Express its views on the sustainability of microenterprises and criteria for
sustainability, subsistence Vs, surplus, stable and secure employment vs. unstable
enterprise.
Discuss how microenterprises can become a sector that focuses people’s actions
instead of people being pushed around due to lack of alternatives.
Discuss whether microenterprises can be serious players within the market.
Assess the change in income and employment opportunities of the target groups.
III Credit:
The Mission should;
•
•
•
•
•
•
•
•
Assess the role of banks, self-help groups in extending timely and affordable credit.
Identify the bottlenecks faced by new entrepreneurs.
Assess how effectively the different constituencies - poor and the not-so-poor-have
been targeted for credit disbursement.
Assess the opportunities for healthy competition in the context of deregulation.
Indicate the role of credit-enterprise-market chain in poverty alleviation.
Review the institutional mechanism for microfinance with separate focus on gender.
Discuss whether it is necessary to provide long-term loans for acquisition of assets
and working capital besides funding for subsistence and scaling up of funds is
essential for sustainability.
Address the need and possibilities for intervention relating to micro-credit, with
special attention to the role of rural banks and other microfinance institutions.
In dealing with the above, the Mission may keep in view the recommendations of the
Narasimham Committee on Credit.
143
IV Women :
The Mission should;
•
•
•
Review and assess the various types of barriers women face in becoming
microenterpreneurs.
Address the interventions required for further strengthening the role of women
entrepreneurs.
Assess the impact in respect of decision-making, choice of expenditure, access and
control over income and credit, opportunities for leadership and in general, about
empowerment of women at different levels.
V Institution :
The Mission should;
•
•
•
•
•
•
•
•
Suggest support systems / improvements to the existing support systems for
transformation of trained individuals to entrepreneurs and for the enterprises already
created.
Suggest interventions needed to make the programme and the enterprises self-reliant
and the relationship that should exist between IDPMS and the target group at the end
of interventions / a given time frame.
Indicate how the future activities may be supported by networking with NGO’s,
CBO’s Government Organisations / programmes and other partners.
Discuss the future trajectory for IDPMS as an institution.
Suggest the possibilities for growth and strengthening of PMU taking into account
the organisational, personnel and functional specialisation aspects, indicating the
training needs and giving managerial advice.
Suggest suitable structures / systems to recognise regional variations and to
formulate local solutions.
Discuss the role of IDPMS not as a donor but as a technical support team.
Suggests approaches / methods to navigate in the aid market.
144
Annex 11
FIELD VISITS OF REVIEW AND SUPPORT MISSION
MYSORE (Mysore and Chamarajanagar districts )
NGO / OFFICES
ENTERPRISE
Mallinthapura,
Hunsur Taluk
Indo-Dutch Project
Management Society
(IDPMS)
Wool Spinning
Target Group Members
- Four (4) Groups
Chamundeshwari SHG
Doddaswamy SHG
Beeradevara SHG
Hosurumaramma SHG
Self-Help
Groups
(SHGs)
Chinnadagudihundi,
Development of Women
and Children in Rural
Areas (DWCRA)
Wood-In-Lay /
Rexine / Jute
Dasanur, Nanjangudu
Taluk
Indo-Dutch Project
Management Society
Training Centre
Sisal Fibre
Kudermole,
Chamarajanagar Taluk
Indo-Dutch Project
Management Society
Training Centre
Sisal Fibre
Theramballi, Kollegal
Taluk
People’s Movement for
Self Reliance (PMSR)
Silk Reeling
Sathagala, Kollegal
Taluk
People’s Movement for
Self Reliance (PMSR)
Micro enterprise
Mobile Hotel
Diesel and
Petrol Sale
Tender Coconut
Sales
DATE
PLACE VISITED
4/8/1998
Nanjangudu Taluk
5/8/1998
Meeting of NGOs
6/8/1998
Office of C.E.O., Zilla Panchayat
Office of Joint Director, Industries
Office of the Chairman, Cauvery Grameena Bank,
IDPMS Programme Staff
145
DHARWAD (Dharwad, Gadag and Haveri districts)
DATE
8/8/1998
PLACE VISITED
Ranibennur
NGO / OFFICES
SPOORTHY
Kanavalli
Dharwad
Haveri
9/8/1998
India Development
Service (IDS)________
Community Polytechnic
College (CPC)
Negalur
India Development
Service (IDS)
Negalur
India Development
Service (IDS)_______
Akkamahadevi SHG
Chaitanya Institute For
Youth And Rural
Development
(CHINYARD)
Christu Jyothi SHG
Akkamahadevi SHG
Manjunath SHG
Jagadamba SHG
Shri Laxmi SHG
Akkamahadevi SHG
Tadas
Tadas
Tumarikopa
Asthkatti
Asthkatti
Asthkatti
Kabanur
ENTERPRISE
Screen Printing
Cable Operator
Beauty Parlour
DTP & Screen
Printing______
Electrical
Repair
Micro
Enterprises
Development
Programmes
Wool Spinning
and Wool
Weaving_____
Foot Wear
Chilli Powder
Karnatak
Kasuti
Dairy
Dairy
Lambani
Kasuti
Karnatak
Kasuti
Garments
Meeting of NGOs
10/8/1998
Leather Group
Durga Devi Sangha
Hom Products
The Horn Products
Group
Laxmeshwar
The Musical Instruments Musical
Instruments
Group
The Footwear Group
Laxmeshwar
__________________________________________ Footwear
Meeting with Bank Officials, Joint Director of Industries,
Management Consultants.
