com | India’s New Retailers
Rural economy / Microfinance / Cover Stories
Magazine | Jul 11, 2009
Rukmini Adsule (left ) and Anita Mane, from the microfinance fold, sell Godrej & Boyce’s nano refrigerators and Hindustan Unilever’s water purifiers, among other products, in Osmanabad, Maharashtra. Adsule earns Rs 3,000 a month as commission.
India’s New Retailers
Microfinance institutions are going beyond financial products to sell phones, fridges and more. Everyone gains: rural consumers, rural sellers, companies and MFIs.
Naren Karunakaran , Anurag Prasad , Rajiv Bhuva
n a dry and dusty fair in Osmanabad, a small town tucked away in the Marathwada region of Maharashtra, a thousand women
have just spoken. Their verdict is loud and clear. CANDY RED. Consumer durables firm Godrej & Boyce is parading several colours of its new breakthrough product, ChotuKool, a nano refrigerator. A few fluorescent colours come first. The women vote this out with a cacophonous show of hands. They know what they want. Candy Red. They did more than choose the colour of the fridge. They helped Godrej conceive and design the product. Then, from September 2008, when the first prototype of ChotuKool was unveiled to them, they began working with executives from Godrej & Boyce to
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a specialist company promoted by Swayam Shikshan Prayog. Godrej has junked the traditional model of a proprietary channel with a sales force and a distributor-dealer chain. She markets ChotuKool to her villagers. explains its features and benefits using a flip-chart..200. I have already sold six ChotuKools. New Channel Shantipriya Gavali of Vashi village in Marathwada. “With two growing kids. And the manner in which it will be distributed. is itself an innovation. Sakhi Retail. It runs on a battery. earns another Rs 100.200.aspx?240795 (2 of 10) [7/19/2010 11:19:05 AM]
. Instead. It weighs only 7. She earns Rs 150 as commission for every ChotuKool sold. literally and figuratively
With financing. the young woman you saw on the cover. It is to the refrigerator segment what the Tata Nano is to the car market. The ChotuKool is like no other fridge. And. it is Candy Red in colour.com/printarticle.8 kg and costs only Rs 3. of course. In three months.
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. Shantipriya is Godrej’s new retailer.outlookindia. is carrying the innovation on her head..only it’s a lot more innovative. through several rounds of alterations based on their feedback. Credit is just incidental. villagers are willing to pay almost 50% more for useful applications on a handset. It does not have a compressor. an NGO microfinance institution (MFI).outlookindia. it has joined hands with MFIs to create a new distribution ecosystem. sold and serviced is even more innovative.” she says with pride.
We are in the process of creating a market. and knocks on several doors every day to hard-sell it.
. one of 101 such retailers it now has in 77 villages.700 to Rs 3. is another innovation. She is part of a self-help group created and run by Swayam Shikshan Prayog. ChotuKool.
Women like Shantipriya convinced Godrej to cut the price of ChotuKool from Rs 3. there is pressure on the household to increase income. The way it was co-created with village women. the product.business. Utensils and bottles need to be loaded into this 43-litre cool box from the top.
Over a hundred ChotuKools are being tried and tested in Osmanabad district.
but manufacturers do not want to upset the existing distribution chain.outlookindia. seek income-generating loans and make repayments. is one of 35 supervisors in SSP.000 of the 200. “Companies value the fact that we are a powerful social network. SKS Microfinance. Jyoti. Wealth In The Channel
http://business. the cash and carry (wholesale) chain.
. Corporate Development. It accounts for 60.” says G Sunderraman. They reach these consumers through self-help groups—a small collective of 12 or so women members who meet regularly to pool savings. an Andhra Pradesh-based MFI.com/printarticle.000 women to the Osmanabad fair.com | India’s New Retailers
Jyoti Sawant. Incidentally. an NGO-microfinance institution. And that is precisely why several consumer product companies are exploring this emerging retail channel that is promising to take them into the heart of India’s vast rural hinterland. Spandana Sphoorty Financial.aspx?240795 (3 of 10) [7/19/2010 11:19:05 AM]
We are evaluating whether microfinance institutions can become our logistics partners too. The MFI also sells Hindustan Unilever water purifiers and BP Energy India cooking stoves. Companies like Godrej are now using MFIs and self-help groups as new retailers to pry open the bottom-of-the-pyramid market. the largest of its ilk in India. is now selling mobile phones for Nokia and a large basket of merchandise for Metro.outlookindia. these stoves were co-created by BP Energy and villagers. from Ruibar village in Maharashtra. MFIs now have access to 50 million clients. Vice-President. a cluster supervisor of Swayam Shikshan Prayog. “The bottom of the pyramid is not a huge monolithic market.” says Prema Gopalan of the Swayam Shikshan Prayog.
