Memorandum submitted by CARE
and CASHE[152]
About CARE and CASHE
1. Cooperative for Assistance and
Relief Everywhere, Inc. (CARE) is one of the world's largest independent
non-profit, non-sectarian international relief and development
organizations. CARE has a significant presence in India that dates
back 55 years. CARE works in 11 states of India in diverse development
areas including health, nutrition, education, HIV-AIDS, disaster
response and mitigation and socio-economic development. CARE,
through its collaborative approach has partnered with over 200
NGOs, the government and other key stakeholders to reach out to
over 2 million of India's poorest. Credit and Savings for Household
Enterprise (CASHE) is CARE India's large initiative in microfinance
funded by DFID. CASHE has nurtured and supported 33 NGO-MFIs[153]
in the states of Andhra Pradesh, Orissa, West Bengal and Madhya
Pradesh. These MFIs and the groups and federations supported by
them represent some of the best quality MFIs and federations in
the country. CASHE reaches over 350,000 poor women in four states
through these NGO-MFI partners.
CASHE and the Private Sector
2. CASHE is a seven-year, fixed-duration
project that is due to end in December 2006. The fixed duration
mandate under which CASHE has operated has made the fostering
of sustainability a cornerstone of the CASHE operating model.
The definition of sustainability in the CASHE universe is holistic
and encompasses the creation of the sustainable access to financial
resources for clients, strengthening institutional capacities
of NGO-MFI partners and creation of an enabling environment. This
will allow the process of building both financial capital as well
as social capital that will sustain beyond CARE's operational
support. This focus on creating sustainability beyond its own
involvement has required CARE's to reach out and involve institutions
who can be enduring partners in the development of the underlying
community. Private sector partners are a critical component of
the spectrum of collaborators since they possess global capabilities
that would otherwise be unavailable to the CASHE's customer base.
3. Through microfinance, CASHE has
been able to provide its clients with developed capabilities,
sustenance security and the ability to absorb shocks. However,
CASHE recognizes that microcredit alone is not sufficient to bring
people out of poverty. The capability created by microcredit need
to be linked with market-based choices that the private sector
is capable of providing.
4. The focus of CASHE's engagement
with the community has been on identifying and developing the
capabilities of existing and promising micro-finance institutions.
This approach has had the consequence of aggregating the best-of-breed
micro-finance institutions under the CASHE banner. CASHE therefore
has mind-share with a large number of very well trained and disciplined
micro-lenders and intermediate federating organizations. This
represents a powerful aggregation of the poor that is robust in
volume and capability. The private sector sees this aggregation
as a natural market that dramatically reduces their cost of outreach
to otherwise dispersed and ill-connected customers at the bottom
of the economic pyramid.
5. This natural confluence of interests
has led to CASHE piloting several engagements that connect the
poorest of India with global markets. Some of CASHE's private
sector engagements have been showcased here:
6. ICICI Bank is the second largest
commercial Bank in India engaged in a range of financial services
offerings. CARE and ICICI vision for partnership is to work towards
building the capacities of the poorest of the poor to participate
in the larger economy. The partnership seeks to significantly
impact the lives and livelihoods of the poor, especially the most
vulnerable, across the country through provision of a range of
need based and appropriately designed financial products and services.
The collaboration entails onlending through CASHE partners, develop
new rural and urban customer for micro-banking and market developing
through research in products, governance and policy.
7. Hindustan Lever Ltd. (HLL) is
the biggest 'fast moving consumer good' FMCG Company in India
in terms of its annual revenues and market capitalization. Over
the past fifty years HLL has supported a variety of initiatives
that look to benefit communities across rural India. Project Shakti
is an innovative long haul project of HLL to build a rural distribution
network providing opportunities for rural women to act as rural
entrepreneurs, selling HLL products. Given the extensive presence
of CARE in a large number of villages and its network of partner
NGOs and community organizations, CARE would partner with HLL
in Shakti project through the CASHE project. A modest beginning
has already been made in this direction and as a first step, about
200 rural women SHG members who are part of CARE's CASHE program
have been identified in Orissa who would become HLL Shakti entrepreneurs
in the next one year.
8. CASHE has entered a number of
partnerships with private insurance providers to create a range
of innovative offerings for the poor. Life-insurance is being
provided to 15,000 individuals through a partnership with Royal
Sundaram. A premium of Rs. 35/ annum provides coverage of up to
Rs. 25,000. In partnership with the Healing Fields Foundation,
CASHE has provided 10,000 individuals medical coverage of up Rs
20,000 for an annual premium of Rs 365.
Lessons from Private Sector Engagement
What can the private sector do to
alleviate poverty?
9. CASHE's experience suggests that
the financial, technological, managerial and intellectual expertise
of private enterprises can be deployed to create new products
and services vital to poverty alleviation. Such engagement can
contribute to poverty alleviation in several ways.
10. Access to finance - Through
its partnership with ICICI, CASHE is able to bring to its poorest
clients funds that they would otherwise have no access to. These
funds, provided at significantly lower rates of interest than
the informal money markets represent a fundamental input to the
poor entrepreneurs journey out of poverty.
11. Access to Risk Mitigation -
A large proportion of CASHE's customers exist at the margins of
subsistence. Untoward life occurrences can have a dramatic negative
impact upon their financial position. Events such as the death
of the primary wage earner, the loss of the productive assets
such as cattle or the cost of treating illness can push a family
that has made significant progress back below the poverty line.
