The answer lies in examining the social and economic context within which the artisan operates, the business models adopted, and their skill levels.
Economic Context
Crafts in India have evolved specialisations and the production is distributed. When I say distributed, I mean that an individual or household does not produce an item fit for market from end to end. The individual or household may engage in only one part of the production process. In this sense, they may be treated as job workers or service providers.
The distributed production may be organised, coordinated and controlled by an individual, designer, retailer, wholesaler, NGO, cooperative, collective or a for-profit company.
These entities possess:
- knowledge of the production process,
- economic capital,
- organisational ability,
- social ties to the community of producers,
- social or economic ties to consumers
These entities act as bridges between producers and consumers. They control the flow of information, especially with regard to consumer preferences. They also control the flow of capital to the producers. Most attempts at financial inclusion work at supplanting these entities or partnering with them to reach marginalised individuals.
Individuals or households tend to provide a service or specialise in one part of the value chain such as dyeing, or printing, or embroidery or tailoring.
If they provide the service at a venue or location owned by another entity, they can be called daily wage labourers. If they provide the service from a venue or location owned by them, they can be called job workers. If they have sufficient work to employ other individuals, they become artisan entrepreneurs.
They are still specialising in only one part of value chain and do not necessarily control the entire supply and value chain.
Social Context
Crafts persons within a community or geography
Crafts have evolved in different regions for different reasons. A region may support practitioners of a craft – for example Madhubani painting is practiced in Mithila (Bihar), terracotta pottery in Asharikandi along the Brahmaputra river, or block printing in Machilipatnam along the Krishna river. These crafts are indigenous to the region.
A craft supports communities of practitioners and, in turn, is supported by the community. Knowledge of the craft is transmitted within the community orally and through practice. As with all communities, there are hierarchies and networks of power.
An individual’s social position within a community, influences their economic outcome. Key parameters for evaluating one's position within a network are ‘centrality’[1], ‘betweenness[2]’ and ‘access[3]’.
Artisan entrepreneurs tend to have a high degree of centrality, betweenness and access. This allows them to convert social capital into social credit. Their social position also enables them to mobilise manpower.
Job workers, on the other hand, may exist on the periphery and can be referred to as marginalised. They lack the social capital that could help them access resources.
If there is a community of craft practitioners in a small geography, then earning an income from the craft, be it regular, intermittent or seasonal, becomes the norm.
Mechanisms such as reciprocity and social relations would have evolved, enabling job workers or entrepreneurs, to avail social credit by leveraging social capital.
Crafts persons outside a community or geography
However, if the artisan is practicing a craft by themselves, without the support of a community, they are more likely to need financial support from financial institutions.
For example, there are communities practicing hand block printing in areas like Bagru, Sanganer, Bagh, Kutch, Bhuj and Machilipatnam. These locations have all the resources necessary to practice the craft.
However, if an artisan decides to migrate and practice the craft in a different location, they cannot leverage their ties to their community to raise credit. They will need to turn to banks or financial institutions to raise capital. This is when they are most vulnerable and need patient capital.
Business models adopted
Artisans are savvy and usually adopt a combination of business models.
- Job work only
- Artisan Entrepreneur producing a finished product.
- A hybrid model.
Artisans engaging only in job work may
- Have recently started their own production unit. If they have recently set up their production units, they are looking for cash flow and the quickest way to generate cash is by doing job work. They may settle for lower wages to generate cash flows and build relationships with clients or patrons. They may have borrowed money to set up their unit and need to generate income to pay off the loan.
- Be a novice to the craft. Being a novice at a craft, one gains expertise through job work. The mistakes one makes are not costly and the loss is born by the client or the patron.
- Engage in the craft part time. Those engaging in the craft part time may have alternate sources of income and are perhaps content to do job work for additional income.
- Exist on the periphery of the community or an outsider without access to power centers. They are most vulnerable.
- There may also be artisans like Dhanasekhar who are embedded in supply chains that ensures a consistent strain of work and cash flows.
So artisans, who are novices, who have recently set up their own unit and are on the periphery of their community, are the most vulnerable and a need of different types of interventions, not merely financial support.