The sprawling reach and power of self-help groups are now being leveraged by companies to penetrate this market.” That is why he called the 1.000 Oorja stoves sold across the country by BP Energy The next big step is alliances with urban MFIs to cover the urban poor. Godrej & Boyce.
. mentors micro-entrepreneurs who sell products . wants to sell tractors. “We have to understand the nuances and the needs of customer segments within.business.
8 million last year).000. consumer product companies are creating more than just an exciting new distribution channel
. which costs Rs 400 in the mandi. while generating profits up and down the value chain—from poor families to multinational corporations. India’s biggest MFIs. is sold to him for Rs 337. It is quite easy to identify them
If this pilot extends into rural Andhra Pradesh. “I used to spend almost half of my day visiting various mandis in Begum Bazaar. They take orders from the kiranas and transmit it via the GPRS device to Metro. Shantipriya’s neighbour in Vashi village. are stakeholders
The microfinance institution’s loan officer now enjoys the status that a village postman once had. They are also creating a wealth-generating web of micro-entrepreneurs that could pull thousands of rural households out of poverty. By turning retailers.000 for the equity stake and takes on the role of an entrepreneur in her village.” says Krishnamurthy.
. Pooja Tekale. CEO of the Washington DC-based Grameen Foundation. typically. is customer number 121. in a widely hailed paper in the Stanford Social Innovation Review. “There is a need for re-imagining microfinance. I am targeting 10 million customers (from 1. A sakhi. That is a fair amount of money in rural India. have started distributing several consumer products through their self-help groups or through loan officers. Now.
http://business. Each woman contributes Rs 10. Sugar is cheaper by Rs 2 a kg and a bag of salt.” says Alex Counts. Metro delivers my supplies right to my shop. His daily sale is around Rs 3. It created an entirely new company. More time spent at the shop means more money for him.”
The Swayam Shikshan Prayog model helps illustrate the wealth-creation effect. Krishnamurthy liquidates his stock in a 15day cycle and repays the loan in one shot to the loan officer who visits him frequently.
Nobody is tracking the danger signals. They usually hang around kirana stores and some carry a handheld GPRS device.000 per month as commission on sales of various products.
K Krishnamurthy. drawn from its self-help groups.
.business. an SKS Microfinance client who runs a hole-in-the-wall kirana store in Ameerpet. “It will have a far-reaching impact on poverty.
A Merchant’s Merchants A dedicated team of SKS Microfinance loan officers are in the middle of an interesting experiment in Hyderabad’s Ameerpet area. is a star sakhi. Spandana Sphoorty Financial and Basix. pulses et al—to the kiranas.outlookindia. SKS Microfinance.com | India’s New Retailers
By teaming up with MFIs. He also doubles as a repairman for gas stoves and sundry appliances. He argues that MFIs can be transformed into “platforms” for delivery of a slew of products and services to the world’s poor. Across the country. thousands of women like Pooja can aspire to earn more. The idea is simple: they are working to push wholesaler Metro’s huge basket of merchandise—soaps. But Metro’s supplies are cheaper.aspx?240795 (4 of 10) [7/19/2010 11:19:05 AM]
. Malapet and Shamsabad.com/printarticle. SKS Microfinance and Metro are exploring the possibility of constructing warehouses to reach the deep interiors of the state. in which over 850 women called sakhis. Sakhi Retail Co.outlookindia. the unintended consequences of the new models. earns over Rs 2. detergents. which services these orders. She has sold over 700 Oorja stoves. He also avails of a loan from SKS for buying stocks. paste. shampoo. Krishnamurthy’s only grouse is that Metro doesn’t supply ‘local’ brands like Veermani biscuits or items like jaggery
This year.437 for Metro.
selected a cluster of villages in Andhra Pradesh’s Nalgonda district and Karnataka’s Hassan district. Immense Potential The Metro and Nokia alliances are still only pilots. can be a windfall for everyone in the chain.business.000 villages.
http://business. Metro and SKS are putting their heads to it. as he crunches numbers on a calculator.000 every month.
