Microfinance Companies: The new channel for Consumer Durables
As the urban market stands saturated, all the Companies are moving towards rural. Though FMCG had long back ventured into the rural arena by coming up with sachets and small packaging of everything, FMCD (Fast Moving Consumer Durables — Products with very long shelf life such as Fans, iron, Mixer etc.) took little longer. The reason being that FMCG products are priced less and are easily affordable. However FMCD goods are not so easily affordable. To tackle the same, FMCD companies came up with EMIs. However even with EMIs the problem hasn’t completely been solved. The reason is that it is cumbersome to collect EMIs from these borrowers. What if they default? Also the retailers cannot keep track of the EMIs all the time. Moreover, FMCG companies have wide distribution channels even in the rural areas, which is not that true for FMCD companies.
Reaching out to the poor
So how do we reach out to the poor? Welcome to the world of microfinance. The microfinance companies give loans to people mostly in the rural areas, and each branch covers 2500 borrowers on an average. Any good microfinance company will have close to 300–600 branches pan India. You can easily reach close to 5 million people via just one company. Right now, all microfinance companies do not offer products. I work for Spandana Sphoorthy, a leading microfinance company and we deal with some vendors in the FMCD Sector. The daily work of any microfinance company includes Loan collection and loan disbursement. During loan collection, the field agents collect the money from houses. Each of these house has on an average 10–20 borrowers who are sitting to repay their bi — weekly, weekly or monthly installment. During these house visits, the field agents show the catalogue of various FMCD products to the borrowers. He takes down the demand of the products and next time delivers the same to the recipients. That’s however just one way of reaching out to these borrowers.
During loan disbursement, the branch is filled with people. On an average there are 10–20 borrowers per day in a branch. At this time, products like Pressure cooker, fans, chairs etc. can be shown to them. Each day results in at least 3–4 sales per branch. Some days the sales can go upto 20 as well. The field staff earns very humble salaries. Hence every penny counts for them. If incentivized properly, they are more than willing to sell these products. These two touch points can easily mean increased sales for the companies.
FMCD is a good idea in this case because of their longer shelf life and their higher ticket price. Since the sell cycles in Microfinance typically take longer, the perishable FMCG products may not always work out. The higher price means that installments look attractive to the borrowers who may not always be able to afford these products on a down payment. During my stint with the microfinance industry, I found the huge demand for Mobile phones, Refrigerators, sewing machines, washing machines etc. among the borrowers. They repay the installments for these products along with the regular installments.
Importance of service
The only caveat is the servicing part. The companies need to ensure that there is proper servicing for these products in case of any damage etc. Otherwise the damage for the FMCD company can be huge, it may lose its future potential customers as well, because word of mouth works a lot in villages.
Overall it’s a very lucrative proposition for any FMCD company looking to venture into the Rural market. They can easily use it as a separate channel for their sales. They should approach good microfinance companies, and send the right kind of products according to the insights from the microfinance companies.