Artisan entrepreneurs engaging in end to end production.
These artisans have reached this position after considerable effort and struggle. Not only have they acquired expertise in the craft, they have also acquired economic and social capital.
One of the measures here is the number of ties they have outside their community, i.e. external ties. While having more external ties allows the entrepreneur better access to information, having ties within the community allows the entrepreneur to convert social capital into social credit. This entrepreneur would be able to take more risks and borrow from financial institutions.
Artisans engaging in a hybrid business model.
These artisans are in a stage of transition. They continue doing job work for clients and producing goods for sale on their own, hoping to realise more profits in selling finished goods directly to consumers.
Surplus income from job work is invested in raw material for production. This is a way to mitigate risks and test the market.
This approach works fine as long as there is consistent job work and the artisan is able to liquidate inventory.
Problems arise when job work dries up and the artisan is stuck with unsold inventory. This usually occurs if demand is seasonal or if production is affected by weather patterns.
If the artisan has sufficient external ties, then he could continue to get more work. However, if his income stems from ties within the community, then he or she is likely to be affected by issues affecting the community.
The artisan’s ties within the community become important to stave off creditors. If the artisan has tenuous ties to the community, or if they are on the periphery, they are likely to be in trouble with lenders or financial institutions.
Would financial institutions be willing to extend credit or lend at low interest rates to this artisan when the going gets tough?
Financial needs
Job workers needs are different and require patient capital and long term financial support, whereas artisan-entrepreneurs may need much more structured finance to meet business needs.
Job workers will need financial capital to meet personal needs whereas artisan-entrepreneurs may need different types of loans. It could be for meeting personal needs or for business.
The interventions for job workers are much more involved and will require long term commitment.
Daily wage earners are most vulnerable since they have a single source of income. Daily wage is usually dependent on piece-rate and income is dependent on the number of pieces produced.
Job workers may be as vulnerable or slightly better off than a daily wage earner as they may have more than one client giving them work.
Artisan Entrepreneur: Off the three, the artisan entrepreneur may be the most secure.
Financial needs of a job-workers are different from an artisan entrepreneur.
Job workers will probably spend daily earnings on essentials like food and travel. They may have no savings at all. Any emergency is likely to reach havoc on their lives. Even paying ₹1000 for a 15 kg LPG gas cylinder refill becomes an expensive proposition. Loans or cash infusion are used for consumption expenditure or to meet emergencies.
These individuals need ‘no interest’ loans or ‘zero interest’ loans just to survive. An overdraft facility on a zero balance savings account with flexible repayment would be ideal.
Artisan- entrepreneurs, on the other hand, possibly have a financial cushion of savings that allows them to meet daily needs. Artisan entrepreneurs also need loans to buy equipment (term loans). They possibly need cash infusions to pay for consumables, i.e., items needed to add value, pay labour (working capital) and to bridge the gap between fulfilling an order and receiving payment (Bill discounting).
Large brands and big corporations are guilty of delaying payments to small vendors, thereby increasing their vulnerability. Large corporations pass on the risk of conducting business to small producers.
Conclusion
Financial service providers need to develop financial products and services based on the artisan’s needs, the craft they are engaged in and their position within the value chain. Financial products must also account for seasonality both in production and consumption. Production tends to be affected by climate conditions and consumption maybe seasonal and depend on cultural factors such as festivals and marriages.
Artisan-entrepreneurs may represent low-hanging fruit for financial service providers and lending to this segment may be easier. They may have formalised their business and may maintain records that helps to assess their credit-worthiness.
Financial service providers may find it challenging to engage with daily-wage labourers and job-workers. They may need to pilot new products and services with different communities. The social position of daily-wage labourers and job-workers may render them difficult to access. Financial service providers may need to partner with other actors in the eco-system such as NGOs, small businesses and community organisations to engage with this segment and build trust.
This segment is vulnerable, and financial service providers must approach this group of consumers with sensitivity. They must support this segment before they can extract profits. Perhaps they can evolve different metrics to measure success in partnership with members in this segment.