Women Empowerment through Social Entrepreneurship

Women Empowerment through Social Entrepreneurship The present case is adapted from an Oikocredit Loan Proposal. All names and identifying information have been changed.

Loan Type Borrower EUR value (approx.) Year of transaction Organization type Product Location 1.

Credit Line Indicraft Producer Company Limited 132,111 (INR 10,000,000) 2014 Handicraft Manufacturer & Exporter Handcrafted Furniture & Home Decor Bangalore

2008, of which, INR 10 million had been Credit History with Oikocredit: Loan of INR 25 million to Fabmart in 2008 disbursed and prepaid in 10 months.

2. Description of the Business: Indicraft, a Bangalore-based based company, established in 2012, is a social enterprise working on furniture, home décor made from natural fibres, with an established market linkage provided by Fabmart (a subsidiary of big conglomerate),with with a presence of around 100 stores across Indi India. a. Further, it exports apparel, furniture and home décor to IKEA, Habitat, TJ Maxx and Urban Outfitter etc. Till 2010, Fabmart directly worked with Self-Help S Groups – both artisans and weavers. In order to consolidate all the transactions with one organization, organiza Fabmart promoted two producer companies –for for apparel and natural fibre respectively. The volume of business in apparel and natural fibre is currently 70% and 30%. Most of the domestic market is in apparel and 90% of natural fibre products are exported. Fabmart, the trading arm of Indicraft,, an existing partner of Oikocredit was sanctioned a loan of INR 25 million in 2008, of which, INR 10 million was disbursed and prepaid within 10 months. IKEA as part of its Next Generation initiative, has given an order of INR 22.4 million to Fabmart in the current year to provide furniture and home décor made from natural fibre and is looking to reach INR 50 million by 2015. In order to serviceIKEA orders Fabmart set up an IKEA certified factory in Bangalore, wherein the raw materials (banana fibre and river grass) are directly procured from IKEA verified traders, woven into sheets at their production facility in Erode, Tamil Nadu adu and supplied to the SHGs for production. There are no supervisors from Fabmart involved in production. SHGs are solely responsible for meeting the delivery timelines and are paid on piece-rate rate basis. IKEA makes payment to Fabmart within 30 days of dispatch, and Fabmart makes payment to Indicraft in 90 days.

3. Collateral

Type

Description

Market Value

Distress Value

MG OT OT

Fixed Assets Inventories Trade Receivables

INR 32,000 INR 328,000 INR 14,770,000 INR 15,130,000

INR 29,000 INR 295,000 INR 13,293,000 INR 13,617,000

Date of Evaluation: 31-03-2014

4. Transaction Summary and Recommendation Loan Terms

Repayment Sources Security and Documentation Risks

Strengths

Recommendation(s)

Type of Facility: Credit Line Amount: INR 10,000,000 Interest rate and fees: 14.75% plus arrangement fee of 1% every year Term of Facility: 3 years Disbursements: can be drawn in upto 4 tranches Repayment Schedule:Each tranche to be repaid within 6 months from the date of withdrawal Collateral: Assignment of stocks and receivables Financial Covenants: Prior approval before new credit arrangements Purpose of Loan: Working Capital Structured Arrangement: Escrow account The loans will be disbursed against IKEA purchase orders and all receivables from Fabmart against IKEA orders produced by Indicraft will be received in the escrow account. The loan will be secured on Stocks and Receivables against IKEA orders, Escrow Account for receivables from Fabmart, Promissory Note and post-dated checks to the extent of 105% of the loan outstanding at all times.

5. Company Analysis a. Entity (see Financial Summary, Section 6) Liquidity: Current ratio is below 2 in 2013 and projected years. Quick ratio is above 1 in historical financials and below 1 in all projected years. As Oikocredit is financing working capital required by Indicraft to service IKEA orders, quality of assets in this case refers to the timeliness of receivables from the sale of these assets. Since, there is an established value chain in place with a reputed company like IKEA; the quality of assets is considered good. Leverage: Since, Indicraft is a Producer Company; it relies heavily on debt for running its operations. Equity is limited since the company is owned by poor artisans and weavers and laws do not allow equity infusion from outside. Profitability: The products of Fabmart are quite competitive in nature. Indicraft leverages good domestic presence of Fabmart with a good mix of domestic and exports.

