Study Report March 2014

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Mapping Financial Gaps in the

Textile-Handloom Cluster of

Bargarh-Sambalpur

Study Report

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Submitted to:

International Consultancy & Coordination (ICC), SIDBI

Study Report by:

Grant Thornton

Acknowledging inputs from:

Weavers Service Centre, Bargarh State Bank of India, Bhubaneswar Department of Textiles, GoO

Barpali Meher Arts & Crafts Handloom Co-op. Society Ltd., Barpali Boyanika, Bargarh and Bhubaneswar

Sambalpur Bastralya, Bargarh L&T Finance, Bargarh

Textiles Committee, Bhubaneswar and Mumbai

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Annexure 2: Questionnaire –Manufacturing Sector 33 Annexure 3: Questionnaire – Service Sector 39 Annexure 4: Review of Approach & Methodology 42 Annexure 5: List of firms, and public and private BDS providers interacted with over the study46 Annexure 6: Format of the Discussion Format vis-à-vis FIs/NBFCs 49 Annexure 7: Format of the Discussion Format vis-à-vis BMOs and other service providers 50 Annexure 8: Participants of Stakeholder Consultation organised for mapping financial gaps in the textile-handloom cluster of Bargarh-Sambalpur 51

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List of Tables

Table 1: Summary tabulation of the credit supply and minimum demand and related gaps ... 7

Table 2: Products manufactured in the Bargarh cluster ... 13

Table 3: Cluster Information ... 13

Table 4: Lending Activities of all Commercial Banks ... 15

Table 5: Composition of MSE and non-MSE advances ... 15

Table 6: MSE Lending of Major Bank categories in Bargarh – Sambalpur district ... 16

Table 7: Perception of time taken for loan processing and disbursement ... 17

Table 8: Time taken for loan processing and disbursement ... 17

Table 9: Equity contribution required by FIs ... 18

Table 10: Credit Mix ... 19

Table 11: Sources of Finance ... 19

Table 12: Financial Needs ... 20

Table 13 Summary tabulation of the credit supply and minimum demand and related gaps ... 20

Table 14: Slab-wise segregation of surveyed MSEs ... 21

Table 15: Credit Demand for Financial Products ... 21

Table 16: Credit Demand for Financial Products ... 21

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List of Abbreviations

S.No Abbreviation Full Form

1. CFC Common Facility Centre

2. CGTMSE Credit Guarantee Fund Trust for Micro Small Enterprise 3. CII Confederation of Indian Industry

4. CLCSS Credit Linked Capital Subsidy Scheme 5. DIC District Industries Centre

6. GIZ Deutsche Gesellschaft for Techhnische Zusammenarbeit 7. ISI Indian statistical Institute

8. ISO International Standards Organisation 9. ITI Industrial Training Institute

10. KfW Kreditanstalt for Wiederaufbau

11. MSME-DI Micro Small and Medium Enterprise Development institute 12. NSIC National Small Industries Corporation

13. R & D Research and development

14. SIDBI Small Industries Development Bank of India 15. MSME-FDP MSME- Finance and Development Project 16. SIDCO Small Industries Development Corporation 17. SPV Special Purpose Vehicle

18. SWOT Strengths-Weaknesses- Opportunities-Threats

19. IHCDP Integrated Handloom Cluster Development Programme 20. WCS Weavers Co-operative Society

21. BDS Business Development Services

22. IHTP Integrated Handloom Training Programme 23. NHDC National Handloom Development Corporation 24. SHG Self Help Group

25. MCGFS Mutual Credit Guarantee Fund Scheme 26. BMO Business Membership Organizations 27. MFI Micro Finance Institution

28. NABARD National Bank for Agriculture and Rural Development 29. NBFCs Non-Banking Financial Company

30. WCC Weavers Credit Card

31. UNIDO United Nations Industrial Development Organization 32. SME Small and Medium Enterprises

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Executive Summary

The World Bank’s parent project, the “Multi–Donor and Multi–Activity” Micro, Small and Medium Enterprises Financing and Development Project (MSME–FDP) for MSME financing and development implemented through SIDBI and supported by international partners–The World Bank, DFID, KfW and the GIZ has aimed to study and facilitate enhanced finance and other BDS to MSMEs. In this context, studies have been undertaken in several locations to develop a suitable methodology framework for estimating credit gaps in any industry cluster across India, to map the credit demand and supply status, measure the credit gap and reasons for the current status in select financial products, develop alternate delivery modes and institutional mechanism for implementation in the clusters. Such exercise has been undertaken earlier in several clusters where SIDBI has been active under the MSME–Financing and Development projects (FDP).

The MSME sector in India has emerged as the engine of economic growth by contributing significantly towards industrial production (45%), exports (40%) and employment generated (110 million)–the second largest source of employment after agriculture. Nevertheless, the growth of the sector is perceived to be far below potential. Apparently, only a small percentage of credit requirement of micro and small enterprises are met from institutional finance. This indicates that a vast segment of MSMEs in the country still remain excluded from formal financial institutions. Basically, non-availability of institutional credit is an important constraint in the potential growth of the MSME sector. It is in this context that SIDBI has decided to intervene in 30 more clusters in India including those covered earlier under the BDS programme under the MSME Financing and Development Projects.

In this regard, Grant Thornton India LLP had been commissioned to undertake the present study which undertook a credit mapping of the textile handlooms cluster of Bargarh-Sambalpur to identify issues hindering availability of adequate and timely institutional credit to MSMEs through formal channels. The study report highlights the gap in credit supply and demand in identified clusters and the impact of the same on industrial growth and competitiveness. The study report also presents information on current status, desired situation and appropriate actionable measures to achieve the desired situation with reference to lending to the MSME sector by lending institutions in the cluster, so that it facilitates enhanced access to finance for MSMEs. The study also identifies key issues which require policy advocacy, along with its context, rationale and possible impact. Notably, many cluster development interventions have been already undertaken in the region under the aegis of the Integrated Handloom Cluster Development Programme (IHCDP).

The Cluster Profile

The handloom cluster firms of Bargarh-Sambalpur are concentrated in the blocks of Bargarh, Attabira, Bijepur and Sohella in Bargarh district of Odisha. The district of Sambalpur has been bifurcated into Sambalpur and Bargarh and apparently Sambalpur has a minute segment of only a few hundred handloom units as against about the balance of total about 12,000 looms in Bargarh. A diagnostic study has been prepared by the BOYANIKA, Odisha State Handloom WCS Ltd., Bhubaneswar, about 5-6 years ago as part of the Integrated Handloom Cluster Development Programme of the GoI and, as indicated, several interventions related to promotion of weavers credit card. The Bargarh cluster is famous for its intricate tie and dye design saris popularly known as Sambalpuri Sari. Barring few neighbouring countries, the export

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market for sari is limited to the domestic market. The products manufactured have been changed today from coarser count cotton to finer count and use of chemical dye stuff having good fastness got momentum. The main products of the cluster are cotton sarees of tie-dye and small amount of dress materials, lungi and napkins etc. The annual production of firms is apparently about Rs. 90.00 crore. The products of this area are mostly marketed in Orissa and the national market. There are perhaps 12,000 weavers in the cluster. They belong to Bhulia and Scheduled Castes. Prima facie, an issue is that products are relatively costly and cannot tap lower end segments of the market. The product mix apparently needs to be more diversified. Basically, the core cluster actors are small weavers, Master Weavers and Cooperative Societies. The master weavers and some weavers who are partly not into job–working activity alone are apparently facing constraints and issues by way of raw material problems. This is not in terms of availability, but in the terms of high price fluctuation between seasons and high cost of credit purchase. The weavers are in need of dyeing quality and design improvement, besides upgrading their looms, with some technical modification on the old pit looms. Some related interventions have apparently been facilitated under the IHCDP (The need for upgrading in equipment’s may be viewed in terms of supply of improved weaving accessories like Jacquard, Dobby etc.)

