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The good middleman


In Craft, Point of view Posted

Gond wall mural, middleman in crafts, SKS microfinance, Compartomos

Designer Artisan collaboration

Every time I listen to a student presentation (or even tea-time discussion) on crafts, I hear about this obnoxious middleman. The guy who is in between the artisan and the final customer, the one who makes the maximum profits leaving the poor artisan with barely anything for survival. I imagine the middle aged man with a paunch wearing a gold strapped watch and chewing paan. His life’s goal is to fleece the poor artisan. Only the reality is far away from it.

The artisan has to deal with multiple issues like lack of access to credit, understanding of his market, idea of design, pricing, packaging, inventory management and whole lot more that I can rant on about for pages. Middlemen are the least of his problems. I am a middleman (yes, another sexist term!) and I am not that guy. In a typical product based organization, there is a manufacturing/production unit, sales and marketing unit and allied functions like Human Resources, Finance and Accounting and many others depending on the specific needs of an organization. In no set-up is it possible for the manufacturing unit to directly sell their products to a bunch of customers and then go back to making more of those products. So why should this phenomenon exist in the craft industry? The maker/producer’s core competency is production, so it is in his best interest that he/she sells it to the ‘middleman’ who in turn stocks inventory from multiple producers and sells it at a higher price.

So the next question is how much should the artisan earn? What is the fair price for his product? Since craft is an unorganized sector, there is no policy on this. Hence in such situations, the market decides the cost of the product. This scenario leads to competition and this in turn leads to ‘better quality’ wares being demanded more.

Take for instance Fabindia. You could call it a middleman. Being an organization that buys from artisans and sells to the customer through its brand name, by definition, Fabindia falls into this ambit. The big difference being, Fabindia just does not buy. It trains artisans to make better quality products. Their design team understands market needs, translates them into products and helps artisans form self help groups that create channels for access to credit. The resulting products are both urban centric and rural made, with a strong flavor of the traditional form. While all this portrays the organization as a beacon of hope for the craft industry, there is always a question of how much profit that it makes? The industry average of net profit margins for social enterprises is pegged at around 3%, while Fabindia makes 8%. For the sector that it belongs, it is a highly profitable company. Fabindia employs 80,000 artisans and is for most of them, the only source of livelihood. For me, this one factor clearly justifies the business model of the organization and the profits that it generates.

Social mission is the foundation that houses many organizations, but profitability is what makes them grow. It infuses efficiency and accountability in the system and incentivizes the individual working to further the mission. Microfinance is a grey area here, it struggles to walk the tight rope between eradicating poverty and worsening it.

Hyderabad based SKS Microfinance may have taken a leaf out Compartamos’ book, but that doesn’t seem to be enough to ensure the same success story. SKS went public a year or so after Compartamos, the leading Microfinance institution in Mexico. While Compartamos regularly netted a profit margin of around 20%, SKS promised investors a higher figure. Critiqued globally (even by the father of Microfinance Mohammed Yunus), Comparatamos is seen as an organization that got richer by charging interest rates of up to 90% to its million poor borrowers who are mostly women. The success stories range from small grocery stores selling snacks to high school kids to producing homemade cheese that sells to bigger markets every year. While Mexican borrowers did not care much for the criticism or the high interest rates, the scenario was quite different in India. A spate of suicides in Andhra Pradesh owing to pressures by the microfinance institutions led to government scrutiny and a ruling that prohibited any sort of pressure to recover funds from borrowers. This led to unrecovered loans to the tune of rupees 1300 crores forcing SKS to exit state operations. While the situation isn’t exactly black and white and the factors that finally did SKS in was much more than just the hand of the government, the end result was that the needy were deprived of the much needed capital. While the Mexican counterpart continues to grow its base and help the women borrowers grow their business, the Indian story once again stagnates.

The answer to the artisan poverty problem isn’t doing away with the middleman. He isn’t a bad guy, after all.



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