b. Product and Operations The program of activities involved is as follows:1. Procurement of Banana Barks: Indicraft procures banana barks, and rope from IKEA verified traders working with farmers. 2. Weaving of Banana Sheets:The banana barks procured are peeled, sliced and dried in the manufacturing facility in Erode, Tamil Nadu. The dried banana fiber is used to weave into sheets of different sizes. Some of these sheets are dyed at an IKEA verified dyeing unit, while some are sent to the factory at Bangalore in their original form. 3. Production of Furniture & Home Decor: Indicraft has a factory in Bangalore for production of apparel, furniture and home decor. It has set-up a dedicated work floor for IKEA production. To meet production targets, Indicraft will work with over 80 handloom weavers. For the end product fabrication, Indicraft will employ 50 artisans, doing handwork to cut, attach and finish final product. Currently 50 artisans are already working on the first order. The production takes place in batches.

c. Management The board consists primarily of artisans working with Fabmart for a long time, who own the company. Co-opted directors bring in the expertise to run the business. All board decisions are taken by artisans with guidance of coopted directors. Indicraft is well managed by experienced professionals. Its parent and investors provide the necessary professional assistance. They are dependent on Promoter for leadership. Investor relations between Fabmart and Big Conglomerate exist and it is beneficial for Fabmart since it enables access to Big Conglomerate’s market channels, brings in professionalism in its processes and enhances its creditworthiness in the market. Indicraft has an experienced and well-qualified internal auditor and basic accounting; financial reporting systems are in place.

d. Market All the SHGs are experienced and working with Fabmart since 1998. The SHGs have been brought under the umbrella of Indicraft, as the promoters of Fabmart see it as the most suitable legal entity for long term growth and sustainability. Hence, Indicraftis not be viewed as a new organization, since it carries the institutional memory through its SHGs, board and deputed staff. Some of the SHGs have also in the past accessed credit from banks and have a credit history.

e. Context India has a rich heritage of artisans & craftsmen producing exquisite products for the domestic and foreign market. While there is a great amount of admiration & appreciation for the work of artisans, their earnings are meager and production though in clusters is unorganized. They are not covered under social security cover, as they are self-employed, and most work from home. The initiative like that of Indicraft is to organize the backend of the chain, which in the past did not get attention.

f.

Social impact Next Generation production order is worth INR 22.4 million, 100% of which will be produced by Indicraft. It involves procuring INR 1,518,000 of banana barks, and rope from traders working with farmers. For farmers, it translates to selling 873,000 barks, or 90,000 banana trees at an average cost of INR 7 per tree. Approximately 50 to 60 farmers will sell their trees, at average of 1750 trees per farmer. Hence, this project is expected to yield each farmer and additional income of INR 12,224. To meet production targets, Indicraft will work with over 80 handloom weavers. The projected payout to these weavers is INR 963,000 over 60 working days, at an average of INR 189.63 earned by each handloom weaver per day. This payout to each weaver is INR 20 higher than the minimum wage prescribed under Tamil Nadu law, for the handloom mat weaving industry. For the end product fabrication, Indicraft will employ 50 artisans, doing handwork to cut, attach and finish final product. These 50 artisans will earn minimum wage prescribed by Karnataka State and get statutory social benefits. Further, Fabmart Foundation leverages grants, government schemes to train rural artisans by offering design-led craft trainings, small enterprise skills development and technical support to 7500 artisans across 10 states.

g. Environmental impact Indicraft is compliant with IWAY standards of IKEA. Some of the standards with regard to the Environment are:1.

Necessary permits and pollution test reports on outdoor emissions to air and outdoor noise.

2.

Safe discharge of effluents and provision of effluent treatment plants

3.

Ground contamination investigation

4.

Environmental performance reporting

5.

Continuous improvement and Legal Compliance

6. Financial Summary (in INR) Financial Highlights Fiscal Year: April-March Current Assets Total Assets Current Liabilities Total Liabilities Net Equity Sales Gross Profit Operating Profit Net Profit Current Ratio (CA/CL) Assets Turnover

2012 (Audited) 143,000 143,000 51,000 51,000 92,000 0 0 (8,000) (8,000) 2.8 0%

2013 (Audited) 14,249,000 14,282000 13,971,000 14,061,000 221,000 22,606,000 1,616,000 149,000 129,000 1.02 313.4%

2014 (Projected) 17,680,000 17,680,000 16,340,000 17,146,000 534,000 47,083,000 8,065,000 4,956,000 313,000 1.08 294.6%

2015 (Projected) 19,253,000 19,253,000 17,414,000 18,220,000 1,033,000 53,712,000 9,200,000 5,935,000 408,000 1.11 290.9%

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