Integrating BDS into microfinance operations: Another pathway out of poverty
BUSINESS Development Services (BDS) is the provision of complimentary non-financial services to clients through any form or combination of marketing, product development, business advisory and training with the end in view of helping the clients grow their businesses and increase their income. As more and more clients grow their enterprises and transform them into small and medium-scale businesses, they have to deal with volume and quality standards. This means having to deal with reliable and quality suppliers, entering into contracts with risks considered and addressed.
BDS can help them build capability to address such requirements by developing or improving their negotiation skills or forging strategic partnerships to come up with win-win arrangements.
A high-impact intervention appreciated by CARD MRI clients is being undertaken by one of its institutions, Mga Likha Ni Inay (MNLI). It helps CARD members, the Nanays, to market their products in commercial channels after their products go through a series of market testing and product development until they become market-ready. In this case, MNLI is a BDS provider that becomes part of the value chain or becomes an intermediary player because it has involved itself in the process.
A BDS provider assumes the role either as a player-intermediary or as a facilitator within the value chain. MNLI is an intermediary player since it is involved from product development to marketing of community products. The intervention is a lot more complicated than that of straightforward microfinancing given that it helps the community all the way up with all the attendant problems. In reality, not all community products/sub-sectors will gain commercial scale/success. In our experience in distributing to commercial channels like SMKultura, Robinson’s, LCC, and partner-exporters like Gem Foods, perhaps out of 100 products/sub sectors in which MLNI intervenes, only five products/sub-sectors scale up. So far, in MNLI’s nearly three years of distribution experience, only dried fish, muscovado sugar, coco jam, honey and selected handicrafts find their way into the commercial market. Despite the challenges, these relatively small successes in the big market translate to thousands of Nanays helped in bringing themselves up the ladder of poverty. Additionally, some of our projects touches climate-smart agriculture, like for example muscovado sugar processing wherein MNLI teaches the Nanays to apply best practices in organic farming.
On the down side, before you get the business on track, you need to invest a significant amount of time and patience in communicating with the community what products need to be improved or products that need to be developed because it is what the market wants. In our cultural context, the hardest thing to do is to be brutally honest and tell the communities that you cannot help them because you know that in the channels you are trying to penetrate, their products will be very difficult to market.
In contrast to the example mentioned above, i.e., intermediary player, the upswing of being just a market facilitator is that once you have selected a sub-sector or product that you think has a potential for growth, what remains to be done is just connecting the different players, strengthening their relationships and making your participating microfinance clients meet the standards that the lead player or buyer demands.
One successful implementation under the CARD MRI’s umbrella organization is CARD BDS’ tie up with Red Logo wherein it acted as facilitator between the Nanays and Red Logo – a Golden ABC direct selling subsidiary. Red Logo buys directly (without an intermediary) from selected CARD member-artisans whose products pass its quality standard, thereby providing an opportunity for additional income. Moreover, Red Logo recruits thousands of Nanays as direct sellers, enabling them to tap Red Logo as additional business and therefore augmenting their income.
Though being a facilitator is easier to do than becoming an intermediary, sustaining its intervention through project funding can become a concern. Note that a facilitator should not make money by becoming an intermediary; after facilitating and strengthening the players’ relationship, it must exit the project.
To conclude, becoming a BDS provider, whether as an intermediary or as a facilitator, is definitely not for the faint-hearted institution. As an ardent believer that microfinance is one of the potent tools in poverty eradication, I enjoin MFIs to embark on BDS, as it can spell the difference between a relevant institution and a mediocre one.
Julius Adrian R. Alip, heads three social enterprises under the CARD MRI umbrella – BDS Foundation, MNLI and CARD Leasing and Finance Corporation. He sits on the board of the Philippine Finance Association and is a HKS 2014 alumnus who took courses in Business at the Base of the Pyramid, Entrepreneurial Finance and Impact Investing. For this article, the insights of Jesila Ledesma, former regional manager for Southeast Asia of MicroSave, is deeply appreciated.