The cluster firms are supported by a number of BDS providers located within and outside the cluster. The important support institutions in the cluster may be viewed in terms of the Joint Director of Textiles and Assistant Director of Textiles respectively. BOYANIKA, the State level Apex organization of primary co-operative societies helps in the marketing of fabric of primary societies through procurement, exhibitions & expos. The Weaver Service Centre (WSC), Bhubaneswar has been organizing training programmes for skill up gradation of local weavers. The WSC has been organizing designing, jacquard weaving, dyeing training, and managerial skill up-gradation training programmes for the cluster through societies and NGOs under the Integrated Handloom Training programme (IHTP). The National Handloom Development

Corporation at Bhubaneswar also helps in organizing/facilitating dyeing training. The District Rural Development Agency is an agency engaged in promoting developmental activities in the district. It also facilitates training to SHGs of weavers. It has also established Common Facility Centres in villages of the cluster. The Textiles Committee, Bhubaneswar, helps by way of testing of yarn, dyes, chemicals and fabric. The Institute of Textile Technology, Choudwar, Cuttack.is the only textile institute of the state which provides diploma and degree courses for textile technology. The National Bank for Agriculture and Rural Development (NABARD) has one district office at Bargarh, which occasionally provides training to handloom weavers through NGOs.

The cluster has the benefit of presence of several FIs and has branches of the State Bank of India, Union bank, Andhra bank, United Commercial Bank, and United Bank of India, Central Bank of India, Syndicate Bank, Punjab National Bank, Indian Overseas Bank and Allahabad Bank. Some of these bank branches also provide financial support to SHGs and individual weavers. The State Bank of India plays the lead role. Institutions like the SBI extends loan facilities to master weavers and traders through term and cash credit loans. The Sambalpur District Co-operative Central bank is meant to extend Cash Credit Loan facilities to PWCS of the cluster. However, due to heavy outstanding of the societies with the bank, such operations have been stopped. The Sambalpuri Bastralya H. L.C.S Ltd. Bargarh has been the largest PWCS in the state. Since its inception, it has been working as a production cum sale society by supplying raw material,

providing technical know-how as well as marketing support under a co-operative frame work. Today, master weavers have taken the initiative and serve as lead firms in the cluster; they invariable also undertake production activities on the basis of job work through weavers. Many co-ops have failed and a few have been taken up under a revival package.

On the marketing front, cluster firms suffer from issues such as seasonality of demand. Fabrics are mostly sold locally. There is a tradition in the local area to gift “Sambalpuri” sarees to near relatives in any function like marriages; thread ceremony, etc. Heavy sales also occur during local festive occasions like Dashera etc. As such the fabrics are mostly sold during October of one year to June of the next. This forces weavers to sell their products at lower rates during the off-season, that is, from July to September. On the credit front also, there are constraints. Fabric sales are mostly on credit basis. It is seen that the master weaver usually waits for three to six months to get his sales proceeds depending upon the season. This forces him to put some cushion on the sales price to compensate the interest he paid for the blockage of working capital.

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There is need to offer or evolve an appropriate working capital instrument in this regard. There is also apparently need to evolve instruments like the Mutual Credit Guarantee Fund Scheme (MCGFS) in this regard or strengthen the MFIs activities in the region. This is particularly for financing the activities of smaller master weavers and also weavers.

Apparently, there are several interventions that need be made in the context of financial products and services. While over 20 WCS have availed of assistance from the District Central Co-operative Bank (DCCB). As highlighted, most of the related WCSs are today in a virtually defunct condition. In fact, DCCB had virtually stopped credit flow to co-operatives and many are now functioning using own resources. Working more with master weavers, weavers and NGOs, MFIs along with pro-active and more potential co-ops may be appropriate. The gradual reduction of government subsidies, declining support from apex WCS, closure of Handloom Development Corporation, closure of local spinning mill and (widely perceived) miss management at the primary WCS level have evidently caused decline in the number of societies since the 2000s. Today, most weavers are dependent on master weavers and some of the larger master weavers each provide jobs to even 500 weavers under their fold.

Supply of Credit

With regard to the supply of credit to the cluster, the volume estimated at about Rs.9 crore out of which Rs.1.80 crore or 15 % is term credit and Rs.7.20 crore or 85 % is working capital loan. Apparently Rs.54.27crore was disbursed under various forms of advances to MSE sector. Priority sector advances in the district are as per prescribed lending norms as non-priority advances stand only at Rs.43.96 crore and priority sector advances stands at Rs.972.39 crore. The lead players in priority sector lending activity are public sector banks like the SBI in 2012–13.

The proportion of MSE advances in the total sector lending indicates the industry development focus in the particular district. The MSE sector received around Rs.54.27 crore or only 5.34 % of total credit

disbursement in the cluster which is about 5.58 % of total priority sector advances in 2012 – 13. This indicates the relative industrial backwardness of the region.

Of the approximately Rs.54.27 crore credit to the MSE sector, around 66.56% of it is provided by public sector banks, 31.60% by private sector banks and barely 1.84% by other institutions. SBI apparently has the highest exposure in the textile handloom cluster at Bargarh-Sambalpur. With regard to the time taken for processing various loan applications, respondents are of the view that while non-institutional sources facilitate disbursement in less than 2 weeks’ time, public sector lenders take at least 4-6 weeks usually. Apparently, but for a few master weavers, most units (weavers and co-ops) are not within the ambit of such institutions. The rates of interest levied by non-formal sources are between 38% to above 60% while for commercial banks, it ranges from 12%-14%. Also, typical lending practices of formal institutions are asset (read collateral) based and collateral requirements are often 150–200 % or more. The margin requirements for loans vary from 25 to 33 per cent in many cases based on the extent of collateral that is offered by enterprises. Hence, while the Nayak committee norm of 20% of working capital gap is taken as the norm for estimation, the effective requirement by bankers is more in some cases. In the sample surveyed, all units were micro sized.

Demand for Credit

The major demand for credit by master weaver units is for working capital to avoid cost of credit purchase and meet manpower payment needs and for extended credit sale. Apparently, the WC–TL mix in terms of credit use and demand is even 90 % for working capital in most cases and only 10 % for term loan. This is despite the fact that many master weavers also operate their own looms in addition to sourcing from weavers on job work basis.

Apparently, a significant part of requirements of micro-sized units is sourced from non-institutional sources. Many master weavers source even 70% of their credit requirement from such sources. Today, informal sector contribute to the balance of credit needs.