Manisha Sawant’s kitchen in Jagjee village in Maharashtra would fill up with smoke when she used firewood for cooking. most of the next 100 million will come from villages. it is slated to beat Grameen Bank of Muhammad Yunus and turn into the largest MFI in the world by 2010. and also offered finance—the phone was sold for 25 monthly instalments of Rs 85 each. The other big opportunity is in the telecom sector.000 people. the potential of this new distribution channel becomes quite evident.000 kirana store-owners as its microfinance customers.000 crore. we saw mobile penetration jump to 30%. But seen in the backdrop of SKS Microfinance’s huge reach.2 million customers and is adding 200. If SKS grows at this rate.
This pilot. Nokia. If most of Bharti Airtel’s first 100 million customers came from cities.050 and is marketed by Swayam. These clusters had zero mobile penetration.aspx?240795 (5 of 10) [7/19/2010 11:19:05 AM]
. “The numbers can be staggering. The stove costs Rs 1. Barclays Bank.com/printarticle. is Rs 2. The big challenge is getting the logistics right. Getting them to buy Metro merchandise shouldn’t be too difficult. CEO and MD.” says Suresh Gurumani.000 crore in the first year of full-scale operations. Mobile penetration in rural India is just about 10% today. Nokia India. BP Energy’s stove has changed all that.000 stores buying Rs 4. SKS Microfinance employs 13. and reaches 60. Then. “We can easily reach a turnover of Rs 8. SKS sold Nokia’s 1650 model with an Airtel connection. Each one of them is a potential customer for companies targeting to sell consumer products to the bottom of the pyramid.com | India’s New Retailers
I see a situation in the not-too-distant future when MFIs may mutate into divisions of large corporations.” says D Shivakumar. SKS already has 500. the handset vendor.” Gurumani moved into microfinance recently. SKS will cross 8 million clients. SKS Microfinance. It already has 4. MD and Vice-President. service provider Bharti Airtel and SKS. after a stint as Retail Director. “Within months. MFIs will have a key role in increasing that. for every kirana who is an SKS client. The arithmetic is simple: 100. it is quite easy for the SKS-Metro combine to tap them too. In Ameerpet. largely loan officers. there are a few more in the immediate vicinity that aren’t.outlookindia.000 worth of goods from Metro every week for 50 weeks in a year. if commercialised. Geographically.outlookindia.
a relative newcomer to the three-decade-old sector. more than the financial aspect. It tied-up with Basix. TVs and cupboards. the poor. Money is disbursed and repayments collected right at their doorsteps. Consumer Division. entertainment and conveniences. recently conducted a survey to find out what products MFI borrowers really want. Akula. When Godrej first deployed the ChotuKool in Osmanabad. just like urbanites. The Monitor Group. Chairperson. right?” asks Vikram Akula. through its traditional distributor-dealer channel in rural markets. CEO. requiring considerable concept selling in bottom-of-the-pyramid markets. at Godrej & Boyce.com/printarticle. He explains the product to the members of the self-help group.” says Ashish Karamchandani. The big demand was for gold coins.outlookindia.business. He is often the link between the product company and the self-help group. Eureka Forbes. Early experience has shown that microfinance companies can provide more than just distribution. it got quick feedback (from its MFI partners) that it malfunctions under low tin roofs as temperatures soar. “Their understanding of group dynamics.” says Aslam A Karmali. “We need MFIs for their sheer power in selling concepts. None of that bothers Akula. livestock and motorbikes.950. Awareness Is Key When Eureka Forbes launched AquaSure.com | India’s New Retailers
A typical borrower of SKS sits on two loan products and three insurance products. He wants to turn MFIs into retailers. All the company does is deliver the product and provide after-sales service.