Laxmeshwar
Laxmeshwar
146
Annex III
PERSONS WITH WHOM DISCUSSIONS WERE HELD
MYSORE (Mysore and Chamarajanagar districts )
Mr. J aya Prakash
DESIGNATION _________ ORGANISATION_________
Project Director Rural Education And Action Development
Society (READS)
Field Staff
Mr. Neeliah
Director
Mr. Nagasunder
Co-ordinator
Mr. Mantaya
Field Staff
Sister Alice Joseph
Coordinator
NAME
Mr. Ravindra
Dr. Zeb Watruocha Consultant
ENTREPRENEURS_________
_____________NAME________
Mallinathapura Hunsur Taluk
Jayamma
Karagamma
Halagamma
Nagamma
Meenakshamma
Kempamma
Parvathamma
Mahadevamma
Ratnamma
Sannamma
Javaramma
Sharadamma
Nagamma
Doddathayamma
Mahadevamma
Prema
Maramma
Sakamma
Puttamma
Nagamma
Gowramma
Sannthayamma
Sushilamma
Sunanda
Rathnamma
Sanne Gowda
Maramma
Peoples Movement For Self Reliance
(PMSR) - Kollegal
Society for Rural Development
(SUMANA)
ORGANISATION
Wool Spinning (four Self Help Groups)
Hosur Maramma SHG
Doddaswami SHG
Beeradevaru SHG
Chamundeshwari SHG
147
ORGANISATION
NAME
Nanjangudu
Kempamani
Shwetha
Rajamma
Parvathamma
Savitha
Shobha
Jayamma
Channajamma
Sumitra
Manjula
Mangala
Wood in-lay
Rexine Jute
DWCRA Group
Revamma
Siddamma
Madamma
Mahadevamma
Shivamma
Savitramma
Kud rem ole
Chikkthayamma
Kamalamma
Lakshmamma
Dundamma
Chandramma
Sanmadamma
Sisal Fibre
Dasanur
Prema leela
Roopa
Geetha
Gowramma
Vasanthakumari
Bhagya
Shobha
Nagamma____
Therammbally
Puttamma
Nagamma
Chennajamma
Neelamma
Sujatha
Chowdamma
Prabhakar
Sisal Fibre
Silk Reeling
148
NAME
Sathegala
Udayakumar
Nanjunda
Shanbaraj
Noorjahan
Rusvendra
__________ORGANISATION
Micro-Enerprise
GOVERNMENT
NAME
Mr. Kaniram
Mr. Jayaram
DESIGNATION
Chief Executive Officer
Secretary
Mr. Raju S.
Child Development
Project Officer
Ms. Subamma
Grama Sevika
D.S. Vishwanath
Joint Director
________ ORGANISATION
Zilla Parishat - Mysore
Department of Women and Child
Welfare --Nanjangudu
District Industries Centre (D.I.C) —
Mysore
BANKS
NAME
Mr. Seetharam
Mr. Jayaramu
DESIGNATION
Chairman
General Manager
SHG In-Charge
Mr. S. Rajan
Additional General
Manager
ORGANISATION
Cauvery Grameena Bank (C.G.B) —
Mysore
National Bank For Agriculture and
Rural Development (NABARD) -Mysore
149
DHARWAD (Dharwad, Gadag and Haveri districts)
NAME
DESIGNATION
ORGANISATION
SPOORTHY
Mr. Srinivas A.
Project Officer
Mr. Jagadeesh
Enterprise Motivator
Mr. Ningraj Irani
Entrepreneur
Screen Printing
Mr. Veeresh Hiremath
Entrepreneur
Cable Operator
Ms. Renuka Kumar
Entrepreneur
Beauty Parlour
Ms. Leela Reddy
Entrepreneur
DTP & Screen Printing
Mr. Sanjay Baligar
Entrepreneur
Electrical Repairs
Mrs. Shymala Hiremath
Project Coordinator
Ms. VeenaNadgier
Supervisor
Mr. Kankeri H P
Enterprise Motivator
Mr. Nagappa J.
Enterprise Motivator
Mr. Haveri
Enterprise Motivator
Mr. Hiremath B H.