Apparently, there is considerable under – financing of many master weaving units in the cluster. Micro sized master weaving units require loans in the range of between Rs.5 lakh to 40 lakh per enterprise to meet

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working capital needs and in few cases to expand loan capacity. Typically, weavers require loans ranging from Rs.50,000-2 lakh. There is apparently scope for development of new financial products in the cluster. Industry associations also feel that banks currently offer very standardized products and new avenues for credit delivery can be explored for enterprises in the cluster. For instance, there is need for working capital credit instruments regardless of the specific nature of instrument to be oriented towards meeting the ballooning credit requirements by virtue of demand peaks over the wedding and festival seasons. This could also enable cluster firms to offer credit to customers (like wholesalers and retailers approximately). Notably, only a few master weavers have their own showrooms. BMO led interventions are also feasible in terms of facilitating an instrument of pre–sanctioned loans and operation of the MCGFS instruments.

There is a significant credit gap for MSE’s in the cluster. There is credit demand both for working capital as well as term capital but demand is significantly more for working capital. The cluster is highly

underfinanced with units availing broadly 75% of prescribed Nayak Committee norms for working capital, leave alone credit needs of perhaps 50% more than Nayak Committee norms by way to meet delayed payments. In addition, the production process is labour intensive than capital/technology intensive and payment for manpower is a pressing need for master weavers and weavers and co-operatives.

A summary tabulation of the credit supply and minimum demand and related gaps is presented below: Table 1: Summary tabulation of the credit supply and minimum demand and related gaps

Credit Supply Credit Demand Total Gap

Rs.9.90

crore Rs.32.81 crore Rs.22.91 crore

Products and Delivery channels

The recommended products and delivery channels may be considered in terms of: CGTMSE instrument linkages (preferably WCTL option where feasible) with CLCSS, where feasible); Bills discounting

instrument (basic and with receivables linked bridge financing); Up scaling MFI’s to offer loans for micro – enterprises; Purchase networks financing instrument; and Mutual Credit Guarantee Fund Scheme (for group loans of between Rs.2–20 lakh). This instrument though targeted at job-working weavers could also be deployed for assisting smaller master weavers. These instruments may be delivered directly to individual enterprise and MFIs. The purchase network financing instrument and MCGFS may be delivered through SPVs/consortium of cluster firms.

Envisaged Impact

Ideally, an implementing agency may be identified by SIDBI to help implement the envisaged instruments as part of a 3 year project. The envisaged impact of the intervention are: At least 60 master weavers to access adequate credit to increase capacity utilization; At least 60 cluster firms to access institutional credit and in case profitability and capacity utilization; At least 100 weavers to be empowered in weaving with own working capital from being mere job-workers. This could enable weavers to at least double livelihood incomes. Also, this will help some weavers to avoid falling into the cluster of usurious money lenders; Optimizing procurement function: Reducing procurement cost by 3-10 percent and increasing profitability margins for at least 60 master weavers; Access to collateral (and document) free credit by weavers and small master weavers. For necessary working capital for at least 200 master weavers/weavers, FIs need to give added attention and degree of priority to credit in the sector.

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Chapter 1: Introduction: Background and

Context

1.1. Context of the Assignment

The World Bank’s parent project, the “ Multi – Donor and Multi – Activity” Micro, Small and Medium Enterprises Financing and Development Project (MSME – FDP) for MSME financing and development implemented through SIDBI and supported by international partners – The World Bank, DFID, KfW and the GIZ has aimed to study and facilitate enhanced finance and other BDS to MSMEs. In this context, studies have been undertaken in several locations to develop a suitable methodology framework for estimating credit gaps in any industry cluster across India, to map the credit demand and supply status, measure the credit gap and reasons for the current status in select financial products, alternate delivery modes and institutional mechanism for implementation in the clusters. The dynamic D & B, India has undertaken such exercise in several clusters where SIDBI has been active under the MSME – FDP. The MSME sector in India has emerged as the engine of economic growth by contributing significantly towards industrial production (45%), exports (40%) and employment generated (110 million) – the second largest source of employment after agriculture. Nevertheless, the growth of the sector is perceived to be far below potential. Different studies have pointed out that only a small percentage of credit requirement of micro and small enterprises are met from institutional finance. This indicates that a vast segment of MSMEs in the country still remain excluded from formal financial institutions. Basically, non-availability of institutional credit is an important constraint in the potential growth of the MSME sector. It is in this context that SIDBI has decided to intervene in 30 more clusters in India including those covered earlier under the BDS programme under the MSME Financing and Development Projects.

In this regard, Grant Thornton India LLP has been commissioned to undertake the present study which undertakes a credit mapping of the textile handlooms cluster of Bargarh-Sambalpur to identify issues hindering availability of adequate and timely institutional credit to MSMEs through formal channels. The study highlights the gap in credit supply and demand in identified clusters and the impact of the same on industrial growth and competitiveness. The study report presents information on current status, desired situation and appropriate actionable measures to achieve the desired situation with reference to lending to the MSME sector by lending institutions in the cluster, so that it facilitates enhanced access to finance for MSMEs. The study also identifies key issues which need policy advocacy, along with its context, rationale and possible impact.

1.2. Need for the Mapping Exercise

The issue of availability of adequate credit and ensuring its inclusiveness has been addressed by a number of committees including the PMs Task Force for MSMEs. Evidently, banks should adopt alternate and

innovative mode of credit delivery, such as for example, a cluster – specific approach to achieve lower transaction and monitoring costs through reduction in costs of data, standardisation and reduction of documentation, identification of common risk elements and their mitigation, better inter-firm comparison, improved outreach, better monitoring and design of cluster specific products/instruments/interventions as

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targets are well developed and groups recognized. There is, therefore, need for cluster specific study in this context.

1.3. Objective and Scope of the Assignment

In this context, the study presents a credit mapping of select MSME clusters to identify issues hindering availability of adequate and timely institutional credit to MSMEs through formal channels. The study also highlights the gap in credit supply and demand in the cluster and impact of the same on industrial growth and competitiveness. The study has compiled and presents information on current status, desired situation and appropriate actionable measures to achieve the desired situation with reference to lending to the MSME sector by the lending institutions in the cluster, so that it facilitates enhanced access to finance for MSMEs. The study also identifies key issues which need policy advocacy, along with its context, rationale and its possible impact.

The scope of work has encompassed:

 Survey design and resource planning

 Sample survey in the cluster

 Data analysis and presentation

The survey captured information for analysis on and presentation of the following:

 Assessment of credit gap: Documenting demand and supply side issues in current credit disbursements: - Services provided by various lending institutions (such as adequacy of services with

emphasis on volume, timely provision, interest rate/processing and other costs, application and approval process etc.)

- Key Bottlenecks (such as procedure, awareness, decision making delays etc.) for access to finance from various lending institutions.

 Assess institutional mechanism for credit delivery in the cluster and also suggest measures to improve the same

 Estimation of the credit gap in the cluster through studying current demand and supply in the cluster and impact of the same in industrial growth and competitiveness of cluster firms

 Document suggestions in terms of:

- Refinement required in existing products and processes to meet the genuine credit needs of cluster firms

- Recommendations to enhance the flow of credit to the cluster - An action plan for implementation of the recommendations Sample Survey

 About 50 enterprises representing the MSME segment were studied deploying a questionnaire schedule amongst cluster specific enterprise typologies like Master weavers and co-operatives were studied)

 Some lending institutions were also studied deploying a discussion format (this included the SBI, MFIs, NABARD, NGOs, etc.)

