Introduction
The king of Agarwal community “Maharaja Agrasen” introduced a unique concept in his kingdom to support the business environment. The idea was each household in his kingdom will give 1 coin and 1 brick to an immigrant, so they can build a house for themselves and started their own business from the bricks and money, they received from their fellow citizens, which eventually made his kingdom one of the most prosperous kingdoms.
It has to be learned from the above small story about the significant role of community and community funding (will understand in detail in later part) for the prosperity of the nation and the same is also evident from the below examples:-
i. Morbi a town in Gujrat produces 90% of India’s and 5% of worlds ceramic output and they also hosts world’s largest manufacturer of wall clock “Ajanta Quartz” of Ajanta Group based in Morbi. Today, Ajanta Group moved from clocks to Home Appliances, Electrical Bikes, Green Energy and having business in 45 countries.
ii. Tiruppur a town in Tamil Nadu is also known as the knitwear capital of India, accounting for 90% of India’s cotton knitwear export.It has spurred up the textile industry in India for the past three decades. It contributes to a huge amount of foreign exchange in India. In the Fiscal year 2013, exports were ₹17,500 crores. Today they supply to world’s renowned MNC’s such as Nike, C&K, H&M, etc.
iii. Ludhiana is Asia’s largest hub for bicycle manufacturing and produces more than 50% of India’s bicycle production of more than 10 million each year. Ludhiana produces 60% of India’s tractor parts and a large portion of auto and two-wheeler parts. Many parts used in German cars such as Mercedes and BMW are exclusively produced in Ludhiana to satisfy the world requirement.
The above mentioned are some of the Industrial clusters of India largely dominated by MSME’s and they can be considered as the best examples of community-driven businesses based on relations which allows them to raise funds within family, friends and relatives. Today, they have made their mark in the business world and therefore they are considered as the most reliable suppliers to worlds renowned MNC’s such as Nike, C&K, H&M, Daimler, BMW etc.
Today we are facing a sad reality, even a small lamp (diya) using in Diwali we are importing it from China. It shows how economically unviable our business environment has become and therefore we need to create an ecosystem for a business environment where all the resources need to be made available to them, such as:
- Low-cost capital.
- World-class infrastructure with an aim to bring down our logistics cost.
- Quick availability of factors of productions.
Here we are focusing mainly on the creation of Low-Cost Capital.
Current Position
The most important thing every business house aspires to achieve is scalability and profitability but due to lack of the availability of funds (i.e. cost of fund is very high in India), infrastructure, research and development etc, we are much behind as compared to our global peers. The total profitability of our top 100 most profitable companies in F.Y. 2019-20 is mere $ 54.74 billion as compared to $ 121.43 billion of top 5 American companies i.e., Facebook, Apple, Amazon, Netflix and Alphabet i.e., Google (hereinafter known as FAANG companies) and the total revenue generated by top 100 companies are $632.29 billion as compared to $793.29 Billion of FAANG companies. (for details of sales and profitability refer excel sheet attached)
So, It can be inferred from the above statistics that there is a huge gap between Indian companies and its global peers that have to be filled in, but what are the factors which are not allowing us to grow even after having 4 times bigger market than the USA in terms of population. The answer lies in the per capita income of USA ($ 59,484) which is 29 times more than India ($ 2,139) and on contrary India fails to produce big corporations to dominate the world market like Apple, Google, etc.
The growth of per capita income and Indian corporations are interdependent on each other. The growth in per capita income leads to a rise in consumption which results in high profits and sales or the growth of Indian corporations leads to a decrease in unemployment and rise in per capita income. Here, in this article, we are also emphasising more on increasing per capita income of Bharat by establishing community fund at the panchayat level.
Concept
The basic philosophy behind proposing the concept of community fund is the availability of capital in the Indian market at an initial level is very difficult. Further, the rate of interest as compared to the world average is very high which at an initial level only makes our product unviable due to high cost as compared to its global peers. So, if we create an ecosystem especially in the rural area where anybody aspires to do a new business or need capital for running its regular occupation they can do so by raising funds from community fund, then it will serve many purposes by solving many concerns presently before us, such as:-
i. Every government wants to increase farmers income and this can be achieved through this concept and it may also lead to reducing farmers suicidal cases.
ii. Increase in farmers income leads to a reduction in farm loan waivers, which can be deployed for productive use.
iii. Improvement in the standard of living and infrastructure in rural areas leads to low migration in metropolitan cities.
iv. The most important benefit of community fund is that it will help to change the mindset of the society where jobs are given more preference than a business.
And many more.