Trainer
Building Materials
Trainees
India Development Service (IDS)
Trainees
Mr. Kogurmath
Enterprise Motivator
Ms. Bharmawa Uppar
Entrepreneur
Wool Spinning
Ms. SundammaB.
Entrepreneur
Wool Spinning
Mr. Dharmanna Uppar
Entrepreneur
Wool Weaving
Mr. Parmesh S.S.
Entrepreneur
Foot Wear
Mr. Kubsad S.S.
Principal
Mr. Hiremath
Faculty
Community Polytechnic College
(CPC)
Mr. Naragund
Mr. Bharadwad C.Y.
Managing Trustee
Mr. Patil F.B
Enterprise Motivator
Mr. Narayana H.
Enterprise Motivator
Mr. Mangalappa L.
Enterprise Motivator
Mr. Yadanvar
Designer
Mr. Adnoor
Enterprise Motivator
Mr. Megeri S.C.
Enterprise Motivator
Mr. Lingareddy
Enterprise Motivator
Ms. Geetha K.
Enterprise Motivator
Ms. Renuka G.
Enterprise Motivator
150
Chaitanya Institute For Youth and
Rural Development (CHINYARD)
NAME
ORGANISATION
DESIGNATION
Dr. Anil Abbi
Executive Director
Tropical Research Development
Centre (TRDC)
Mr. SubhasM.S.
Director
Karnataka Institute of Management
Studies (KIMS)
Mr. Neelagund K.S.
Secretary
Mr. Vivek Biligikar
Enterprise Motivator
Shri Lingabasaveshwara
Gramodyoga Seva Sangh (SLIGS)
Mr. Yellappa I.
Enterprise Motivator
Mr. Vasudeva Tollabandi
Project Officer
Mr. Rajashekar
Executive Director
Mr. Ashok Y.
Secretary
Ms. Pankaja K.
Director
Mr. Patil
Enterprise Motivator
Mr. Anand S.
Designer
Mr. Parashuram S.
Secretary
Mr. Vilas
Trainer
Mr. Basvanappa H.
Corporator
Laxmeshwar
Mr. Sunil Iraddi
Contractor
Laxmeshwar
Mr. Gopi Krishna
NGO-Consultant
Shirhatti
Ujwala Rural Development Service
(URDSS)
Grass Root Education and
Environment Network (GREEN)
Karnataka Integrated Development
Service (KIDS)
Charmodyog Kaigarika Sahakari
Sangh Niyamit
(CKSSN)
GOVERNMENT
NAME
Mr. Anil Uppin
DESIGNATION
ORGANISATION
District Industries Centre (D.I.C)
Joint Director
BANKS
NAME
DESIGNATION
Mr. Swamy R. V.
Deputy Divisional
Manager
ORGANISATION
National Bank for Agricultural and
Rural Development (NABARD)
MR. Agasthi Math
Senior Manager
Malaprabha Grameena Bank
(M.G.B.) -- Dharwad
Mr. Janardhan Rai
LDM
Vijaya Bank — Hubli
151
^3
GOVERNING COUNCIL AND STEERING COMMITTEE, INDO-DUTCH PROJECT
MANAGEMENT SOCIETY BANGALORE
DESIGNATION
NAME
Mr. Subba Rao
Chairman
Dr. (Mrs.) Shobha Raghuram
Chairperson, Executive Committee and
Member, Governing Council
Prof. Vinod Vyasulu
Member, Governing Council
Dr. K.S. Krishna Swamy
Member, Steering Committee
Prof K S. Jagadeesh
Member Steering Committee
HUMANISTIC INSTITUTE FOR CO-OPERATION WITH DEVELOPING COUNTRIES
(HIVOS) - BANGALORE
DESIGNATION
NAME
Mr. Ben Witjes
Director
Dr. (Mrs.) Shobha Raghuram
Deputy Director
EDPMS STAFF AND CONSULTANTS
NAME
DESIGNATION
Mr. Sadananda S.
Director
Mr. Mukundappa B.
Programme Manager (C&I)
Mr. Vadiraj K.V.
Advisor
Mr. Prakash Hegde
Marketing Officer
Mr. Ramesh M.S.
Accounts Officer
Mr. H R. Adithya
Marketing Consultant
Dr. Ananth Panth S.
Consultant
Mr. Thippeshappa C.
Programme Officer
Mr. Varchasvi Rampure
Sales Promoter
Mr. Manjunath G.
Consultant (Technical)
Mrs. Leena Joseph
Trainer
Mr. Sreepathy
Field Staff
Mr. Mahesh Doddamane L.
Programme Officer - Hubli
Mr. Kiran U.
Programme Officer - Haveri
ORGANISATION
Indo-Dutch Project
Management Society
(IDPMS) Bangalore
Indo-Dutch Project
Management Society
(EDPMS) -- Mysore
Indo-Dutch Project
Management Society
(IDPMS) - Haveri
152
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