 Various BMOs in the cluster were being studied deploying a discussion format. Data Analysis and Presentation

 Data has been analysed and interpreted to prepare this report covering slated objectives.

 Presentation of key findings to SIDBI management/stakeholders as required by SIDBI

1.4. Approach and Methodology

The achievement of the deliverables under the assignment required a multi – prolonged approach involving different stakeholders representing private sector enterprise, BMOs/other institutions in the cluster and lending institutions. This includes institutions such as Department of Textiles, BMOs, NGOs, MFIs and

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Lead Banks. While undertaking the assignment, the following approach (in line with deliverables and time lines) was adopted:

A. Inception Report

The study involved preparation and submission of an inception report explaining the proposed

methodology (please see Annexures for review of methodology & methodology vis-à-vis credit demand and supply estimation on a macro cluster level). The inception report also drew upon similar such studies undertaken earlier under the aegis of SIDBI and GIZ by dynamic institutions such as the D&B. The methodology and report comprised a questionnaire schedule to conduct a sample survey amongst about 50 MSMEs in the cluster. It also included a detailing of discussion formats to be adopted while undertaking primary research amongst FIs/MSMEs and BMOs/other institutions.

B. Study Report

The study is expected to have developed enable a relatively reliable and accurate estimate regarding credit gap assessment and means to redress them. The study report preparation involved both primary and secondary research.

Primary Research: The study involved primary study through use of a questionnaire - schedule to conduct a sample survey amongst MSME stakeholders of different typologies (micro, small and medium and cluster specific enterprise typologies like master weavers and weavers). Co-ordination with the agency identified for mapping non-financial gaps was considered to the extent feasible.

The study also involved primary study of BMOs, BDS providers, DIC, MSME-DI, State Industrial Development Corporation through means of a discussion format. As also, with FI/NBFCs etc. through means of yet another customized format.

Secondary Research: The study utilized the MSME census 2006-07 data, information available with respective SLBCs, district level Credit plan, related research reports (including study reports, prepared by other agencies, data from industry associations, reports of previous interventions carried out by other agencies earlier, District Industrial profiles prepared by the MSME-DI/DIC etc. Macro-data on credit supply is estimated from data secured from the lead bank in the district.

The study report also included slab wise segmentation of surveyed MSMEs by turnover for different sub-categories. Similarly, credit demand estimates for different kinds of financial products is also presented slab wise. The credit demand slabs are presented in terms of Rs. 15 Lakh, Rs. 15 – 50 Lakh, Rs. 50 – Rs. 2.00 Crore and above Rs. 2.00 Crore under two broad categories of products – working capital and term loan. Information on large manufacturing and service sector enterprises is provided. Possible ways of synergizing cluster stakeholders, particularly with various schemes operated by the Government is also listed.

C. Presentation for SIDBI/ Stakeholders

A presentation was made to SIDBI top management /stakeholders as per SIDBIs requirement.

1.5. Cluster Profile

The handloom cluster firms of Bargarh-Sambalpur are concentrated in the blocks of Bargarh, Attabira, Bijepur, Barpali, Padampur and Sohella in Bargarh district of Odisha. The district of Sambalpur has been bifurcated into Sambalpur and Bargarh and apparently Sambalpur has a minute segment of only a few hundred handloom units as against about 7158 looms in Bargarh. A diagnostic study has been prepared by the BOYANIKA, Odisha State Handloom WCS Ltd., Bhubaneswar, about 5-6 years ago as part of the Integrated Handloom Cluster Development Programme of the GoI. The Bargarh cluster is famous for its intricate tie and dye1_{design saris popularly known as Sambalpuri Sari. Barring few neighbouring countries,} the export market for sari is limited to the domestic market. The products manufactured have been

changed today from coarser count cotton to finer count and use of chemical dye stuff having good fastness

1_{The tie and dye, in real term ‘IKAT’ is derived from Mangikat, a Malayalam word, means to bind, tie a wind around. The IKAT is}

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got momentum. The main products of the cluster are cotton sarees of tie-dye and small amount of dress materials, lungi, napkins and bed-sheets etc. The annual production of firms is apparently about Rs. 100 Crore. The products of this area are mostly marketed in Orissa and the national market. There are perhaps 12,000 working looms in the cluster. They belong to Bhulia and Scheduled Castes. Prima facie, an issue is that products are relatively costly and cannot tap lower end segments of the market. The product mix apparently needs to be more diversified. Basically, the core cluster actors are small weavers, Master Weavers and Cooperative Societies. The weavers are apparently facing constraints and issues by way of raw material problems. This is not in terms of availability, but in the terms of high price fluctuation between seasons and high cost of credit purchase. The weavers are in need of dyeing quality and design improvement, besides upgrading their looms, with some technical modification on the old pit looms. Some related interventions have apparently been facilitated under the IHCDP (The need for upgrading in equipment’s may be viewed in terms of supply of improved weaving accessories like Jacquard, Dobby etc.)

The cluster firms are supported by a number of BDS providers located within and outside the cluster. The important support institutions in the cluster may be viewed in terms of the Joint Director of Textiles and Assistant Director of Textiles respectively. BOYANIKA, the State level Apex organization of primary co-operative societies helps in the marketing of fabric of primary societies through procurement, exhibitions & expos. The Weaver Service Centre (WSC), Bhubaneswar has been organizing training programmes for skill up gradation of local weavers. The WSC has been organizing designing, jacquard weaving, dyeing training, and managerial skill upgradation training programmes for the cluster through societies and NGOs under the Integrated Handloom Training programme (IHTP). The National Handloom Development

Corporation at Bhubaneswar also helps in organizing/facilitating dyeing training. The District Rural Development Agency is an agency engaged in promoting developmental activities in the district. It also facilitates training to SHGs of weavers. It has also established Common Facility Centres in villages of the cluster. The Textiles Committee, Bhubaneswar, helps by way of testing of yarn, dyes, chemicals and fabric. The Institute of Textile Technology, Choudwar, Cuttack is the only textile institute of the state which provides diploma and degree courses for textile technology. The National Bank for Agriculture and Rural Development (NABARD) has one district office at Bargarh, which occasionally provides training to handloom weavers through NGOs.

The cluster has the benefit of presence of several FIs and has branches of the State Bank of India, Union bank, Andhra bank, United Commercial Bank, and United Bank of India, Central Bank of India, Syndicate Bank, Punjab National Bank, Indian Overseas Bank and Allahabad Bank. Some of these bank branches also provide financial support to SHGs and individual weavers. The State Bank of India plays the lead role. Institutions like the SBI extends loan facilities to master weavers and traders through term and cash credit loans. The Sambalpur District Co-operative Central bank with its headquarters situated at Baragarh has six branches in the cluster area. The bank is meant to extend Cash Credit Loan facilities to PWCS of the cluster. But due to heavy outstanding of the societies with the bank, such operations have been stopped. The Sambalpuri Bastralaya H. L.C.S Ltd. Bargarh is the largest PWCS in the state. It plays an important role in the socio economic development of weavers of western Orissa and specifically of the cluster. It facilitates employment to rural S.C., S.T. and other backward caste and women. Since its inception, it has been working as a production cum sale society by supplying raw material, providing technical know-how as well as marketing support under a co-operative frame work. Today, master weavers have taken the initiative and serve as lead firms in the cluster. They often undertake production activities on the basis of job work through weavers.

