New Delhi: Mahatma Gandhi was a strong advocate of strengthening village governance and economy. While the government finds different platforms to deliver and involves people by helping them avail of numerous development schemes, companies like Moksha Yug Access (MYA) develop rural infrastructure, leverage the franchising and microfinance model to roll out a range of services.
Arunoday Prakash from Livemint has a free wheeling chat with Harsha Moily, chairman and managing director on the inroads the company has made, the challenges it faces and the kind of impact projects like theirs can make. Edited excerpts:
How does your model work?
We are in the business of building efficiencies in the delivery of a range of products and services such as dairy farming, livelihoods, healthcare, agribusiness and retail to the rural poor through a technology enabled infrastructure. We establish franchising agreements with microfinance clients, initiate purchase agreements with suppliers, have buy back agreements with buyers and manage the warehousing and supply chain.
Our USP to clients lies in providing finance and market linkages and to our product/service providers, an organized platform to enable them increase their reach across rural markets.
The model involves franchising dairy units, health centres, handicraft production centres, retail outlets and agri-centres to rural households. These franchises serve as distribution outlets servicing rural markets. Financing franchisee fee to be paid by rural households is financed through the microfinance arm.
We plan to scale up to 100,000 clients, build a tried and tested franchise model across five verticals and subsequently, partner with others MFIs to reach one million households by 2010 and five million clients by 2013.
Tell us something about how you started out
MYA commenced operations hoping to build on its microfinance arm to create manpower and test its supply chain services. It launched its microfinance operations in April 2006 and today has 137 employees working towards creating wealth for the rural poor.
As of February 2008, our operations are spread across 304 villages in the Bagalkot district of Karnataka, covering a population of 478,939. We have enrolled a total of 31,027 customers and have established 13 branches and disbursed loans worth Rs79.49 million to 13,691 members, enrolled 12,541 life insurance subscribers, 2,610 health insurance subscribers, 654 cattle insurance subscribers and 2,746 goat and sheep insurance subscribers.
What’s the feedback been?
We realized that the poor need more than just a loan. They require jobs and an environment that can make an entrepreneur successful. At this point in time, our operations are focused on microfinance to build a critical mass of customers. We are however laying the groundwork for the rollout of dairy and healthcare verticals. During the franchisee selection process, we sought our clients’ opinions and found them very supportive.
How will you aggregate demand and supply?
If you were to do a segmentation of microfinance clients, you will find that 20% of them are landless labourers, 20% are goat/ sheep farmers, 15% are cow/buffalo owners, 25% are kirana shop owners and the remaining 20% are small business owners.
We plan to aggregate the demand from each of these customer segments to achieve economies of scale. For example, demand for inputs from dairy customers will be aggregated to develop procurement contracts with suppliers. Similarly, in retail, we will aggregate requirements of kirana shop outlets to negotiate procurement agreement with retailers.
We will aggregate supply by partnering with product/service providers across verticals.
Any problems you envisage as you build the supply chain?
The supply chain would be built from the customer perspective and not from the view of the product/service providers. Our warehousing infrastructure would be strategically located, in that, it would optimize movement and storage of raw materials, work-in-progress inventories and finished goods from our franchises and rural clients to product/service providers.
We anticipate problems in terms of transport/ telecom/ internet connectivity which will increase cost of servicing clients. This could impact our margins.
What kind of infrastructure do you hope to build vis’-a-vis’ dairy farming and healthcare?
We would be setting up primary health clinics and dairy farming units (a farm of 10 milch animals) and franchising the same to rural households. We would also set up warehouses, which would support the inventory requirements of our franchises and its customers.
Is the dairy sector plagued by low productivity? Where does the problem lie?
Poor diet provided to the animals due to low quality of dry/ green fodder; low water intake; poor animal husbandry practices; lower yielding animal mix; lack of marketing and processing infrastructure (chilling plants, collection points etc) contribute to lower yields and productivity.
You want to generate demand via Self Help Groups. What will be the concept/process for it? Will it be on the lines followed by HLL’s Shakti which used to provide its own products to SHGs?
No, it will not be similar to HLL’s model. We are looking at the rural poor as a production base and not just as a consumer base. That’s where we will be different from the HLL model.
Several organizations are adopting this concept and turning it into a business venture. Your take on it.
Microfinance network as a distribution channel is a fundamentally flawed business model. It assumes that the field officers have the bandwidth to sell non-microfinance services too. MFIs operate on low margins and their focus is on increasing the productivity of the loan officer. Hence, I don’t see any scaleable business, which can successfully capitalize on microfinance as a distribution channel.
Will India be able to replicate what Nobel Laureate Mohd Yonus did in Bangladesh?
Mohd Yunus’s model assumes that a micro loan can get people out of the poverty trap, which I believe is inadequate. Microfinance in its present form is not a model that India requires to replicate.
Microfinance requires innovation and should be in a position to finance the rural supply chain and should not just be applicable for financing a single cow or buffalo, which can turn out to be a liability without economies of scale. Micro loan as a standalone base creates an asset san market linkages or risk mitigation (insurance cover) and can therefore turn into a liability. Poverty alleviation needs sustainable cash flows for the poor, which a standalone micro loan can never provide.
What would be your next steps?
We plan to focus our efforts on microfinance, primarily to build an organized platform in terms of manpower and infrastructure. Once this is built, we will build franchises, that can double up as servicing and distribution points in rural areas. Subsequently we plan to build warehousing infrastructure to support the franchise network
In 2009-10, we will concentrate on developing a franchise model around client-operated healthcare centres and dairy farming units. We will explore partnerships with healthcare service providers and dairy firms to roll out operations in these two verticals.