Friday, December 29, 2017

Why do rural enterprises remain small ?

I was reading yesterday an article by Mr. Sanjiv Phansalkar: What stops rural enterprises from growth and prosperity?. Mr. Sanjiv Phansalkar has written a good article but I find the article quite limited in explaining the scenario. The factors contributing to the failure among rural enterprises as per him are: Lifestyle obstruction, Modes of thinking, Sticking to schedules and Patterns of living. I propose ten better reasons on what stops rural enterprises from growth and prosperity. I have referred rural enterprises as micro-enterprises at several places in the current article.


1. Rural Enterprise Sector: Rural enterprises works in the segment where entry barriers are low and it is easy for these new entrants to enter the market. This poses a threat to the micro-enterprises already competing in that market. With an easy entry, all micro-enterprise tends to produce identical or nearly identical products – both in terms of quality and design, without offering significant product differentiation. This has implications for the pricing power and subsequently on margins as well of the rural enterprises. The customers always command an upper hand in pricing in the absence of clear product differentiation. More competition and increased production capacity without a concurrent increase in consumer demand – means less profit to go around.

2. Horizontal Growth: Rural entrepreneurs grow businesses by starting multiple businesses (known as horizontal growth). This seems tacitly a weak strategy when compared to the norm of linear growth of a single business. They prefer to start a variety of micro-enterprises rather than develop an existing business into a small enterprise. The establishment of complementary businesses is done to build on the breadth of family resources, tap on the competencies available, and also help to diversify risks. The main reasons behind this are “risk aversion”, and not “growth-orientation” of the business owners. The establishment of different businesses with different seasonal markets and cash flow requirements is needed to build a consistent annual income for the household. Mostly rural enterprises are run by women have limited business vision with their main aim being to earn an income – frequently labeled as “supplementary” in nature. This approach reflects a greater extent the reality of women’s lives, as opposed to the norms of economic models which tend to be derived from the experiences of western firms.

3. The Business Ecosystem: Rural enterprises are under-capitalized and generate limited profits; hence they have little opportunity for surplus accumulation and are vulnerable to the slightest changes in their business environment. Closely linked to the issue of business ecosystem is the fact that the majority of rural enterprises operate in restricted locally-based markets which by their nature are limited in size. Entrepreneurs engaged in business largely confine themselves to local markets where access, mobility, and networks are easier for them to negotiate. Also, locally made products are increasingly in competition with a growing range of branded and well packaged goods coming into the market at all levels. The already established brands and the markets they have captured are the biggest threats to these
rural enterprises.

4. Enterprise Trait:It is necessary to differentiate rural enterprises into opportunity and necessity type micro-enterprises. Necessity type enterprises began operations as they are forced into entrepreneurial activities because the entrepreneur had to find a means to survive and are less likely to succeed. While opportunity type micro-enterprises are more able to grow because entrepreneurs have the knack to identify and tap into an entrepreneurial opportunity.

5. Education and Financial Literacy: Many entrepreneurs lack the necessary education and skills associated required for maintaining internal systems and negotiating with clients. They face both practical and social problems in grasping the new opportunities. Information and financial literacy problems are likely to be particularly as schooling levels are low, sheer neglect of book-keeping, and little experience with the formal financial institutions.

6. Marketing: Rural enterprises finds it difficult to identify or discover markets beyond localized markets. This can be attributed to lack of information, both on part of consumers and manufacturers, to discover each other. It is difficult for consumers to learn about the existence and quality of different enterprise outputs. As a result, consumers often buy exclusively from a local producer, and producers sell mostly to local customers. The limited size of their potential customer base limits rural enterprises’ ability to grow. Often rural entrepreneurs want to limit themselves to operations, while leaving sales to some other person.

7. Access to Finance: Access to finance is one of the leading operational challenges that obstruct the sustainability and growth of the rural enterprises. The credit is available to SHG/JLG as the risk appetite and credit worthiness of individual borrowers in risky for financial institutions. Micro-finance offer entrepreneurs ease in credit facilities but the interest rates are on the higher side (22 % - 26%). The higher interest rates eat away the surplus generated in the business leading only to lower margins. Low levels of literacy limit entrepreneur's ability to produce the sort of written business plans and loan proposals that are required by banks. Even if B-Plan is facilitated by any organization, either they don't want or don't have farm land to put as a collateral security to the banks.

Most of the business works with Cash Credit Facilities that provides instant credit to business for the working capital requirement. Most of the rural enterprises resort to term loan facilities from SHGs for the working capital needs. That is complete mismatch of the credit product. Also, surplus credit from term loan is consumed in unproductive activities. There is no insurance product specially customized to need of rural enterprises in unorganized sector dealing with accidents, natural disasters, death and business related exigencies.