On the marketing front, cluster firms suffer from issues such as seasonality of demand. Fabrics are mostly sold locally. There is a tradition in the local area to gift “Sambalpuri” sarees to near relatives in any function like marriages; thread ceremony, etc. Heavy sales also occur during local festive occasions like Dashera, Sabitri, etc. As such the fabrics are mostly sold during October of one year to June of the next. This forces weavers to sell their products at lower rates during the off-season, that is, from July to September. On the credit front also, there are constraints. Fabric sales take place mostly on credit basis. It is seen that the master weaver usually waits for three to six months to get his sales proceeds depending upon the season. This forces him to put some cushion on the sales price to compensate the interest he paid for the blockage of working capital. There is need to offer or evolve appropriate working capital instrument in this regard.

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There is apparently need to evolve instruments like the Mutual Credit Guarantee Fund Scheme (MCGFS) in this regard or strengthen the MFIs activities in the region. This is particularly for financing the activities of smaller master weavers and also weavers.

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Chapter 2: Cluster Financial Gap Analysis

2.1. Overview

The art of weaving flourished in Orissa even prior to 600 B.C. Notably, even in the middle-age, besides cotton, weaving was undertaken with wild silk (Tausar), wool and fibres from the stem of the lotus. Handloom production in Orissa is diverse and includes handlooms using vegetable colour in the Kotpad area, tie-dye and extra warp weft design on silk and cotton of Sonepur and tie and dye of IKAT techniques and products of Bargarh–Sambalpur. The cluster has over 25 skilled weavers who have even been

honoured by the Central and State Government. Many weavers have grown entrepreneurially into master weavers.

The textiles handloom cluster of Bargarh–Sambalpur has historical recognition in weaving “Sambalpuri Sarees”.

The enterprise stakeholders in the cluster may be viewed in the context of 2 basic value chain activity based typologies, namely, master weavers and weavers. Basically, all enterprise stakeholders are micro-sized. In addition there are a few micro-sized co-operative societies also in operation. The master weavers in the cluster serve as value-chain leaders and some of them have their own retail outlets and even brands. Many weavers’ service co-operatives are in operation in the region.

Table 2: Products manufactured in the Bargarh cluster

Different products manufactured in the Bargarh cluster

Cotton sarees Mulberry silk sarees

Cotton and Silk Dress Material Bapta Sarees

Firms are in the micro category and are basically managed by promoter artisans or entrepreneurs. The promoter-entrepreneur or artisan takes all decisions on aspects related to operations.

The exhibit below summarizes the cluster profile: Table 3: Cluster Information

Unit Profile

Unit Type Number of Units Investment in Plant & Machinery Average (In Rs. Crore)

Master Weaver 400 Rs. 20, 000.00 /loom (avg.)

Weavers 12000 Rs. 20, 000.00 /loom (avg.)

Co-operative* 20 Rs. 20, 000.00 /loom (avg.)

Total (and total turnover) 12420 (Rs. 90 crore) Rs. 24 crore (Total looms: 12,000)

The estimates of “Investment (in Plant & Machinery)” and Turnover have been prepared on the basis of discussion with support institutions and industry representatives, drawing appropriately from survey data as well as prepared by the non-financial gap studying agency.

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Raw Material

Raw material used in production is mainly mercerized cotton yarn (2/80’s to 2/120’s) and dyes. The master weavers purchase yarn from South India. Bargarh is apparently an important yarn hub.

The master weavers and co-operatives in the cluster undertake job-worked production by weavers. Hence, inputs are processed by the master-weaver and co-operative segment alone.The weavers are basically HH units in the region. Many master weavers operate their own looms in addition to undertaking job-worked production.

Manpower

In Bargarh town, a weekly haat is held every Friday. Weavers, master weavers and traders as well as yarn, dyes, chemicals and equipment suppliers come to the haat for providing a common platform of trading of handloom related material. As a matter of fact, other than Western district of Orissa, traders from other Coastal districts of Orissa and other states like Chhattisgarh and M.P also visit the haat which serves as a platform for textiles handloom trade too.

The critical value-chain activity of weaving is labour and skill intensive. Notably, the large segment of weavers is supported at best by the artisan’s or weaver’s credit card scheme (amount of about Rs. 25,000 per weaver typically).

Market Linkages

The master weavers as well as co-operatives have good networks with cluster firms. The master weaver, at times, however, faces issues in obtaining payments from wholesalers and retailers. There is peak in demand during the wedding season of May-July and November – December over the festive season.

Technology

The technology adopted by cluster firms is traditional and cluster firms credit needs are largely in terms of working capital. The Weaver Service Centre facilitates dissemination of loan upgrading and dying practices related training.

2.2. Supply of Credit to MSEs

Estimate of Outstanding Credit to MSEs in the Cluster

The total outstanding credit supply to the Bargarh–Sambalpur cluster is estimated to be about Rs.16 crore (WCC: Rs.9 crore, individual master weaver loan about Rs. 2 crore, Rehabilitation package for 19 co-ops about Rs. 5 crore) out of which about 15% is term credit and about 85% is working capital supply. This is based on consultation with lending institutions in the cluster. The fresh credit supply is pegged at about Rs. 9 crore.

Enterprise turnover is one of the important criteria is the loan appraisal process but it may be assumed that credit supply to the cluster is not necessarily correlated to the turnover generated.

The steps for computation under the identified are detailed in annexures. The data obtained through the above methodology was further validated against data on outstanding advances collected from the lead bank in Bargarh district (Notably, there are negligible number of units in Sambalpur district)

The RBI Lead Bank Scheme management is implemented by the State Bank of India (SBI) as the lead bank in the cluster. According to information obtained from the lead bank, an aggregate of about Rs.972.38 crore was disbursed under various forms of advances to multiple beneficiary groups like Priority Sector, Weaker Section Loans, Advances to Small Farmers, Other Schemes etc. The following exhibit depicts the banking flow of credit in the Bargarh - Sambalpur district. It can be clearly seen that the Priority Sector Advances in the Bargarh – Sambalpur District are as per prescribed lending norms.

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Table 4: Lending Activities of all Commercial Banks

Lending Activities of all Commercial Banks(in ‘000s)

Name of the FI Total Priority Sector (TPS) Non Priority Sector (NPS)

Performance Performance PUBLIC SECTOR ALLAHABAD BANK 64837 560 ANDHRA 371612 32658 BOB 96222 17605 B.O.I 41706 40 CANARA BANK 28145 1763 C.B.I 9045 - IOB 22109 68 INDBANK 29557 2050 OBC 107159 50 P.N.B 72814 57965 S.B.I 1504835 5047 SND BANK 95283 495 UCO 190125 - UNION 124276 5864 U.B.I 124199 78911 IDBI 56544 9250 Sub - Total 2938468 212326

PRIVATE (INDIAN) / FOREIGN BANKS

HDFC 39219 52554 DCB 312091 148025 AXIS 19763 1964 ICICI 44173 2941 Sub - Total 415246 205484 OTHERS SDCCB 5445116 10162 U.G.B 925049 11672 Sub - Total 6370165 21834 Total 9723879 439644 MSE Advances

The proportion of MSE advances in the total priority sector lending indicates the development focus of the particular district. The MSE sector receives around 5.34% of the total credit disbursements in the cluster. This is also around 5.58% of the total priority sector advances. Thus, small proportion of the credit is provided to the industries and the MSE Sector. The following is the composition of MSE and non-MSE advances in Bargarh as of March 2013 of the top few banks.