Pooling the risk of these Private sector enterprises engaged in
insurance have the sophistication to construct products that transfer
these risks in a cost effective manner. They also have large existing
customer-bases into which the risks of the poor can be pooled
at little incremental costs. Products such as the life-insurance
policy developed with Royal Sundaram and the health insurance
policy developed by Healing Fields have protected CASHE customers
from reverting to poverty.
12. Efficient intermediation - Exploitative
intermediation is endemic in India's poor societies. A combination
of infrastructure hurdles and institutionalized subjugation of
the poor has created an environment where the commercial channels
to and from the poor are the monopolistic purview of a few traditionally
exploitative traders. As a result, a poor producers invariably
gets less for their produce and pay more for their purchases.
Private enterprises have the capabilities required to create more
efficient channels of distribution that can deliver better products
to the poor customers at cheaper costs. CASHE's partnership with
HLL has created two such channels. The Shakti channel brings the
full range of HLL products to the poor through an entrepreneur
from their own community. Navajyothi is a new channel that CASHE
is setting up with the help of HLL to bring other essential consumption
items such as food and consumables to the poorest at prices that
are fairer than the local traders.
13. Increase in asset productivity
- Private sector companies also have the resources and innovative
capabilities to create solutions that can enhance the productivity
of the activities that the poorest are involved in. CASHE's partnership
with Pioneer Hybrid is an example of this principle at work. Agriculture
is a staple occupation of a large number of CASHE's customers.
Pioneer Hybrid has deployed its significant research capabilities
to create varieties of crops such as maize that have significantly
improved yields and therefore incomes in the fields of CASHE's
customers.
Seeking Convergence with Private Sector
Companies for collaboration at the BOP
14. In CASHE's experience with private
sector engagement, an approach that involves the private sector
purely through CSR considerations may achieve some outcomes, but
will not deliver the full potential of social development possible
through private participation. For this to happen, private participants
must see a way by which such engagement furthers their objective
of creating shareholder wealth. CASHE's philosophy has been based
upon seeking convergence between its social development objectives
and the long-term profit objectives of its private sector partners.
Thus engagements may begin with the CSR objective, but eventually,
they must find an avenue for the private partner to make an adequate
return.
Investing Together to Create Markets
15. Creating opportunities for economic
value is essential to ensure private engagement in the interest
of creating social value. But it must be recognized by both the
facilitating agency and the private participant that all concerned
must be willing to work to develop the market, not just service
and exploit it. CASHE's partnerships with ICICI, HLL and others
have a significant recognition of this idea and commitments from
both sides to conduct market development work through education,
research, policy advocacy and investment in common infrastructure.
The challenge to this approach is that private partners will have
to accept the idea that many of their initial investments will
be on 'common goods' that their competitors could use and yet
the market cannot function without the investment.
The Facilitating Organization
16. The CASHE model provides an
insight into one means of fostering private sector engagement
in a manner that maximizes the poverty alleviation impact. As
the facilitating organization, CASHE aggregates dispersed collections
of the poorest, develops their capability to transact commerce,
prioritizes interventions in their journey out of poverty and
connects these needs with the capabilities of the private sector.
In the absence of such a facilitating institution the opportunity
would either be unknown to the private sector or prohibitive to
pursue. Identification of the Shakti Amma's for HLL, cost of disseminating
product information for Pioneer Seeds, the knowledge of the products
required by ICICI's banking customers. The facilitating organization
has to maintain a fine balance between fostering the service and
fostering a company. Ideally, the facilitator will work with a
basket of providers and offerings from which the BOP customer
base can pick rather than crate a monopoly for a single private
sector provider.
In Conclusion - The implications for
the donor agenda
17. Engaging the private sector
as a stakeholder in development is the natural next frontier in
poverty alleviation. However, CASHE's experience suggests that
there are significant hurdles to overcome to create the framework
for engagement with the private sector. Overcoming these obstacles
a natural target for donor funding. Some specific ideas based
upon the CASHE experience are as follows:
18. Funding of Common Goods - The
common goods problem remains an important one to resolve in attracting
private investment into developmental work. An example in the
CASHE context is customer education with respect to insurance
products. Informing customers of the value of insurance is an
essential step in creating a market for insurance product, however,
once a company has invested in creating customer knowledge, the
customer is free to procure a competitors product. This issues
discourages private investors in assets that they cannot control.
Donor aid can be directed to creating shared infrastructure such
as customer education, credit-rating mechanisms and distribution
channels.
19. Product Design Assistance -
Since private enterprises are usually inexperienced in the markets
of the poor, innovating for these markets becomes a daunting task.
While designing products for these markets, often has to start
from first principles and companies have very few benchmarks by
which to reliably assess the returns of the investments they are
making in product development. CASHE has observed that this constraint
and uncertainty of return has limited the level of innovation
and investment private companies are able to make in the development
of products for the poor. Insurance is again a good example of
vast markets in crop, health and livelihood insurance that are
untapped because of inadequate product design. Donor aid could
play a vital role in the subsidization of the product development
cost so as to allow innovations and breakthroughs to emerge in
these fields.
20. Economic Viability Assistance
- CASHE also recognizes that while markets can offer choices,
they cannot always create the ability of the poor to afford these
choices. Competition in the markets will drive down the prices
for the poor, but there will still be some products that the poor
will not be able to afford. Donor funding should continue bridging
this gap between the market price and the poor persons purchasing
power.
February 2006
152 Credit and Savings for Household Enterprise Back
153
NGO program partners of CASHE developed into micro finance institutions
(MFIs) Back
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