FMCGs, telcos find a Godsent ally in microfinanciers

About four months back, Hyderabad-based SKS Microfinance, India’s largest, started associating with companies looking to tap the purchasing power of rural women.

That idea is turning out to be a veritable killer app: fast-moving consumer goods companies and telecom operators are rushing to get into a synergistic hug. In the process, the microfinancier is expanding its role from being pureplay lender to a marketing/sales intermediary.

For example, SKS members today have access to most consumer goods, be it nutritious food or mobile handsets.
“SKS has financed Nokia mobile phones with Airtel SIM cards across Karnataka, Andhra Pradesh, Orissa, West Bengal, Bihar, Madhya Pradesh and Rajasthan,” said an SKS spokesperson, who did not wish to benamed..

Metro Cash and Carry, the German giant,  recently entered into an agreement with SKS in Karnataka and Andhra Pradesh. Under the deal, SKS members can buy goods worth Rs 4,000 from Metro Cash and Carry in a fortnight with financing and logistics support form SKS.

The Future Group, India’s biggest retailer, has also tied up with SKS, initially for the New Delhi area. SKS’s 70 lakh women-members live in 100,000 villages, spread across 19 states.
According to industry estimates, microfinance institutions cover about 2 crore people in India at present. They generally provide loans of Rs 5,000 on average for a maximum period of a year, with interest rates varying from 24% to 48%.

Ujjivan, a Bangalore-based entity that focuses on financing the underprivileged in urban and semi-urban areas, has also started tying-up with companies looking to tap its 7 lakh subscriber base.
Samit Ghosh, chief executive, said, since the last eight months, his firm has partnered Nokia to finance handsets to Ujjivan members.

“Hindustan Unilever is also in talks with us to finance its water purifiers for our members,” he said.

Ujjivan also provides a mandatory life insurance cover of Rs 30,000 from ICICI Prudential for its members for a premium of Rs 100.

According to a top executive in a large microfinance company, such alliances are a win-win.

“Consumer goods companies have been facing this problem of monitoring the products they supply for distribution. We could solve that issue since our members work in small groups and have a strong bond among themselves,” he said.

As a result, pilferage and wastage, a bane for the companies, have drastically reduced.

The virtuous loop doesn’t end there. The consumers also give feedback on products, helping the companies get precious client information.

But Pradeep Kashyap, founder and managing director of MARTRural, a Noida-based research firm that works in the rural markets, said though the microfinancier-corporate association is becoming a trend, it’s unlikely to be pervasive.

In 2000, MARTRural did something similar as part of Project Shakti by what was then Hindustan Lever — where the company looked at providing dealerships to women with the aim of increasing their income.

Today, there are 46,000 women HUL dealers in 5 states.
“I see that microfinanciers are beginning to do something similar. But it may remain just an additional mode of distribution, if not the dominant mode. That’s because microfinanciers’ core work is financing and not selling,” he said, adding that rural areas require independent distribution companies with expertise in selling to succeed.