Table 5: Composition of MSE and non-MSE advances

Composition of MSE and Non-MSE Advances (in ‘000s)

Name of the FI MSE Advances % to Advances PUBLIC SECTOR ALLAH 11046 2.03 ANDHRA 57634 10.6 BOB 7037 1.2 B.O.I 0 0 CANBANK 3894 0.7 C.B.I 4000 0.7

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Composition of MSE and Non-MSE Advances (in ‘000s)

Name of the FI MSE Advances % to Advances

IOB 3161 0.5 INDBANK 2050 0.3 OBC 14451 2.6 P.N.B 12650 2.3 S.B.I 170183 31.3 SND BANK 11385 2.1 UCO 0 0 UNION BANK 31352 5.7 U.B.I 32447 5.9 IDBI 0 0 Sub - Total 361290 66.6

PRIVATE (INDIAN) / FOREIGN BANKS

HDFC 5000 0.9 DCB 162214 29.9 AXIS 0 0 ICICI 4298 0.8 Sub - Total 171512 31.3 OTHERS SDCCB 6072 1.1 U.G.B 3905 0.7 Sub - Total 9977 1.8 Total 542779 100

On interactions with various banking bodies, it is estimated that around Rs. 12.5 crore of the total credit in the Bargarh district is available for the textile handloom cluster, while major lending is directed towards other clusters.

Performance of Banks

In terms of performance of various bank groups, it is seen that of the approximately Rs.54.27 crore of credit to the MSE sector, around 66.55% is provided by public sector banks. Around 31.60% of credit is provided by private sector banks since they seem to offer better services and faster turnaround time. Table 6: MSE Lending of Major Bank categories in Bargarh – Sambalpur district

MSE Lending of Major Bank categories in Bargarh – Sambalpur district

Bank Category Amount of Lending (relative %)

Public Sector Banks 66.56

Private Sector Banks 31.60

Other Institutions 1.84

Total 100

The State Bank of India (SBI) is the lead bank in the district. In terms of aggregate credit disbursements to the MSE sector; SBI leads the overall MSE lending activity. The aggregate disbursements of the SBI account for around 31.35% of the total MSE credit disbursements in the district.

State Bank of India is the major banks operating in the Bargarh cluster. In terms of advances among MSE units in Bargarh district, SBI has the highest outstanding, with MSE loan book of Rs.17.01 crore, and Development Credit Bank, with an MSE loan book of Rs. 16.22 crore, is the largest commercial bank. Institutional finance is apparently beyond the reach of most weavers but under the WCC. However, many master weavers have linkage with institutional credit. In terms of aggregate MSE credit disbursements, the above 2 indicated banks contribute to around 61.25% of the aggregate credit disbursements in the district. The private sector banks account for 31.60%of the credit disbursements to the MSE sector in the district.

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About 50 master weavers and weavers and co-operative societies were interviewed on the overall

perception of their association with various institutional and non-institutional sources w.r.t to extent of loan secured, time taken for loan disbursement and collateral and other requirements etc.

The following exhibit depicts perception among respondents of time taken for loan processing and disbursement by various financial sources.

Table 7: Perception of time taken for loan processing and disbursement

Perception of time taken for loan processing and disbursement

Time <2 weeks 2-4 weeks 4-6 weeks 6-9 weeks >9 weeks Lenders

Public sector Banks - - 100% 50% 50%

Co-operative Banks (No comments) - - - - - Private/Indian/Foreign Banks - - - - - Other Institutional Sources (MFIs, NBFCs etc.) (No comments)

- - - - -

Non-Institutional Sources 100% - - - -

But for a limited number of respondents (master weavers) who have availed of assistance from public sector banks, other weaving units and co-operative societies are virtually disconnected with the mainstream institutions. The role of MFIs is also limited to the cluster. The large number of household units and co-operative societies are barely assisted by even co-co-operative banks in the region.

The following exhibit depicts perception among respondents of time taken for loan processing and disbursement by various financial sources.

Table 8: Time taken for loan processing and disbursement

Nature of collateral requirements

Collateral Requirement No collateral required Charge to be created on fixed assets Charge to be created on current assets Corporate

guarantee Personal guarantee Third party guarantee Lenders Public sector Banks/RRBs - 100% 100% - 100% - Co-operative Banks - - - - Private/Indian/Foreign Banks - - - - Other Institutional Sources (MFIs) - - - - Non-Institutional Sources - - - - 100% 100%

A majority of respondents who have availed of loan in the cluster have been asked for a charge to be created on fixed assets as well as current assets and even personal guarantees. Informal sources apparently offer assistance on the basis of personal and sometimes in third party guarantees, in addition.

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2.3. Demand for Credit by MSEs

Estimate of Credit Demand by MSEs in the Cluster

There are two methods followed to arrive at total credit demand at the cluster level, as mentioned in the methodology section in annexures. The methods involved are:

a. Working Capital Demand -Turnover Based Approach (Basis – Nayak Committee Guidelines) b. Term Capital Demand – (Basis – Growth in Fixed Capital)

Below are the highlights of the credit demand estimates in the cluster:

 Total number of looms in the cluster is 12,000

 The turnover for the cluster is pegged at Rs.90 crore during 2012-13 from the survey at cluster level

 The turnover is estimated to rise by an annual average growth rate of 10% (primary survey and consultation on growth estimate) to Rs.99 crore in the year 2013-14.

 Working Capital Requirement (Basis-Nayak Committee Guidelines + 10% to meet ballooning requirements, credit sale etc.) is estimated to be Rs. 27.00 crore (2012-13) and Rs. 29.70 crore (2013-14).

 Incremental Term Credit Requirement (Basis-Growth in Fixed Capital) is estimated to be Rs. 3.11 crore (2013-14).

 Total Credit Demand is thus obtained from above [(Rs. 29.70 crore) + (Rs. 3.11 crore)] and is Rs. 32.81 crore (2013-14)

Credit appraisal processes followed by various banks differ in terms of time taken for appraisals. Most banks including the lead bank indicated that for appraisal of working capital loan requirements, Nayak Committee Recommendations are being followed. Acceptably, the fact that the of informal nature of business and cash transaction in the cluster is not routed through accounts leaves turnover values rather low affecting adequate availment of credit facilities. Apparently, the margin required from master weavers or co-operative societies varies through the estimated margin requirement is as per the prescribed Nayak Committee Norm of 20% of the working capital gap. The following exhibit presents the equity

contribution required by FIs in the region as indicated by a sample of 50 enterprises. Table 9: Equity contribution required by FIs

Equity contribution for Loan Disbursements Across Financial Institutions in Bargarh -Sambalpur Textiles Handloom cluster

Equity Requirement

Enterprise Typology 10% or Less 11-25% >25%

Micro Enterprise - 85% 15%

Small Enterprise - - -

Medium Enterprise - - -

It can be seen that for cluster, the demand for higher margin contribution is from the bankers’ side. The primary reasons for this is micro enterprises are not able to provide adequate collateral to support their financing needs and hence are required to contribute a higher equity margin. Also, bankers perceive a business risk when assisting cluster firms as master weavers do not have long term contracts with

customers/marketers and their performance is dependent in varying demand from consumers. Apparently, that is why there is dependence of many cluster firms on informal lending sources at between 3-5% per month rate of interest.