Reasons
The reason why we are emphasising more on rural India is 68.84% of our population lives in rural areas i.e. nearly 93 crores people (Total Population 135 crores approx.) so there is a big job to be done. The 93 crores peoples are living in 6,40,867 villages all across India and it is further spread in various villages based upon 3 groups:
Statement showing region wise number of Commercial Bank branches:
| Quarter Ended | Northern Region | Northern Eastern Region | Eastern Region | Central Region | Western Region | Southern Region | All India |
|---|---|---|---|---|---|---|---|
|
March, 2020 |
27,996 |
4,742 |
25,778 |
30,783 |
23,694 |
43,336 |
1,56,329 |
|
December, 2019 |
27,837 |
4,716 |
25,602 |
30,567 |
23,520 |
43,029 |
1,55,271 |
|
September, 2019 |
27,697 |
4,691 |
25,532 |
30,348 |
23,244 |
42,590 |
1,54,102 |
|
June, 2019 |
27,455 |
4,652 |
25,365 |
30,138 |
22,976 |
42,229 |
1,52,815 |
It can be analysed from the above data that we have to achieve a lot more on the front of Financial Inclusion. Due to low reach of the financial sector in India, many entrepreneurs journey don’t even start, many businesses continue to run on the same scale for decades, however, in hindsight it is economically not viable for banks to have bank branches in every village because of the fixed cost it carries. Therefore we need a holistic approach to achieve financial inclusion and community fund enable us to achieve our objective.
Problems
To start any business one would require capital and he/she can arrange it from its internal accruals (savings, family, friends) or borrowing from the banks, but the basic condition for borrowing money from a financial institution is to have ‘Income Tax Return’ (ITR) to be filed with the government and the filing of ITR is of no relevance till the time it is not ‘clear’ from your ITR that you have a repaying capacity. Obviously, Banks have to be cautious while lending and therefore they have to evaluate a borrowers credibility based on certain parameters. Let’s have a look at the number of Income Tax Return files in India in F.Y. 2017-18 and A.Y. 2018-19:
The ITR driven and CIBIL based formalised credit system, left out a substantial portion of the population to avail credit from banking sector and therefore to meet their credit demand RBI authorizes various NBFC’S and Micro Finance Institutions (MFI) to carry out business in rural areas. The Micro Finance companies provide income-generating loans majorly to women’s only through Self Help Groups (30 members max per group) and held everybody accountable for the default of any of its member. Following are the key features of microfinance loan:
i. The borrowers are generally from low-income backgrounds
ii. Loans availed under microfinance are usually of a small amount, i.e., microloans
iii. The loan tenure is short
iv. Microfinance loans do not require any collateral
v. These loans are usually repaid at higher frequencies
vi. The purpose of most microfinance loans is income generation.
The MFI’s usually provides income-generating loans such as a loan for buying of agriculture equipment, livestock, pesticides, vocational business loan, etc. By considering all the good works of MFI’s but it fails largely to provide economical loans. Hence, it is a labour-intensive sector i.e., company staff has to travel in a village for getting new loans, then forming a self-help group (SHG) and conducting meetings at regular interval of the SHG to verify any problems facing by members and accordingly determine the NPA’s and therefore it involves very high operational cost and hence they left with no choice but to charge exorbitant interest rate ranging from 22% to 30% which is as good as borrowing money from traditional money lenders only. Rather than creating employment for a few hundred peoples MFI’s fails to contribute to the economy due to its high-interest rate structure.
Introduction of Community Fund to Bharat
Why community fund? India is a community-driven society, in the 21st century also a large part of India prefer to live within its community, stay along with community, marriages taking places within the community, etc. So if we economically tie (Creating a Community Fund) all the communities living in a particular village, then it will help us to build a true democratic ecosystem all around the nation where there will be no casteism, happening of inter-caste marriages, and to a certain extent, we can eliminate all the existing social evils.
The concept of community fund (i.e. taking inspiration from Maharaja Agrasen) will steadily improve the standard of living and earnings of people living in rural India. A simple thing has to be followed, a community fund (fund) has to be set up at village level and every year each earning member of the village has to contribute 1% of its annual income to the fund and out of it, the loan has been given to the villagers at floating interest rates composite of retail inflation rate plus 1% margin. Now here comes the question that everybody will turn to obtain a loan from the fund by contributing little to the fund. So here priorities need to be set up from the view of overall development of the village such as:
i. Every Farm must have a water pump.
ii. Bulk buying of seeds of crops cultivated in a village and distribute the same to the farmers on pro-rata basis of land they have under cultivation.
iii. Every household must have a cattle such as Cow, Buffalo etc which provides good nourishment to the children and provide a steady income from milk.
iv. Every Farmer must have his own tractor.
v. Setting up a cottage industry.
vi. Once all the basic requirements mentioned above achieved than the community fund can also be deployed to provide seed funding to new businesses within the village itself
The village has to prioritise its requirement and accordingly pursue each requirement at a time.
