Wednesday, April 25, 2012

Help for India’s honey business: The value of enterprise services for micro-entrepreneurs

In the early 1990s, microcredit was synonymous with microfinance. It was assumed that any low-income person borrowing from a microfinance institution did so in order to start or build a business. Today, however, it's widely acknowledged that poor people -- just like anyone else -- also need financial tools to pay for health care, education, housing, and more. A number of Kiva’s field partners provide services in these areas in addition to loans.

That said, microcredit is still regularly used to fund micro-enterprises. The effectiveness of microfinance as a tool for poverty reduction is, therefore, partly dependent on borrowers being able to run their enterprises efficiently and profitably. We’ll look at how this works in India’s cottage honey industry.

“Enterprise services” refer to support activities for enterprises, provided either by professionals engaged in specialized services or by nonprofit institutions dedicated to maximizing income generation for low income families.

These services range from the basic -- financing, input supply, marketing, accounting and compliance with regulations – to more specialized services like skills training and technical support, quality improvement, and sophisticated branding.

Development consulting firm EDA Rural Systems in India has an enterprise services division that has been active over the past dozen years in a number of business categories relevant to low income families. These categories include honey production, leather goods production, rice paddy processing, silk textile production and small-scale vegetable production.

EDA also provides customized business services for urban micro-enterprises like vending machines, mobile phone repair, and bicycle and clothing sales and repairs.

Case study: Making honey

In this post, we’ll use the rural honey business in Bihar, India to illustrate the typical enterprise services required, and the constraints faced by honey producers in the region.

Some of the biggest challenges confronting honey producers include:

1) Lack of knowledge of bee colony management, disease control, honey extraction methods, and hygienic storage of raw honey.

2) A small and widely-dispersed supply chain.

3) They are acting individually, selling small quantities of raw honey to a small number of local agents; prices are limited by small lot size and payments for honey are often made over 2 to 3 months.

4) Lack of capital for existing beekeepers to expand and for new entrepreneurs willing to start a beekeeping enterprise.

The enterprise services provided by EDA to support honey micro-enterprises include:

1) Education for honey producers about potential demand in new markets, colony carpentry and design of wooden bee boxes.

A foundation sheet making unit

2) Help completing loan applications and conducting microfinance loan appraisals to get capital for establishing and expanding honey businesses.

3) Technical training for new honey producers in proper techniques and how to make marketable by-products like beeswax and foundation sheets for bee hives.

4) Help organizing honey producers into associations for the bulk sale of raw honey.
Support marketing by connecting local honey traders with large urban markets in Mumbai and Bangalore.

5) Organizing bulk purchase of honey by a milk marketing cooperative willing to retail honey alongside milk. The established brand of the cooperative increased volume and value for honey producers.

Micro-enterprises and the income they generate are a vital part of the survival strategy for the poorest people in developing countries.

Enterprise services play an invaluable role in bolstering these micro-enterprises. Since all small businesses need capital to get off the ground, sustainable microfinance is critical. The next part of this series will illustrate and discuss the relationship between enterprise services and microfinance.

Stay tuned for Part 2 of this series on how enterprise services put lending in the right hands to help more borrowers.

Kiva encourages Field Partners to offer these services to their clients by rewarding them with the Entrepreneurial Support Social Performance badge. Stay tuned for Part 3 of this series to learn more about this badge.

Parts 1 and 2 of this series are by Sanjay Sinha, managing director of Micro-Credit Ratings International (M-CRIL) and co-founder of EDA Rural Systems -- one of the world's leading development sector consultancy, research and capacity building organizations. He is also a member of the United Nations Advisors Group on Inclusive Financial Sectors.

In this second installment of our Nonfinancial Services Series, we examine how enterprise services can help micro-entrepreneurs successfully manage their businesses and take full advantage of the loans they receive.

Photos courtesy of Michael Foley photography, find your feet.