http://business. water filters and solar lanterns were the least important.outlookindia. her income status and the circumstances in which she lives. They can be a rich source of customer intelligence. An MFI loan officer meets with self-help groups at least once a week. a storage-water purifier. Rural consumers thought insurance. “Educating low-income customers about the value of socially beneficial products is a big challenge. steps in. an important cog in the microfinance wheel. uptake was appallingly poor. He also aggregates the orders from the group members. for Rs 1. It is argued that PE money and the accent on profits can dilute the social cause. And behold. several products that would otherwise seem very important in rural India—solar lanterns. her household. He thus becomes a fount of knowledge about the client. for instance—are push products.” Water purifiers are a push product. Sales immediately jumped 20%. who then generate demand. root for status symbols.” says Ramesh Chembath. SKS Microfinance. caused waves when his MFI attracted over $130 million of investments from private equity (PE) players and venture capitalists recently. bonding and proximity to the customer is unparalleled. Next come fertilisers. “It is not just money availability that will make the water-purifier market a big opportunity. Traditionalists don’t like the entry of commercial capital in microfinance. a global strategic advisory and capital services firm. with the loan officer as a critical interface. Marketing. a pioneering MFI in India. GM . All that an MFI–corporate partnership has to do is load this distribution channel with consumer products. “It is awareness-generation about the need to consume clean water.” Here is where the loan officer. if I distribute 10 products to 4 million of my clients. CEO of the Monitor Group in India.aspx?240795 (6 of 10) [7/19/2010 11:19:05 AM]
. “Tomorrow. It also introduced a loan product with a year-long tenure. to sell the product. In fact. that’s entering Google territory.
The MFI acts as a sub-agent to Western Union’s master agents. we have relied on the access to the consumer we have achieved. For instance. Why? “We wanted to reach the last mile. “About 70% of our business is from villages. Over $50 billion came into India in 2008 as remittances from workers employed abroad. BP Energy’s Oorja stoves too went through the same process of iteration. 300 are Spandana locations. Country Director. The consumer has always inspired our product.com/printarticle. the steel chamber that holds fuel pellets in the stove had to be replaced because it expanded on heating and caused problems. Co-creation and learning from the fields is not limited to consumer products. Blazing A Trail Incidentally. it was financial services companies that first started distributing their products through MFIs.” says Roberto Bocca. former director of Emerging Consumer Markets.business.6 million consumers in India. consumer products came later. With ceramic chambers. the stoves worked well. “While co-creating. in remote villages. it still felt the need to approach Spandana Sphoorty Financial in Andhra Pradesh.” says Shetty. Nokia is also on a learning curve in Nalgonda. Consumers want a torch and FM radio on their handsets. Even financial products have been crafted for poor consumers in consultation with MFIs. His company services purchase orders of small kirana store-owners and even gives them 15-day loans. Later. Western Union tapped the ubiquitous post office network to reach rural clients.100 Western Union locations in AP. Of 6.outlookindia.aspx?240795 (7 of 10) [7/19/2010 11:19:05 AM]
. Money-transfer firm Western Union was among the earliest. Western Union has over 6. Microfinance partners ensure that such feedback is passed quickly to the companies.
http://business. First. Western Union.” says Kiran Shetty. BP Alternative Energy.outlookindia.com | India’s New Retailers
Vikram Akula of SKS Microfinance is turning MFIs into distribution channels for companies.
creating a unique media platform for corporates. Besides carting goods across short distances. “It can go up to 25% in two years. he rents it out to others in his village in Mahabubnagar in Andhra Pradesh. in a way.8 million Bajaj Allianz policies. it has a social impact too.” says K Prabhakar.” says Pranav Prashad. Initially. Insurance companies came next.com/printarticle. This is when you see profitability. an investor in SKS Microfinance. Unitus Capital.” says Gurumani.com | India’s New Retailers
T Narsimhulu purchased a tractor with a fl exible-repayment loan from MFI Spandana Sphoorty Financial. ICICI Lombard General Insurance started selling its policies through SKS and a few other MFIs. More business will enable MFIs to lower interest rates on loans.200.aspx?240795 (8 of 10) [7/19/2010 11:19:05 AM]
. Hundreds arrive at the unit offices of Basix—it has 105 across the country—on a typical loan-disbursal day. “People shunned the accredited clinics and preferred to visit doctors they were familiar or comfortable with. It’s A Business MFIs see business benefits in turning retailers. including a child-protection plan.outlookindia. Corporate partnerships also open up other revenue streams for MFIs. Head.business. SKS managed to sell 1.” says Ganesh Rengaswamy. but feedback from SKS prompted it to build reimbursement into it. Events are organised and meetings of key influencers are also convened for a fee by Basix. “This year. “We are. The non-loan income of SKS is negligible now. This helped it reach two million customers in 18 months. Bajaj Allianz is now launching a slew of products for the poor. Within 10 months. That prompted Bajaj Allianz to integrate money-back features into its pure-risk policy. Bajaj Allianz tied up with SKS Microfinance in April 2008 to sell its policies. thus benefiting millions of rural poor. advisor to Basix. “It’s too early to tell. and a return on equity of 30-40%. There were learnings too. Bajaj earned a premium income of Rs 200 crore. it assumed that a cashless health insurance policy would be ideal for villagers.outlookindia. Vice-President and communication expert at SKS. Basix allows companies to make presentations to the captive crowd for a fee of around Rs 1. Vice-President and Country Director. “It’s the fastest ramp-up of any insurance product in the world. I am targeting 10 million customers. We have to understand the costs and cross-subsidies involved better. Rural and Agriculture Business Group.” says Yogesh Gupta. fridges and insurance policies. and earns about Rs 15. When MFIs earn profits by distributing phones. The new offering was almost like a five-year savings product.” says Akula. ICICI Lombard. SKS’s Gurumani brought new insight to the table—bottom-of-the-pyramid customers see insurance more as savings.” says SKS’s Akula. Bajaj Allianz. among other things.000 a month. wonders how much she could earn if they conducted sharply calibrated surveys and
http://business. Mamta Bharadwaj. Senior Vice-President and Head of Business Procurement. “The commission (from selling products) adds directly to our bottom line.