In Bargarh, most units per force fund their own capital requirements, and majority micro and small units are (as indicated) dependent either exclusively or significantly on expensive informal sources of credit which eats into their profit margins considerably. Some also occasionally depend on informal sources like family

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and friends. This is also because of the detailed documentation requirements of institutional financiers. Collateral and typical asset based lending practice with high demand of 150%-200% of loan value is required. Also, by their very nature of operations which is labour intensive and dependent on fluctuating demand from stakeholders up the value-chain, the demand is more for working capital than term loan. There is therefore smaller demand for term loans. As a matter of fact, the lesser number of documents and speedy loan disbursements leave many weavers and even master weavers dependent on informal sources such as usurious money lenders.

Business Member Organizations (BMOs) of master weavers and support institutions are of the opinion that cluster firms in Bargarh are virtually not aware of various financial products such as the CGTMSE or bills discounting and do not use such products. The credit-offering need of master weavers is therefore often financed from informal sources. Also, inadequate working capital facility makes some of them source inputs on credit (with cost of credit being even 5-10 % per month) affecting their profit margins. Banks are virtually dependent only on asset based financing and stringent on documentation needs and are rather (most) conservative on lending towards master weaver and MSEs generally.

The following exhibit show the composition of credit among the 50 respondents interviewed in the survey. All respondents were micro-sized. The major demand by master weaver units is for working capital to avoid cost of credit purchase and meet manpower payment needs as much of the work is undertaken on job work basis. So is the case for many SMEs who in addition require considerable funds for sale in credit to units in the intra-cluster value chain.

Table 10: Credit Mix

Credit Mix

Nature of Credit requirement

Enterprise Typology Working Capital Loan Term Loan

Micro Enterprise 90% 10%

Small Enterprise - -

Medium Enterprise - -

The following exhibit shows composition of working capital and term loans for the sample respondents by sources of finance, separately for Micro, Small and Medium enterprises. Public Sector Banks are the major sources of Working Capital loans across all sizes of enterprises. Also, non-institutional sources are a

significant source of Working Capital funds for Micro units. Firms inadequately financed by formal sources, in addition tap informal sources for business operations.

Table 11: Sources of Finance

Sources of Finance ( in %)

Financial Instrument Micro Sized Units Small Sized

Units Medium Sized Units

Lenders - - Public Sector Banks WC _TL 70% _70% - _- - _- Private Indian/Foreign Banks WC - - - TL - - - Non-Institutional Sources WC _TL 30% _30% - _- - _- Other Institutional Sources WC - - - TL - - -

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While some master weavers have access to credit from public sector banks, even have to often depend on the informal sector or their credit needs.

The exhibit following indicates the potential needs of sample enterprises in terms of working capital and term loan in the short run.

Table 12: Financial Needs

Credit Mix

Nature of Credit requirement

Enterprise Typology Working Capital Loan Term Loan

Micro Enterprise 90% 10%

Small Enterprise - -

Medium Enterprise - -

Apparently, some of the 5-6 master weavers with turnover in the range of about Rs.3 crore each require working capital credit to the tune of even Rs.35-40 lakh at the least. The requirement of typical job-working weavers is only to the extent of about Rs.50,000-2 lakh for livelihood expenses (manpower wages for friends and family involved in weaving activity).

There is significant scope for development of new financial products in the cluster. Banks currently offer very standardized products and new avenues for credit delivery can be explored for enterprises in the cluster. For instance, there is a requirement for an instrument that could meet ballooning credit

requirements by virtue of demand side circumstance during the wedding and festival season. This could also enable master weavers to enable to offer necessary credit sale. Also, funds may be directed to cash purchase of raw material and hence increase capacity utilisation and turnover.

Credit Gap in the MSE Segment

For the current study, Grant Thornton India considered the credit supply data of scheduled commercial banks that form the major source of credit supply. The table below contains the estimated Credit Gap in the cluster on the basis of two methods.

Table 13 Summary tabulation of the credit supply and minimum demand and related gaps

Credit Supply Credit Demand Total Gap

Rs.9.90

crore Rs.32.81 crore Rs.22.91 crore

Summary of Credit Gap Assessment

In the textile handloom cluster in Bargarh, there is a significant credit gap for enterprise stakeholders. Master weavers require financial instrument to avoid cost of credit purchase and for credit sale. Weavers require assistance to meet livelihood expenses in terms of basic loom maintenance and payment of wages. There is a significant credit gap for units in the cluster. There is credit demand both for working capital and term capital. However, working capital demand is significantly more than term credit demand. Therefore, there is more credit requirement for working capital needs compared to term capital needs. The following can be summarized as major reasons for the same:

 The cluster firms that are basically master weavers offer produce at credit terms.

 The production process is labour than capital/technology intensive and payment for manpower that is weavers is a pressing need for master weavers and even individual weavers.

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Keeping this in mind, there is an urgent need to address financial gaps to support the growth of, the cluster, most important such cluster in the country. MSEs need to be catered for their credit needs in a timely and appropriate fashion.

Specific Credit Demand from Sample Firms

A slab wise segregation of surveyed MSMEs by turnover is presented below: Table 14: Slab-wise segregation of surveyed MSEs

Slab-wise segregation of surveyed MSEs

Turnover (2012-13) Investment in plant and machinery

Up-to

Rs.25 lakh Rs.25-100 lakh Rs.100-500 lakh >Rs.500 lakh

Up-to Rs.25 lakh 74% 20% 6% - Rs.25 lakh-100 lakh - - - - Rs.100 lakh–300 lakh - - - - Rs.300 lakh–500 lakh - - - - Rs.500 lakh–Rs.1000 lakh - - - - Above Rs.1000 lakh - - - -

The credit demand estimates for financial products by sample firms are presented below: Table 15: Credit Demand for Financial Products

Credit demand for Financial Products by Sample firms

Credit demand Up to

Rs.15 lakh

Rs.15-50

lakh Rs.50-200 lakh >Rs.200 lakh Enterprise Typology Instruments Micro-sized enterprise WC TC 90% - 10% - - - - - Small-sized enterprise WC TC - - - - - - - - Medium-sized enterprise WC TC - - - - - - - -

Many cluster firms are willing to offer necessary collateral too for assistance by way of adequate credit. With regards to basic parameters of products, units would prefer products with the following terms:

The preferred rate of interest and the maximum rate of interest are willing to pay in between 10% to 12%. The preference vis-à-vis ideal period for sanctioning of loans after having submitted all documents ranges from 30 days to 45 days. Many units (60% sample) have necessary collateral to offer way of land. Preference by way of loan repayment period is between 6-8 years. Units are willing to offer a minimum promoters contribution of 25%. They would prefer seasonal and ballooning repayment/ cheque options. The following tabulation elaborates.

