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Microcredit helps women entrepreneurs in India
With Loans, Poor South Asian Women Turn Entrepreneurial
By CRIS PRYSTAY
Staff Reporter of THE WALL STREET JOURNAL
Page B1
May 25, 2005



CHERVUANNARAM, India -- Every morning, Sarjoni Nandyala puts a few bars of Unilever PLC's Lifebuoy soap and sachets of Clinic shampoo in a canvas bag and sets off to sell them to her neighbors in this dusty farming village in southeastern India.

For Mrs. Nandyala, who took out a $200 loan from a state-run microcredit agency to start her business, the work is challenging and the returns modest -- $16 a month is her average profit.



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But Hindustan Lever Ltd., Unilever's Indian subsidiary, is counting on thousands of women like 40-year-old Ms. Nandyala to sell more goods to tens of millions of low-income rural consumers it couldn't reach before. Today, about 13,000 poor women are selling Unilever's products in 50,000 villages in India's 12 states and account for about 15% of the company's rural sales in those states. Overall, rural markets account for about 30% of Hindustan Lever's revenue.

"There's incredible potential in rural markets," says Sharat Dhall, Hindustan Lever's director of new ventures and marketing services. "That's where the growth will come from."

And that is where the microcredit connection comes in. Microcredit blossomed in South Asia in the early 1990s, when development agencies began giving loans of $100 or so to poor women to help alleviate rural poverty. Villagers used the money to make handicrafts, buy cattle or seeds and fertilizers to expand family farms. In India and Bangladesh, state governments eager to boost local incomes got in on the act, as did private banks, which found that repayment rates were high enough to make microlending profitable.

Development agency CARE International, for example, has hooked up Canadian shoe maker Bata Ltd. with its microcredit clients in Bangladesh, who now sell inexpensive flip-flops and sandals in villages that Bata can't otherwise reach. And Max New York Life Insurance Co. Ltd., a joint venture of New York Life Insurance Co. and Max India Ltd., has created co-branded insurance products with CARE India that are sold through the nongovernmental organization's microcredit clients. Hindustan Lever, meanwhile, has expanded its own program into Sri Lanka and Bangladesh, and its African units plan to adopt it by next year.

About 70% of India's population lives in villages, but many companies still focus on urban areas, where competition is intensifying as the economy expands and profit margins are thin. "For many fast-moving consumer good companies, the bottom of the pyramid is not marginal anymore -- that's where the market is," says C.K. Prahalad, a professor at the University of Michigan's Stephen M. Ross School of Business, Ann Arbor, Mich., and an author of several books on rural marketing. "It's not about making cheap stuff, or being nice to poor people. Western markets are saturated."

When executives at Hindustan Lever were plotting how best to reach untouched markets in rural India in 1999, they noticed that dozens of agencies were lending microcredit funds to poor women all over the country. These would-be microentrepreneurs, the company thought, needed businesses to run.

So Hindustan Lever approached the Andhra Pradesh state government in 2000 and asked for access to clients of a state-run microlending program. The government agreed to a small pilot project that quickly grew. The initiative, dubbed Project Shakti (which means strength in Hindi), has expanded to 12 states. Agencies such as CARE India, which oversees one of the subcontinent's biggest microcredit programs, also have teamed up with the company.

"For the women, it provides a livelihood," says Hindustan Lever's Mr. Dhall. "For us, it is a great one-to-one medium for brand communication and consumer education."

When one of Mrs. Nandyala's neighbors, who used a knock-off soap called Likebuoy that comes in the same red packaging as Unilever's Lifebuoy brand, balked at paying an extra rupee (about two U.S. cents) for the real thing, Mrs. Nandyala gave her a free bar to try. A skin rash caused by the fake soap cleared up after a few days, and the neighbor converted to Lifebuoy.

When another neighbor asked why she should pay more for Unilever's Wheel detergent than a locally made bar of laundry soap, Mrs. Nandyala asked her to bring a bucket and water and some dirty clothes. "I washed the clothes right in front of her to show how it worked," she says.

Project Shakti women aren't Hindustan Lever employees. But the company helps train them and provides local marketing support. In Chervuannaram, a Hindustan Lever employee, who visits every few months, demonstrates before a gathering of 100 people how soap cleans hands better than water alone. Dressed in a hospital-style smock, she rubs two volunteers' hands with white powder, then asks one to wash it off with water alone and the other to use soap. She shines a purple ultraviolet light on their hands, highlighting the specks of white that remain on the woman who skipped the soap. As the crowd chatters, the Hindustan Lever worker pulls Mrs. Nandyala to the front of the hall, and tells the crowd she has got plenty of soap to sell.

Mrs. Nandyala wasn't always comfortable with her new, public role. She first applied for a microloan from a government-run agency to buy fertilizer and new tools for her family's small lentil farm four years ago. In 2003, the agency introduced her to a Hindustan Lever sales director from a nearby town. She took out another $200 loan to buy sachets of soap, toothpaste and shampoo -- but was too shy to peddle them door to door. So a regional Hindustan Lever sales director accompanied Mrs. Nandyala and demonstrated how to pitch the products.

Mrs. Nandyala has repaid her start-up microloan and hasn't needed to take another one. Today, she sells regularly to about 50 homes, and even serves as a miniwholesaler, stocking tiny shops in outlying villages a short bus ride from her own. She sells about $230 of goods each month, earning about $16 in profit. The rest is used to restock products.

Hindustan Lever says it isn't making much profit from Project Shakti yet, because of support, marketing and other start-up costs. Still, the distribution gambit pays for itself and it is growing. The company aims to expand Project Shakti to 40,000 rural women by 2006. Project Shakti could account for as much as 25% of the company's total rural sales within the next three to five years, Mr. Dhall says.

For NGOs, such commercial link-ups have meant shedding distrust of big business. "At first we were unsure about it," says Vipin Sharma, director of CARE India. "But in the long run, we think the poor will benefit from learning about retailing, distribution and marketing."

CARE, meanwhile, hopes to use Hindustan Lever's marketing expertise to promote other small, rural businesses. In one state, Hindustan Lever agreed to help create packaging and branding for pickles and spices made by a local group of CARE's microentrepreneurs. Those women now sell their own brand of spice, called Jyoti, alongside Hindustan Lever's products.

The full version of article is available at the THE WALL STREET JOURNAL

Copyright 2005 THE WALL STREET JOURNAL


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