2006

As more more and more people from the villages abandon agriculture, micro finance has to look beyond traditional areas of operation. Micro finance has to look at enterprise development and means of alternative income generation in rural areas.

Access to financial capital is certainly a prerequisite to enterprise development and income-generation. But it is not enough. A host of other inputs such as training and skill-building are vital to enable the rural populace to tap into opportunities.

And, of course, there must be accessible markets for the goods and services on offer. While training in basic skills (bookkeeping, accounting, business planning, etc) and also specialised skills relevant to a particular business/activity are important, sustainability can be achieved only when markets are integrated into the overall scheme of things.

The 'National Conference on Empowering Livelihoods', organised by the PACS Programme in New Delhi on October 24-26, 2005, discussed innovative financial schemes for non-farm activities, such as a micro venture capital fund and a micro fund for facilitating migration.

Savings and credit mechanisms cannot by themselves trigger or sustain economic activity. A few examples of effective linkages are worth mentioning:

• The Development of Women and Children in Rural Areas (DWCRA) programme in Andhra Pradesh extended market support to SHGs by setting up DWCRA bazaars in every district of the state. Several retail chains like Foodworld have tied up with SHGs to market DWCRA products.
• The Kerala Horticulture Development Programme has helped SHGs produce, process and market their produce. The marketing infrastructure includes field centres for the bulk of the produce from 10-15 SHGs.
• NEED (Network of Entrepreneurship and Economic Development), a Lucknow-based NGO, has worked on handicrafts produced by SHGs.

While the enthusiasm for micro-credit has been steadily increasing, there is a school of thought that warns against assuming that all poor people wish to be self-employed. Although a certain percentage of the poor do take up micro-scale farming, processing, manufacturing or trading activities, they do so in order to supplement their wage income. A majority of the poor still seek steady wage employment, on and off farms.

This gives rise to the argument for re-engineering micro-credit programmes to target not the poorest, whom it can harm, but the poor, and also some non-poor micro or meso-entrepreneurs who can generate much needed wage employment for the poorest in rural areas. The suggestion is that there is no harm supporting the poorest with wage employment first, before they are capable of being self-employed.

A study by David Hulme and Paul Moseley showed that the increase in income of micro-credit borrowers is directly proportional to their starting level of income - the poorer they were to start with, the less the impact of the loan.

Micro-finance innovations in the non-farm arena

Micro venture capital

While micro-credit is generating a community of small rural entrepreneurs, who, in turn, create wage employment for those who seek income security, there has been a latent need for investment inputs that go slightly beyond micro-credit and conventional norms of financing.

It was felt that micro-credit is too small and too restrictive to be used for true business creation. Can venture capital, the financing mechanism that has fuelled high-tech industry in India and across the globe, fit into a rural scenario, especially in India?

Conventional venture capital focuses on businesses requiring more than US$ 1 million, and targets urban regions or services exports. For businesses smaller in scale and addressing rural and semi-urban India, venture capital is an alien concept. It has therefore been starved of risk capital.

A pioneering Indian concept has filled the gap in the form of perhaps the country’s first micro venture capital fund - the Aavishkaar India Micro Venture Capital Fund - which has been supporting good, bankable ideas from across rural India. The fund provides micro equity capital of between Rs 10 lakh and Rs 50 lakh, but is open to examining projects that require smaller amounts of cash infusion.

The fund operates like any other venture fund, undertaking all the classical functions of management and technology infusion, hand-holding the entrepreneur in every possible aspect of the business, market development, networking, etc. Only, in a rural scenario, the scope for exit plans for the investor is limited. An IPO is out. Still, other options such as mergers, acquisitions, management buyouts, etc, do exist.

Aavishkaar has invested in several projects including:

• A Chennai-based rural technology company that manufactures efficient kerosene burners and rain guns (a micro irrigation device that saves on water consumption and increases yields).
• An electronics firm that manufactures computerised milk collection systems, milk analysis instruments and financial management products.
• A Bangalore-based company that uses local water flow systems in rural areas to generate power with its micro hydel devices.
• A Pune-based company that has professionalised the design, production and marketing of handicrafts.

Aavishkaar provides funds to seed stage companies and is also not averse to funding functioning enterprises provided they satisfy certain conditions, among them the condition that the endeavour increases income or provides valuable goods and services to rural and semi-urban India. The fund has, in a couple of years, raised over Rs 5 crore, of which Rs 3.5 crore remains to be invested.

Micro-finance for migration

Migration of labour from rural to urban areas, especially from resource-poor and disaster/drought-prone regions, is inevitable. Evidently, not all solutions to rural poverty lie in villages. This is precisely what Rajiv Khandelwal of Udaipur believes. And so he built his unique micro-finance initiative, Ajeevika Bureau, around a vital issue - addressing the problems relating to migration and migrants.

Over 64% of rural households in Rajasthan report migration, which contributes to 46% of household incomes (UNDP). The National Commission on Rural Labour estimates that there are over 10 million seasonal and circular migrants in the country (1992-93), with a growing incidence of women also moving out in search of work.

Khandelwal’s effort, in view of the enormity of the problem, has been to make migration easy and less painful for those who have to inevitably move out of their homes and villages to secure a livelihood.

The Ajeevika Bureau looks into the needs of migrants and equips them with basic urban and job skills. This helps them secure and retain dignified jobs. It’s an end-to-end approach, from the ‘point of origin’ to the ‘point of destination’. The bureau helps villagers select their destination, and, in association with partners in cities and towns, finds placements to get them started in the labour market.

A Migration Support Fund is also in place to extend loans for various purposes. The most crucial is the ‘breakaway loan,’ that weans migrants away from the clutches of contractors and loan sharks. It breaks the cycle of bondage that many migrants face, and enables them to make a fresh start in life. Loans advanced by the fund include:

• Food loan: Ensuring food and nutrition to families left behind as migrants move to new places in search of jobs.
• Transportation loan: For travel expenses from the village to the destination point.
• Tools loan: Availed of by newly trained plumbers, electricians and carpenters.
• Uniform loan: For those trained by the bureau in catering and hotel services.
• Enterprise loan: For those confident enough to set up seasonal businesses outside villages, for example ice cream and sugarcane juice vending.

The bureau also connects migrants with health and accident insurance and is in the process of setting up an efficient remittance mechanism for easy and quick transfer of money from cities to village destinations.

While Khandelwal has been facilitating migration, he also recognises the need to delay migration. To this end he has begun work in schools, especially in high migration areas, to ensure that children do not drop out of school and enter the labour market at an early age. He trains schoolchildren in skills they can bank on when they are ready for work.