Table 16: Credit Demand for Financial Products

Credit demand for Financial Products by Sample firms

Instrument

WC TC

Product parameters

Preferred interest rate for new loan (%) 10-12% 10-12%

Maximum Interest rate 12-14% 10-12%

Ideal period of sanction of loan

(after submission of all documents) 1-1.5 months 1-1.5 months Collateral available Land (60% sample) Land (60% sample)

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Assistance by way of audit is expected to enable many sample firms even double turnover and PAT growth rates. There is virtually no large enterprise in the cluster in either the manufacturing or services sector. An initiative towards synergising cluster firms with often stakeholders and government schemes and

institutions have been undertaken. A BDS market development project may be initiated by the services of an implementing agency. In addition the Action/ intervention plan indicated presented in this study report could also contribute towards evolution of instrument and catalyse necessary twinning.

2.4. Recommended Products and Delivery Channels

Requirement of Capital

Though some master weavers have access to institutional credit, even they are apparently underdeveloped and suffer from a significant credit gap. There is a large presence of master weavers and weavers to fulfill wage payment, avoid high cost of credit purchase (of even 5-10 percent per month), and to offer output on credit. The typical capital requirements are as follows:

 Purchase of raw materials

 Wage payments

 Credit sale

The cluster products are household names. “Sambalpuri sarees” have centuries old reputation. The cluster is poorly served in terms of credit. There is relatively poor awareness.

Working of Current Government Schemes

The Weavers Service Centre: This centre strives to provide product development inputs to evolve more marketable products by interaction between stakeholders and expertise available in the fields of weaving, designing and processing. It also provides inputs on improving weaving techniques and accessories and appliances used in weaving. It also facilitates improving techniques of processing, in training weavers on improved techniques and new designs, and providing market support by arranging interface between designers, producers and buyers. The Weavers Service Centre is linked with the National Centre for Textile Design in order to provide information to weavers in terms of fast changing consumer preferences, fashion trends and technological developments in the means of communication both within and outside the country. Yet another scheme is that of facilitating input access. The National Handloom Development Corporation Limited (NHDC) is a public sector undertaking, under the Companies Act, and is involved in covering the procurement and supply of inputs at reasonable prices, augmenting the marketing efforts of state handloom agencies and initiating developmental activities for upgrading technology in the handloom sector and improving productivity. Presently, the Corporation is arranging supplies of yarn for the benefit of handloom weavers in almost all states. The major supplies are under the Govt. of India’s Mill Gate Price Scheme through the State level Handloom Corporations/Apex Bodies, Handloom

Development Centres/ Weaver Cooperatives, NGOs etc. Master weavers in the cluster are out of its ambit. Yet another scheme is that of the Weavers Credit Card (WCC). The handloom sector largely comprises of small and tiny units, which fall mostly under the unorganized sector. While Banks have financed some weavers under their existing lending programmes, it is found that credit needs of a large number of weavers are being met through informal channels. There is therefore, need for institutional delivery mechanisms to promote credit for the well-being of weavers. The Government of India has implemented a number of Schemes for the development of the handloom sector. The Government efforts aim at technology support, establishment of forward and backward linkages for weavers. It is expected that implementation of the Weaver Credit Card (WCC) Scheme will go a long way in supporting the government initiatives.

Implementation of this scheme dovetailed with other Government programmes is expected to improve the quality of loan assets of banks. The WCC Scheme aims at providing adequate and timely assistance from

Repayment Period - 6-8 years

Minimum promoters contribution for loan 25% 25% Seasonal ballooning repayment schedule Yes-100% Yes-100%

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the Banking institutions to the weavers to meet their credit requirements, i.e., for investment need as well as for working capital in a flexible and cost effective manner. The scheme is implemented both in rural and urban areas. The beneficiaries under the scheme are issued with a Photo Weaver Credit Card (WCC) indicating sanctioned limit and validity period of credit facility. While the Weaver Credit Card is used for identification, the passbook is to facilitate recording of transaction on an on-going basis. The credit limit is fixed based on assessment of working capital requirements as well as cost of tools and equipment required for carrying out weaving activity. The maximum limit to individual weavers is up to Rs. 2.0 lakh. The limit is expected to be utilized as a revolving cash credit and will provide for any number of withdrawals and repayment within the limit. Banks may, however, fix a repayment schedule for the portion of loan availed for the purchase of tools and equipment.

Normally no margin is required for limits up to Rs.25,000 and 20% margin is required for limits above. However, this may vary as per concerned Bank's policy in this regard. The credit card would normally be valid for 3 years subject to an annual review by the Bank. The review may result in continuation of the facility, enhancement of the limit or cancellation of the facility, depending upon the performance of the borrower. Need based enhancement will be considered within the overall limit of Rs.2 lakhs for borrowers having satisfactory performance: conduct of account. For the purpose of annual review, the borrower may not be required to submit any financial statement. Based on the assessment of performance during inspection of field staff and operation in the account, the review exercises may be carried out annually and the decision on continuation or otherwise of the limits sanctioned may be taken. Apparently, issuance of WCC is limited in the cluster due to the conservative attitude of bankers.

Credit Guarantee Trust Scheme for Micro & Small Enterprises (CGTMSE)

The Credit Guarantee Fund Trust Scheme for small industries was introduced by the Government in May 2000 with the objective of making available credit to small scale industrial units, and micro units (with investment in plant and machinery less than Rs.500 lakh) for loans up to Rs.100 lakh without collateral/ third party guarantees.

Awareness of this scheme is negligible and benefits of this scheme have not reached the units (but for rare exceptions). The presence of many micro units has led to a credit gap in the cluster and if micro firms are empowered, a credit gap may be addressed. SIDBI along with lead bank (SBI) needs to promote this scheme extensively through BMOs. The products that are made available in the cluster, particularly, include general working /term capital loan.

Many cluster firms are open to avail this scheme despite higher borrowing cost (one time charge of 1.5% of the borrowed amount and yearly charge of 0.75%). However, apparently banks are reluctant to lend under this scheme as units are operating in intermittent manner and repayment risk becomes high also due to inexperience of many FIs in handling such produce in the region earlier.

Bills Discounting

Fabrics are largely sold basically through outlets and to wholesalers. There is a tradition in the region to gift Sambalpuri sarees to near relatives in any big function like marriage, thread ceremony etc. Most sales occur in Oct – June when cash inflows occur to master weavers and weavers. In fact, sarees are sold at lower rates over July – Sep. The need for an apt working capital instrument is apparent.

The bills discounting facility is not availed by any unit in the cluster. Financial institutions do offer this product in the cluster. On discussion with stakeholders in the cluster apparently there is frequent delay in payment (> 90 days) by customers of some master weavers and this makes bills discounting an inadequate means of financing in some cases. Nevertheless, even the typical bills discounting credit instrument of 60-90 days need be more aggressively promoted. It is also recommended that post-dated cheques may be used to make this product more effective.

A major problem associated with some master weavers in the cluster is the lack of fixed asset collateral. This is a major hurdle for units to procure working capital loan, which is the major requirement in the cluster. Affordable and economically viable working capital financing is the need of the hour in the cluster. Loan products need to be structured to match the payments to the borrower’s cash flow cycle and address