8. Capital Investment: Most of the rural enterprises have exhibited a low level of capital investment. They tend to operate with simple tools and equipment for production, which means lower fixed costs and lower maintenance costs. Investments in better machines would require significant capital, skill up gradation and a strong visibility of order pipeline that would economically justify capital-infusion. The decision to invest additional capital is triggered on the basis of visibility of order pipeline rather than need of the better quality and design of the end product. Successful business relations with a vendor on wholesale scale and risk appetite for expansion is rarity in rural enterprises. Entrepreneurs also do not possess substantial business history and credit history to avail unsecured loans from conventional channels and resort to high interest loans from money lenders.

9. Lack of Market Research: There is no recognition of the value of the market research among the rural entrepreneurs. There is a complete lack of appreciation of customer needs. The core strategy is to form the micro-enterprise on what they can produce, and not what the customer wants.The individual investment decisions are not made in isolation but the choice for the business is driven by the herd behavior. The short term success of one entrepreneur leads to mushrooming of several entrepreneurs replicating the same model. This frequently leads to excessive competition, under-pricing and even failure of many micro-enterprises.

10. Government Aid: The traditional government response to the credit needs of micro-enterprises has been subsidized interest rate programs. This becomes costly, corrupt, politically directed, and damaging to the incentives for the financial sector. There has been assistance from National Rural Livelihood Mission (NRLM) for the credit but the impact is quite limited in scaling up. Even the trainings provided by the government is supply driven rather than demand driven.

Monday, November 27, 2017

Reflection document on Social Entrepreneurship Saturday

Social Entrepreneurship movement is considered as next big thing and start ups of the development sector. The time needed to solve the social issues is vast, but thanks to the social enterprise movement, these issues are finally being fixed using sustainable business models and market forces. One of the most important tasks for the entrepreneur is to gain clarity about customers’ needs and willingness to pay. This helps in establishing a sustainable business model and create social impact alongside profits for external shareholders. That makes the social entrepreneur different from persons involved with Charity, For Profit Business and Government.

I will quote these three articles as a source of my brief understanding:
I attended a lecture on Mr S K Shelgikar on 25th November 2017. Mr S K Shelgikar, Advisor for Yunus Social Business Fund was the speaker for the talk at Transforming India Initiative - ALC that was revolving around the concepts of Social Entrepreneurship. The target audience were TII Fellows and internal team of consultant at ALC India.


Social enterprise as per me is applying a market-driven approach to addressing social issues and creating positive community change. The fundamentals of social enterprise became more clear today. The best part of the class was three principle on which social enterprise is based : Not for profit maximization, Serving the unserved and Done by personal choice while enjoying the invested time.

Mr. Shelgikar gave a lot of emphasis on mental experiments. They are the good intellectual exercises that drives people towards setting up the goal. I was intrigued on hearing about : Harm Principle, Theory of Regulation and Lexical ordering of virtues. There was so much quoted from Bhagvad Gita, Adam Smith, John Stuart Mill, and Immanuel Kant. This was heavy philosophical stuff that has bounced above the intellectual capacity. He also defined two uncharacteristic traits of Social entrepreneur: Fully convinced in disconnect between inputs and outputs & Empathy for others.

I personally assume the challenge remains in making social entrepreneurship rewarding. Perspectives from employee is different from the perspective of the social entrepreneur. Still, there is good amount of information that has to be reflected and may help me grow as Intrapreneur.

Sunday, October 15, 2017

Business Model Canvas

New sources of funding, new actors and new technologies are quickly changing the landscape of the sector. Currently, not for profit sector is transitioning their operating and/or business models. For transitions to happen successfully, they must look at the historic perspective of why their enterprise is developed in the way that it did and at the same time look at the anticipated future trends. To go through the evolutionary change, there is need of a design thinking for analysis. Business Model Canvas is the ultimate framework for this purpose.

Business Model Canvas represents a business model or business case with nine simple building blocks, including customer segments, channels, and relationships; value proposition, key activities, resources and partners; cost structure and revenue streams. The canvas therefore combines the financial viability of a solution with its usability and feasibility. This tool helps the manager to focus on what’s driving the business and value deliverance.

Professor D V Ramana will explain the whole concept in a simple video under seven minutes for the readers.


It is developed for analyzing and developing models in the for-profit sector. Judith Sanderse did analyze the potential usage of the Business Canvas for the case of NGOs in an academic paper. We can view the changes made in the tool for non profit sector.

