On a drizzly Friday morning, on June 20, 2008, in Chanderi town of Madhya Pradesh’s Ashok Nagar district, scores of people from the local weavers’ community are gathering at Sri Kunj guest house for an important business meeting. Their number will swell to about 250 by the time the meeting starts at 11.30 a.m. In the next hour or so, these men and women, who represent the nth generation of an age-old tradition of handloom work, especially known for the famous, silk-and-cotton Chanderi sarees, will have their first experience of the ways of a modern business organisation.
The weavers’ acculturation to the formalities of a corporate organisation is, after all, one of the important objectives in establishing DAH Chanderi, one of the 17 “supplier-region companies” (SRCs) set up across India by Fabindia, the Delhi-headquartered Rs 260 crore retailer of handloom garments and handicrafts.
These SRCs, also described as “community-owned companies”, are part of Fabindia’s ambitious plan to organise its expanding supplier base into corporate entities and enable thousands of homebased artisans in rural areas, who are mired in economic backwardness, to become shareholders.
Up to June-end 2008, DAH Chanderi and other SRCs had sold shares at par value of Rs 100 per share to about 9,000 artisans, who also get assured Fabindia orders through these companies. The 86-store strong retailer plans to set up dozens of more SRCs and sign up a total of at least one lakh artisan-shareholders by 2010 in step with its own expansion and in line with Managing Director William Bissell’s vision.
Change in Chanderi
At the AGM of DAH Chanderi, the general mood is that of a happy social gathering. Manu Hasija, the CEO and a Director of DAH Chanderi, has even arranged samosas and tea. At the entrance, two men busily check the identities of a crowd of shareholders—some of them have come with their children—before allowing admission.
“Since you have been facing the problem of not getting the right quality of cotton yarn at the right price, we have arranged to get all our supplies from Coimbatore. All the weavers we have spoken to are very happy with quality and price of the Coimbatore yarn,” Prakash Tripathi, Director of Artisans Microfinance (AMFL), Fabindia’s investment arm and main promoter of the SRCs, tells the weavers, who respond by clapping.
More clapping follows as Tripathi reads out in Hindi the numbers— turnover: Rs 1.08 crore, PAT: Rs 2,20,000, and (most importantly) a dividend of 10 per cent—from the audited annual report. “On an average, DAH Chanderi has been getting orders worth Rs 37 lakh a month from Fabindia. This will expand as orders from Chanderi increase and other handicraft centres in Madhya Pradesh, such as Bagh and Maheshwar, chip in,” Tripathi, also a Director in the SRC, later tells this writer.
Sales turnover in 2007-08
Growth in sales
Currently sources from 22,000 artisans
Plans to source from 100,000 artisans by 2010
Plans to make 100,000 artisan shareholders by 2010
Top 4 sourcing states
“Most of the artisans we work with have never known any income source in their lives other than a daily or per-piece wage. It’s a huge leap for them to own shares in a company,” says Smita Mankad, the MD of AMFL, who is busy stabilising the operations of 17 SRCs that have been set up in India’s craft-rich regions since October 2006.
Mankad says the companies have been set a collective turnover target—Rs 175 crore for 2008-09—that’s linked to Fabindia’s turnover and planned to become operationally profitable by the end of the current fiscal.While for now the SRCs, whose number will increase “according to needs”, only supply to Fabindia, they will also be allowed to deal with other buyers in the domestic and export markets in future, she adds. The retail company also envisions diluting its shareholding in SRCs as they mature and allowing the artisan-shareholders to increasingly take care of their businesses.
What is an SRC?
Fabindia has set up 17 supplier-region companies (SRCs) for the purpose of aggregating its artisan-suppliers and making them shareholders. Also described as community-owned company, these companies get assured orders from Fabindia. The retail company has introduced a share valuation and trading mechanism to allow shareholders to realise the value of their stock. The number of SRCs is currently 17 and is set to go up. The collective turnover target set for the SRCs for 2008-09 is Rs 175 crore.
Five of the large SRCs in terms of Fabindia sourcing are listed alongside.
