How The SHGs Work Inspired by the success of women Self Help Groups (SHGs) in Bangladesh---these are primarily thrift and savings group consisting of 15-20 people---the Government of India promoted these groups in India in the mid-1980s, which were set up with either NGO or state government support.
These provide rural women a platform to save money---they keep pooling money, save in a bank, and by the end of the year, they get a matching loan from the same bank. This way, the group's corpus doubles, and individual members can borrow internally from the group and start a business.
These groups are increasingly being used by the government for social development. In Andhra Pradesh, for instance, all government schemes, the pulse polio programme or the LPG (cooking gas) connections are routed through these groups. There are around 6 lakh SHGs in the country.
Typically, each of these group save Re 1 per day or Rs 30 per month (some groups save more). A group with 15 members and a saving of Rs 30 per head, would save Rs 450 per month or Rs 5,400 in a year. The members can borrow from the group's kitty (typically, the interest rates are 2-2.5 per cent month or 24-30 per cent per annum). At the end of the year, the group---if the repayments within the group is 95 per cent and the attendance by members is 75 per cent---can take a matching loan from regional rural banks, who are refinanced by NABARD. This way their corpus doubles.
Initially, it starts off with individuals taking loans for self-consumption: a marriage or illness in the family. Soon the government agencies---the district collectors or the District Rural Development Authority (DRDA) which facilitates these groups----the banks and NABARD realised that to sustain these groups, it was important to have income-generating activities. As bank loans are strictly for productive activities, the groups began different activities: bought cattle for dairy activities, weaving, toy-manufacturing, leasing a farm or opening a small shop in the village. It's here that HLL saw an opportunity.
How HLL's Rural Model Works
HLL's approach: can you get these groups as your brand ambassadors, who can buy the products and sell them in their villages? HLL would supply them the stocks, but the groups would decide who would do the enterprising. The group could nominate one or two people to sell the products. They could sell the products to other members in the group, consume within the family or sell to others in the village. Every time a women sells, she makes a margin (10 per cent; retailers make 8 per cent).
If a group nominates a person to do the selling, the profits are ploughed back into the group's kitty. But if the individual borrows from the group to start the enterprise, the individual can retain the profits. Both models exist, but HLL is increasingly realising that it's the individual model, and not the group model, that works in reality. Banks lend the groups at an interest rate of 12 per cent per annum or 1 per cent per month; the groups in turn, lend it internally to their members at 24 per cent per annum or 2 per cent per month.
The potential: consider a village with a population of 1,000 people, and an average spend of Rs 4 per head per month on personal products; now, if everybody buys from this group, HLL's share of the rural consumer's spend would be Rs 4,000 (Rs 4 X 1000). If half the people buy, HLL's share of the consumer's spend would be Rs 2,000.
Now, consider the income potential for the women brand ambassadors or the group. If she has a turnover of Rs 2,000 per month---at 10 per cent gross margin---she makes a profit of Rs 200 per month. Assuming that she would have borrowed this money (Rs 2,000) from the group, she would have to pay an interest (at 2 per cent per month) of Rs 480 per annum or Rs 40 per month. After providing for interest costs, she will be still making a profit of Rs 160 per month or Rs 1,920 per annum. Thus, by taking a loan of Rs 2,000 and retained earnings of around Rs 2,000, she can double her capital by the end of the year.
But the situation on the ground is not really as rosy as these back-of-the-envelope calculation may suggest. These women have to cope with competition from retailers in the village. HLL is aware of the problems, and the need to scale up the model. But since most of these women are first-time entrepreneurs, HLL has launched the pilot with 12 SKUs to keep things as simple as possible.
The Early Learnings
Even as the model evolves every day, there are huge learnings for HLL from the Nalgonda experiment. The first is the transition from a group model to an individual model. The second, and a more important, issue is door-to-door selling---along the lines of what Amway or Aviance does in urban areas---which is not happening. This is because in most villages, door-to-door selling is seen as the job of a particular community (the Manihaars, who go from village to village and sell the products) and there's a stigma attached to the same.
They don't want to do door-to-door selling; they wait at home for consumers to come. A related problem is that men don't like to go and buy the products from the women's home. To overcome these problems, HLL decided to create an artificial point of contact by organising something called a 'Shakti Roju' or a Shakti Day. With a bit of hype and excitement through music and promotions, an artificial marketplace is created.
HLL chips in with a bit of promotions. For instance, on a purchase of products worth Rs 50, a consumer is entitled to one coupon for a lucky draw. On a purchase of Rs 100, he's entitled to three coupons. Prizes worth Rs 1,000 (like suitcases) are distributed. Shakti Day allows these groups do a cool business of anywhere between Rs 5,000 and 7,000 in 4-5 hours. That's not all. Not many people in the village would know that a lady is dealing in HLL's products; these forum allows it to create awareness. HLL uses MACTS-represented animators to talk about and demonstrate its brands.
Scaling Up The Model
Although the model has tremendous potential for HLL and other companies, the success would depend on the viability of the constituents. Says Pradeep Kashyap, President, MART, which is coordinating and implementing the entire pilot for HLL in Nalgonda: ''The scale of operations are too small. The model needs to be upscaled and expanded. Women can't make enough money with 10-12 brands. You have to bring in non-competing brands to expand the portfolio.'' So, along with HLL's brands, the women could cart a Philips bulb or Nippo batteries. HLL is not averse to it. But considering these are first-time entrepreneurs, it doesn't want to rush things.
Also, HLL would not like to increase their scale without increasing their capacity. The other option is to increase their area. Today, almost every village has an SHG catering to it. One SHG could cater to 2-3 villages. But for this to happen, they need to do door-to-door selling. In one particular case, the husband has taken the initiative, and maybe seeing him, women would take to it. If there's no social taboo, they can be taught to do door-to-door selling. Explains Sehgal: ''They have to learn how to do business.''
Similarly, take the viability of the MACTS. HLL provides them a margin of 3 per cent, which they think is inadequate. On an average, a MACTS clocks sales of Rs 30,000 to Rs 40,000 per month. Now, if the sales were much higher (say, 3 per cent of Rs 5 lakh per month, would be Rs 15,000), it wouldn't be a problem. The stockists don't mind a lower margin as their volume of thruput is high which compensates for the lower margin.
The problem: volumes are unviable for MACTS. At Rs 30,000 per month, it will earn a profit of Rs 900. In which, the MACTS can't even afford to keep a store-keeper to man the stocks (the groups come anytime to take the stocks) forget about delivering them to the villages. The lower volumes of SHGs compounds the problem. The MACTS also need to hire someone to keep accounts or pay the rent for the warehouse. So, unless the scale improves, the model is simply unviable for MACTS; a minimum scale of operation could be Rs 1 lakh per month. So, HLL will have to either increase the scale, or hike the margin--- or do both.
Modifying The Model
The idea: since viability at the SHG level would be difficult to achieve, the only way the model can be made viable is to scale it up---take it to the next level, MACTS. Since each of these MACTS have 25-30 groups affiliated to them, the sales turnover can go up from Rs 2,000 to Rs 50,000 per month (25 X 2000). So, from a distribution model, it becomes a consumption model. The SHGs would buy from MACTS as its primarily their federation, they have strong loyalty, can expect a decent price and, above all, get a share in the profits as all earnings of the MACTS would be shared equally among the SHGs.