To sum it up, the Business Model Canvas can be utilized in various ways during the Design Thinking modes. This tool can be used from Grassroots interventionists to portfolio managers of impact investment funds on focusing on the business management, development strategies and local economy analysis. Readers may read more on the topic through the book called Business Model Generation written by from Alex Osterwalder.

Tuesday, July 4, 2017

Fellowship or MBA in Development Sector

Today, development sector has emerged out as an unconventional yet full fledged career option amongst the youth worldwide. People seeking career in Development Sector face a dilemma on the choice between MBA in Rural/Health/Forest management and fellowship opportunities pan India. There are pros and cons in each choices:

1. Academia: Most candidates become largely irrelevant in running social enterprises by putting effort to keep themselves either too much academic or searching for degree from premier colleges. B School always provide broad base knowledge base than that is gathered in classroom training of Fellowship.

2. Seeking Experience - The grassroots experience is must before jumping into solving an issue as one has to acknowledge the gap between ideology and lived experience. Fellowship experience will be much diverse and fruitful than 2 years in MBA school.

3. Network Effect - The number of students enrolling and attending the MBA is much more than fellowship program. There is an inherent advantage due to networking in the majority. Majority and minority are about positions in career ladder, not numbers alone. Yet old institutions have good alumni networks required to establish oneself in employment markets.

4. Future Study Abroad: A full time MBA program gives base through academic rigor. MBA school in development sector refine skills by having options like IRP/Mini Thesis on chosen topics. This forms a launch pad for students looking for opportunity to study abroad in courses like Public Policy and Public Administration.

5. Peer Quality - Applicants for both go through assessment like Reasoning, Aptitude Tests, Group Discussions or presentations about a subject related to the development sector and a face-to-face interview. The focus is more on the quantity rather than fit in MBA. Hence, a much dedicated and like minded peers will be more likely to be found in fellowship program.

6. Content of the Program - The content of both are nearly same with different weightages to the mix of NGO Visits, Classroom Experience, Village Studies, & Leadership Activities. The exposure to different ideas is much limited in fellowship but the depth of the program helps those people who had already made choices for the career goal.

7. Social Entrepreneurship - SE is a combination of both thorough knowledge and action driven attitude. The fellowship is much preferred way to effectively diagnose risk aptitude and aspirations. Fellowship gives lot of independent thinking and support entrepreneurship in through business skills training, etc.

8. Leadership Development - The leader-centric functioning of non profit has always doomed the development sector but this is less talked phenomenon in the classrooms. But even various theory of Leadership (Analyst, Architect, & Strategist) doesn't come much good in the real life. Fellowship provides direct opportunity to interact with Non Profit leaders who are taking tactical and strategic decisions in handling the resources.

Prestigious Fellowship in India

1. Transforming India Initiative
2. Teach for India Fellowship
3. Legislative Assistants to Members of Parliament (LAMP) Fellowship
4. William J Clinton Fellowship
5. Gandhi Fellowship
6. Azim Premji Foundation Fellowship Program
7. Ashoka Fellowship
8. India Fellow Social Leadership Program
9. Indian School of Development Management (ISDM)
10. Deshpande Fellowship Program
11. Pradan

MBA Option: Private MBA-School has pure market orientation since with higher infrastructure and faculty cost can't be covered with lower admission fees and lower batch sizes of students. Subsidized education at public institutions like IIFM and IRMA gives much better option to start fresh and new as development professional. Let us cross examine the private & public institution in rural management.

Rural Management of Xavier University Bhubaneswar will cost around INR 15 Lakh (Program fee - INR 11 Lakhs, Development Fund: INR 1 Lakhs, Boarding and Lodging Expenses: INR 1.76 Lakhs, Course Material, IT, Alumni & Placement Expenses: INR 1.4 Lakhs). The highest domestic salary stood at INR 11.00 Lakhs per annum. The average annual compensation stood at INR 7.32 Lakhs per annum. The Median annual compensation stood at INR 7.00 Lakhs per annum. The high end jobs belongs to Banking and Rural Marketing sector. So even with 20% of the savings from average income, it will take almost 10 years to repay the loan here. This high fees has been dissuading young students studying in the private institution to make a career in development sector. Even public institution like IRMA will cost around INR 12 Lakh (Program fee - INR 9.5 Lakhs, Activity Charge- 0.6 Lakhs, Boarding and Lodging Expenses: INR 1.5 Lakhs). The average annual compensation stood at INR 10.22 Lakhs per annum. So, with the same logic it will take minimum 5-6 years to repay the education loan.

