Fab India’s Innovative Social Business Experiment

Walk into any of Fab India‘s high end retail outlets in major cities across India, and around the world – you would be tempted by their unique clothing and furnishing collection, surprised by the store’s relentless focus on the customer and would probably walk out with a big bag in your hands. However, you would never guess that the profits made from that store and many others across the country are partly distributed among the weavers, about 20,000 of who are ‘shareholders’ of subsidiary companies floated by Fab India.

So, how does this work? Below is the excerpt from a recent Economic Times article on Fab India’s new model:

The weavers, who will hold 51% stake in about 35 companies formed in different states, will have annual general meetings (AGMs) and also receive dividends. Already, they get to trade their shares once in six months through a limited window opened by the Fab India management.

“Since ours is a closely-held public limited company, we create our own share trading system. We open a trading window among the local weavers’ community. We provide the liquidity to ensure a fair price is discovered. We also create a benchmark price on the basis of the book value and future earnings potential and so on,” said Fab India MD William Bissell.

It is unclear what is the relationship between Fab India, the parent company and the subsidiaries – If the subsidiaries have a claim on Fab India’s profits or just act as a supplier unit. This is an important question, because it determines what percentage of the value-chain profits are shared with the weavers, who traditionally have not been given a fair-share. The ET article hints to this a little, without providing a clear answer:

The company is looking at organising and aggregating the handloom weaving community into a corporatised, as opposed to a cooperative, structure. Mr Bissel thinks these communities are responding far better to an inclusive capitalist framework where profits are shared by all

‘Profits shared by all’, ‘Inclusive capitalist’ – there is quite a bit of jargon there. Given Fab India’s track record and good intentions (they make really good Kurtas), I’m a little less skeptical of the company. If the company can pull-off this unique structure and the business model, it would present a whole new template for social businesses, especially in the clothing sector (read: HBS Case Studies).

Well, even if you don’t really care about the company’s social business model, you should step into one of their stores. They got some good stuff!


Using Regulation to promote Social Business: The case of IRDA

Livemint reports that India’s insurance companies (private and state-owned) are expanding rapidly in rural markets, and have topped the IRDA’s mandatory rural targets.

Insurance Regulatory and Development Authority (IRDA) is Government of India body set-up to regulate the insurance sector, which has gone through significant liberalization in the last decade. IRDA has continuously emphasized the importance of covering under-served markets, especially in rural areas and has established strict annual rural sales targets for companies. Turns out companies see this mandate as an opportunity:

An analysis of data from seven life insurers for 2007-08 (data from previous years was not made available by the companies) accounting for at least 80% of the market, reveals that all of them topped their individual targets laid down by Irda. The targets vary every year.

Significantly, insurance firms did even better in terms of their so-called social sector objectives. The “rural business“ of these firms includes policies sold to both rich and poor people in rural areas. “Social business” includes only the number of policies sold to poor and
economically backward people.

Clearly, access to insurance products would provide much needed economic stability to the rural poor. It can be argued that IRDA is a example of a unique model – using regulatory mechanisms to promote ‘social business’. The Telecom Regulatory Authority of India (TRAI) also has pursued a similar strategy, by mandating cellphone companies to focus on rural markets. Of course, we have covered the social impact of cellphones in this space before.

[Graphic Credit: Livemint]

HT highligts Creative Capitalism

Dr. Muhammad Yunus has talked extensively about reconceptualizing “capitalism” in his new book, “Creating a World Without Poverty: Social Business and The Future of Capitalism,” suggesting that “capitalism” posits human beings as one dimensional profit maximizers, devoid of complexity and multi-dimensionality. He proposes the reconceptualization of capitalism in the context of social business, where the market contributes to the social good through what he terms “social business entrepreneurs” (SBEs). In the same vein, Bill Gates recently spoke at the World Economic Forum about “creative capitalism”. Hindustan Times in a recent piece covered the speech with a focus on how creative capitalism will impact brands, (Through NextBillion)

At the recent annual World Economic Forum, Davos, the redoubtable Bill Gates spoke of “creative capitalism”-an approach where governments, businesses, and nonprofits work together to stretch the reach of market forces so that more people can make a profit, or gain recognition, doing work that eases the world’s inequities. There is an increasing recognition and acceptance of this new and more complex definition of business. And at a different level, it could be the harbinger of a new way of building sustainable brands and corporations.Unilever group has a tool called ‘Brand Imprint’ that essentially requires the company to qualify and quantify the impact that its brands have – emotionally, socially, physically, spiritually, intellectually and environmentally. It’s like a tool to figure out if there is a holistic contribution towards bettering of the communities being served. This recognition is not based on a sense of charity alone, it could actually mean reaching out to a new market that was largely untapped, but has much potential. More often than not, market forces fail to make an impact in many segments not because there’s no demand, or because money is lacking, but because not enough time, effort and resources, are spent studying the needs and limits of those markets.

Its interesting to see that the idea of Creative (and Kinder) Capitalism is getting traction and coverage in India. Of course, It was not long ago that Prime Minister Manmohan Singh made a controversial speech at a CII gathering, highlighting the need for Inclusive Growth.To read the entire HT article, go here.