Village Inc.

TO achieve scale, the corporate sector would need to be involved. However, without volume they would be chary of entering these markets, and hence the need for aggregating/breaking bulk through the hubs. Having said this, the corporate sector is aware of rural potential and keen to enter these markets, but lack of knowledge and the existing inefficiencies has limited this entry.

Rural hubs also present an opportunity to corporates who don8217;t have the bandwidth to establish their presence. Some partnerships would be direct whereas others would benefit from the scale produced from the partnerships through the hubs. With corporate involvement, this mechanism gains scalability.

Similarly, grassroot producers have not optimised their production capabilities, due to a lack of access to markets and organised distribution channels. Given the high cost of funds these producers incur in accessing working capital, they cannot afford to hold inventory, and so produce only what they are sure they can sell.

Currently both rural consumers and producers are exploited by a chain of middlemen playing the aggregating role. Rural hubs can mitigate these issues by facilitating commercial activity at the grassroots.

For example, when a villager buys a bicycle, he/she incurs travel cost and time of going to the nearest town. If the villager paid the same price in the village, these costs would be saved.

For rural hubs to succeed there are three key requirements. One, finance could be provided by banks and micro-finance institutions that need lending opportunities. Banks are also under pressure to meet their rural lending obligations, and so would welcome a credible business to lend to.

Two, operations, including technology where required. Three, training a rural team to establish channels for procurement and distribution.

Corporates, using the hub8217;s services, would provide both two and three. To validate the business case for rural hubs, I draw on the demonstration projects of Grassroots Trading Network for Women GTN, a company that links poor producers to markets.

Working with the Self-Employed Women8217;s Association SEWA and Hindustan Lever, Grassroots facilitated the development of a Rural Distribution Network RDN. Through this, SEWA has created hubs that facilitate the movement and sale of high quality agriculture commodities and cottage industry products procured from and produced by SEWA members.

Currently, the flow of goods is from rural producers to rural consumers. In time, rural producers will sell their goods in urban markets and corporations will have the opportunity to distribute their products through the RDN.

Already, Hero Cycles is participating in the RDN to increase bicycle penetration. This model has the potential to employ 10,000 women in the 14 districts where SEWA operates in Gujarat.

Another GTN initiative since 2003 is a partnership between SEWA and ITC, where SEWA acts as a 8216;8216;consolidator8217;8217; to procure sesame seeds from small and marginal farmers for ITC8217;s export market.

ITC has gained traceability documents mandatory for exports, apart from value addition of cleaned and graded stock, and SEWA has better returns for their farmers Rs 29 versus Rs18 a kg and an additional revenue source.

This model has been extended to wheat procurement with Cargill, and Fabindia in the handloom retail industry. In the latter partnership, Fabindia provides designs, while buying garments and furnishings executed by the artisans.

These partnerships hinge on SEWA8217;s ability to consolidate procurement for corporates. Such aggregation and distribution functions can be replicated by savvy rural entrepreneurs heading rural hubs.

A corporate could also establish rural hubs to get deeper penetration for its products in rural areas, and also start a new business venture by charging for distribution/procurement from those.

Corporates with whom I have discussed the concept are quite excited. They know the rural potential and a number have plans or launched products catering to the rural sector. What better than to have the logistics for distribution and procurement in place?

In addition, the knowledge that they would gain of rural markets by setting up rural hubs would be invaluable. The potential is huge.

Learning from hands-on experiences, GTN is developing a partnership with ICICI for establishing rural hubs at the district level. Value-added services are also being considered, for example in commodities or crafts, providing certification.

Beyond the two-way flow of goods, numerous services could be provided such as agriculture, health and educational information. The data collected through the channels created by the hubs, would be invaluable to different organisations, and could be sold at reasonable prices.

The common thread running through these initiatives is the ability of diverse players to collaborate. This is no easy task. However, individual and isolated efforts have and can only go so far. The need is for cross-sector partnerships that have the scale for greater impact.

Larger cross-sector partnerships will increase the velocity of the effort in a sustainable manner. Mutilaterals and the social sector have endorsed the concept, but have questioned the possibility of these hubs becoming even more exploitative than the existing system.

The safeguard suggested is that a competent NGO also be part of the hub, as a coordinator, to ensure fair returns. Rural hubs present an opportunity for not just NGOs and corporates but also all stakeholders operating in the rural sector, such as the government, development agencies, educational institutions, chambers of commerce.

The role of the government should be to incentivise/facilitate rural hubs rather than manage them. Any donations, grants or subsidies should be happily accepted as bonuses, which could be utilised for community good, such as providing tractors for farmers who cannot afford them.

However, the hubs must operate as viable businesses to ensure their longterm sustainability.

The author is CEO, Grassroots Trading Network for Women. He can be reached at rkkidwaigrassnet.org