” laments BL Parthasarathy. The partnership between PepsiCo and Basix on contract farming is on hold. which is marketing PureIT aggressively in the rural market.” she says. ITC. The company is trying to grow by increasing the size of the rural wallet. “I see a situation in the not-toodistant future when MFIs may mutate into divisions or wings of large corporations. but Indian manufacturers are not willing to disturb their existing distribution channels. “Earlier.business. However. is in negotiations with Pune-based John Deere Equipment. Basix. Considering the immense savings in consumer-acquisition costs. for the time being.com | India’s New Retailers
consumer-preference studies for corporations.outlookindia. “We lost over Rs 5 lakh in the process. The accent is clearly on generating livelihoods. it enables MFIs to grow with their clients as they climb the social ladder. “Most corporations just lack the developmental perspective. sums it up best. Spandana wanted to be a distributor for tractors. but beyond that. Importantly. “Credit is not a reason why consumption should occur. Offering multiple products by MFIs has also resulted in enhanced loyalty of clients. “We are not looking at the next 18 or 20 years. the Indian arm of the multinational tractor manufacturer. She also distributes PureIT. It’s Not All Hunky Dory The alliance between product companies and MFIs is not always easy and pleasant. as it is doing with Sakhi Retail Co. it’s down to 26 paise due to better route planning and demand aggregation. Agribusines.” says Prayog’s Gopalan. Padmaja Reddy G. “The company should transfer a portion of the benefits accrued to the consumer. The MFI is probing the possibility of creating a ‘risk fund’ to deal with such situations. Now. It is obvious that companies have to give up their obsession with targets and profits. Chief Executive. we were so caught up with growth that we didn’t comprehend the potential of our networks as a revenue stream.” she says.aspx?240795 (9 of 10) [7/19/2010 11:19:05 AM]
. Reddy asked HUL to reduce PureIT’s retail price. Agri Business. Group Vice-President. Swayam Shikshan Prayog’s association with companies has helped it improve operational efficiencies.” says Godrej’s Sunderraman.outlookindia. An MFI was appalled when an HUL executive asked for its entire client list with addresses. to source tractors directly from it. So. “Earlier. not just by grabbing a share of it. the second largest and the most cost-efficient MFI in India. Basix. Her occasional skirmishes with HUL indicate that a lot of partnership issues need ironing out. Head. A crop failure attributed to the seeds supplied by the company did it in.html
http://business. HUL. we spent 75 paise for distributing a kg of fuel pellets (used in Oorja cooking stoves). The partnership should benefit the poor. what does the future hold for microfinance as a ‘platform’ for companies to sell their products and services? S Sivakumar. has had several unsavoury run-ins with MFIs. improving the purchasing power of the poor and then selling to them. HUL refused. and acquire a more sensitive approach while dealing with the poor. companies like Godrej are making up for the deficiencies elsewhere.” Shantipriya Gavali will relish the prospect of becoming a Hindustan Unilever employee.com/printarticle. to boot.” he says.chotukool.
By Naren Karunakaran with inputs from Anurag Prasad and Rajiv Bhuva
http://www. HUL declined to be interviewed for this story. Hindustan Unilever’s water purifier. himself an innovator in rural markets.in/SocialImpact/news.” says K Vasumathi. MD of Spandana Sphoorty Financial.