I assume that appropriate candidates for fellowships are fresher with 1-2 years experience and mid-career professionals who have a commitment to public service, leadership traits and the potential for professional advancement. The unexperienced students must prefer public institutions like XISS, TISS or IIFM otherwise choose fellowship over private MBA institutions. The burden of loan restricts a professional in long term decision making and financial freedom. Mostly, aspirants engaged in the job or college hadn't enough time to think without peer pressure, analyze down the career and work out what is vital to get the best out of oneself. But, in the end one has think deep, discover options and take bold yet pragmatic decision before making a career in development sector.

Tuesday, June 20, 2017

Alternate Livelihoods for Refugees

Today is World Refugee Day: There are now more displaced people on the planet than at any other time in human history. UN Security Council has failed to prevent war through negotiation, diplomacy, and sanctions. By the end of 2015, 65.3 million individuals had been driven from their homes as a result of persecution, conflict, generalized violence or human rights violations. Of these, 21.3 million were refugees, 40.8 million internally displaced persons (IDPs) and 3.2 million asylum-seekers (UNHCR, 2015a).

The civil wars always have unfolded refugee crisis in every part of the world. The refugee choose to transit to safe locations and may become “stuck” in a country that was intended to be a pit stop on a longer journey. But why don’t refugees just stay in these countries such as India, Turkey or Greece? Human Rights as well as Living conditions of destination where migrants had most wanted to reach significantly affect their migration intention. The reasons for this are clear: poor living conditions, lack of employment opportunities and the desire to fulfill their initial plans. Even once they are migrated to destination, they apply as asylum-seekers, and keeps them waiting, sometimes for years, for refugee status.

This is the time for investing in skill development for livelihoods. . Getting newcomers quickly into the labour market is “the only way” to integrate them. The assistance must including livelihood support be given through cash grants, medical assistance, vocational trainings and Non Food Items (NFIs).

1. Language Barrier: The first task is overcoming language barriers through using services of social connections like diaspora. A key to pursuing sustainable livelihoods is social capital to overcome language barrier and adaptation to the new place. Innovative use of technologies for data gathering with social networks should be piloted to overview the required support for target population.

2. Grants and Micro Credit: Cash and in-kind safety-net transfers under humanitarian programs are an important coping resource for the displaced. There must be setup of micro credit services to provide loans to refugees. Otherwise the majority of the refugee falls into trap of lenders who are connected to organized crime. Initial grant must be a hybrid of vulnerability fund as well as start-up capital to invest in skills or business. Integration with mobile platforms and with mobile money expands the client base and makes the services easier to use. Credit activity can also be self-sustaining in financial terms, something that is particularly useful as donor funding is in decline. Aligning with on-line crowd-funding also expands the base of donors.

3. Skill Development: The third setup is to assess their education and skills systematically. There is necessity in the recognition of foreigners’ qualifications especially in face of Europe’s excessive demands for credentials. Once the assessment of entrepreneurial and employ ability of the candidate over, a careful planning to ensure that vocational training is imparted and marketing support is provided. In this way livelihoods are secured. This becomes more important as most displaced persons have background of farming and pastoral livelihood practises; The refugees who upgrade their current skills and learn on their own will find it easy, whereas the traditional learner who doesn't add to his skills will face challenges. Workforce skills acquires special significance viewed from the perspectives of both Lifelong Learning (LLL) and the Knowledge Economy (KE).

Challenges: Humanitarian agencies and host governments have predominately used the camp and settlement systems as opposed to supporting the settlement of refugees in urban areas. Social and economic conditions in refugee economies are distinct from those in more settled and integrated economies. This is particularly true where refugees live in camps designated by gender, ethnicity, or language, and are separated from mainstream urban activity.The whole proposition of livelihoods become infeasible in remote camp-based areas with depressed economic conditions such as East Sudan, requires market responsiveness and carefulness.

Unfortunately, the refugee crisis is not temporary. Most refugees do not expect to be displaced for long, but in reality displacement lasts about 17 years on average. As a result, there is a need to address longer-term development needs to complement short-term humanitarian assistance. Hence, there is need to learn on the Refugee Livelihoods. Reference: UNHCR evidence document and Guide to market-based livelihood interventions for refugees.

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This Blog is meant purely as a personal diary of a rural manager in making. It exists to record information, experiences and opinions about various issues encountered in the line of duty. Any person, institution and organization mentioned here doesn't assume any liability for its contents. This is not a deliberate attempt to defame anyone. And if you have actually read all that is written in the blog and aren't mad at me, then thanks for your time and patience !

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