Name of the company
Desert Artisans Handicrafts Jodhpur
Desert Artisans Handicrafts Bhuj
Deccan Crafts & Weavers
Krishna Weavers & Artisans
“SRCs create value for memberartisans in three ways: they give the crafts people sustainable jobs, an investment opportunity, and appreciation in the value of their shares,” says Bissell, a champion of market-based models for helping small producers, and who’s also the son of Fabindia’s American founder John Bissell.
Meanwhile, Fabindia has worked out a share-trading mechanism as a means of providing liquidity and realising value for SRCs’ fast growing base of artisan-shareholders. “We have a formula for valuing the shares, certified by the auditors and based on the turnover and profitability of the company. We open the share-trading window at certain intervals and every shareholder gets the option of buying, selling or holding shares,” says Mankad.
After shareholders are informed of the prevailing share price, their responses are obtained in writing. “We then match the buyers and the sellers. In case bids are more than the shares on offer, we’ll do pro rata allocation of shares to the bidders. The share certificates are endorsed in the purchaser’s name.
The entire cycle is completed in that share-trading window.”At the AGM of DAH Chanderi Hasija, the CEO, informs the shareholders that the price of their Rs 100 share has climbed to Rs 147!
The genesis of SRCs
For Fabindia, the SRCs are turning out to be a hugely exciting experiment in ‘inclusive capitalism’ involving the handloom and crafts sector, which has long been languishing despite large government intervention, grants and subsidies. An SRC is a for-profit corporate entity, not a cooperative (which has long been the model favoured by the government for the rural economy) or any ‘informal’ business organisation whose nature could be at odds with its commercial objectives.
The right model
Over the 1990s, Bissell got a better sense of the main problems faced by rural artisans—unorganised production, low productivity, inadequate finance, and very weak market linkages. Bissell gained another insight into the rural economy. “In rural India, age-old social relations are often a determinant of people’s economic performance.
For example, in Rajasthan and Gujarat only a person from Meghwal caste can sell land to another Meghwal.” He also became increasingly convinced that government interventions and promotion of cooperatives don’t help the artisans. “A lot of poverty in the rural areas is because of the fact that there are very few ways for people to own assets or property. It’s difficult to divide land or a tractor, for instance. There are not many divisible assets to own,” says Bissell.
The cooperative model of business organisation is based on the ideal of collective ownership and decision-making. In co-ops, each member has one vote regardless of his investment in the business, governing boards are elected by vote rather than share-holding, and so a business is always vulnerable to politics and intrigue. “Cooperatives do well in aggregating small producers… in making the whole more than the sum of all. But they do not allow individual ownership of property, discouraging entrepreneurship and more and better production. And so they also do little to alleviate poverty.”
Bissell, however, was smart enough to learn his lesson from cooperatives and incorporate it into designing his own solution for the development of the handicrafts sector—a company in which artisans will be the shareholders. Like a cooperative, a company also aggregates small producers into organised bodies. But a company also allows them to hold shares (“divisible assets” whose value varies with the company’s book value and which can be made saleable through a system of trading), thus making them part-owners.
Aavishkar’s Rai says he is not sure if artisan-shareholders in SRCs would be able to realise much value in their shares in the first 2-3 years, even though the premium that his fund has paid in buying into the four SRCs has already caused “distinct” appreciation in their share values. “But after 3-4 years, Fabindia’s sharetrading window could be recognised as a novel mechanism for creating liquidity in quite illiquid assets of these unlisted companies.”
Looked at closely, Fabindia’s SRC model also reveals some serious conflicts of interest; the retailer is a shareholder in an SRC as well as a buyer and an artisan is selling his product and labour to an SRC and is also a shareholder in that company. “In a classical sense, there is a conflict of interest in this model. But you can’t conduct this experiment without this conflict of interest. How else can you open so many SRCs and create benefits on all sides?” says Rai. “I believe as long as you can create value for all sides, even if unequal, you are doing a great job.”
It will be interesting to see how Bissell’s bold experiment shapes up in the years ahead.
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