Statement showing contribution in Community Fund at village level based on 3 groups:
| Particulars | Group I | Group II (Average Population) | Group III |
|---|---|---|---|
|
Population per village (A) |
500 |
5,250 |
10,000 |
|
Demographic Dividend (I.e., population between age group of 15 to 59) (B) |
62.50% |
62.50% |
62.50% |
|
Employable Population (C ) = A*B |
313 |
3281 |
6250 |
|
Less: Unemployment Rate, home makers, Students, etc @ 40% (D) |
125 |
1312 |
2500 |
|
Effective Deployable population (E ) = C-D |
188 |
1969 |
3750 |
|
Contribution to community fund @ 1% of per capita income i.e., Rs. 1,60,000/- (F) |
1600 |
1600 |
1600 |
|
Contribution per village per year (G) = E*F |
3,00,000 |
31,50,000 |
60,00,000 |
|
*Total village in each group (H) |
2,36,004 |
4,00,887 |
3,976 |
|
Divided by $ 1 billion (in Rs.) (J) |
75,00,00,00,000 |
75,00,00,00,000 |
75,00,00,00,000 |
|
Total Contribution from each group in ($ billion) (K)= I/J |
0.94 |
16.84 |
0.32 |
The above table substantiates that huge capital can be deployed effectively over the period of time for creating an ecosystem which has its multiplier effect on various segments of society from elevating people from Below poverty line to provide seed funding to new businesses which also enable us to tap the potential of youth in India. If we all start believing in this one idea then surely this will be going to give birth to many great ideas in future and then the whole world will witness the arrival of India.
This concept raises various questions about its viability and sustainability and therefore I would like to discuss some questions that I have presented in my mind and how we can address the same, such as:
1) Why anyone reveal his real income to anybody, so this may lead to lower the contribution to community fund ?
Ans. Let’s assume people in the villages are engaged in farming and working in a factory, for simplification purpose we are taking two occupations only. So a farmer has to give the quantity details of crops he harvests to the villagers and a person working in a factory has to give his salary slip as proof of their income.
In reality, peoples are engaged in various occupations and therefore villagers have to unanimously determine the parameters to evaluate the income of every earning member of the villager.
2) What about the management of the firm?
Ans. i. Let’s keep the structure of the fund very basic without allotting any designation to anybody, so we can avoid excessive control of power by centralization in the hands of few.
ii. A particular person from the village has to be appointed for banking transactions.
iii. Every transaction has to be taken place in front of the villages such as:-
- At the time of collecting contributions, everybody should gather at a common place to deposit their contribution with an authorised banking person and the entry should be made in a register.
- At the time of distributing loans again, everybody should gather at a common place so everybody should know who avails the loan and of what amount.
- A common board has to be maintained outside sarpanch office or any other suitable place where details of the amount collected, distributed and balance amount in a fund should be written on day to day basis, so everybody must know the current position of funds.
iv. At the time of deposit and withdrawal a banking person required to take 2 new people along with him, so we can avoid misappropriation of funds through collusion.
v. Village should unanimously authorize a person as a signing authority for banking transaction.
3) Is there option with any villager to stay out of this community fund?
Ans. No such option should be given otherwise those peoples who have their interest in the later stage of the priority list of the village, they may discontinue a thought that this arrangement may not sustain in future and all their contribution will go into vain. So here I would like to quote what Chanakya Said in Chanakya Niti:
Sacrifice a person for the sake of the family, a family for a village, a village for the state (It signifies the interest of the nation is paramount).
4) There are peoples in the villages who could not afford to contribute, so what are the arrangements for such people?
Ans. This going to be a very common situation in every village but we need to take everyone together for the prosperity of our nation. It’s up to the villagers to devise a scheme in such a manner where nobody should be felt left out.
Why we are not suggesting any policy here, so the reason is the economic situation of every region varies, so we do not want to propose a one size fit model all across India.
5) Whether supervision of government required?
Ans. No, the administration set up to supervise each community fund at village level will cost very heavily to the government and unnecessary compliances need to be made to serve administration creates ambiguity and vested interest.
So these are the questions presently I have in my mind if you have any other question or you may want to suggest any modification you can communicate to me on my Email: pratikshinde197@gmail.com.
Thank You For Reading!
Follow Us @
