rural entrepreneurship for rural development

7/31/2019 Rural Entrepreneurship for Rural Development

http://slidepdf.com/reader/full/rural-entrepreneurship-for-rural-development 1/16

RURAL ENTREPRENEURSHIP FOR RURAL DEVELOPMENT

Paper Presented By-

Mrs.Shriya Tiwari

G.H.RAISONI INSTITUTE OF ENGINEERING AND

TECHNOLOGY FOR WOMEN, NAGPUR

[email protected]

Cell No: 9823160177

mailto:[email protected]

mailto:[email protected]



ABSTRACT

Even after Independence and Industrialization in our country, still large part of populationremains under poverty line. Agriculture continues to be the back bone of rural society.

OBJECTIVE OF THE STUDY

The basic entrepreneurial principles should be applied to rural development. This wouldresult in:

a] Better distribution of farm produce resulting in the rural prosperity.

b] Entrepreneurial occupation rural for youth resulting in reduction of disguised

employment and alternative occupations for rural youth.

c] Formations of big cooperatives like Amul for optimum utilization of farm produce.

d] Optimum utilization of local resource in entrepreneurial venture by rural youth

INTRODUCTION TO RURAL ENTREPRENEURSHIP

Even after Independence and Industrialization in our country, a large part of population

remains under poverty line. Agriculture continues to be the back bone of rural society.

Agricultural income contributes a share of 70 per cent in the total income of the country.Cultivators who own farmland come to about 68 per cent of this work force while

agricultural labor accounts for the remaining 32 per cent. These cultivators are increasing

in number over the years but the large increase was among the agricultural labor whichwent up from 20 per cent of the rural work force to 32 per cent. One also needs to keep in

mind that there is a continuous growth of population. Thus, the policy for rural

development has to tackle, the problems by providing other occupation options to the ruralyouths.

To take out excessive labor burden from the farmers “Rural Entrepreneurship” plays a

very important role.

ENTREPRENEUR:

“A person who organizes and operates a business or businesses, taking on financial risk to

do so.”

“Entrepreneurs” are people who create and grow enterprises.

“Entrepreneurship” is the process through which entrepreneurs create and grow

enterprises.



“Entrepreneurship development” refers to the infrastructure of public and private policies

and practices that foster and support entrepreneurship.

ENTREPRENEURSHIP - The concept of entrepreneurship has a wide range of

meanings. On the one extreme an entrepreneur is a person of very high aptitude who pioneers change, possessing characteristics found in only a very small fraction of the

population. On the other extreme of definitions, anyone who wants to work for himself or

herself is considered to be an entrepreneur. The word entrepreneur originates from theFrench word, entreprendre, which means "to undertake." In a business context, it means to

start a business. The Merriam-Webster Dictionary presents the definition of an

entrepreneur as one who organizes, manages, and assumes the risks of a business or

enterprise.

RURAL ENTREPRENEURSHIP-

‘Unemployment’ and ‘Underemployment’ in the villages have led to influx of rural

population to the cities. The problem of rural youth migrating to urban cities has to beaddressed wisely.

Entrepreneurship could take off the excess of labor from the farms that causes disguisedemployment. Disguised Employment means that there might be groups of people working

on the farmland and calling themselves employed. However, when these people are taken

off that farm and employed elsewhere, the production of the farm does not go down.

Hence, such people though employed do not add to the production of the farm. We havealso seen in recent past that despite enough food stocks with government warehouses,

people are dying of starvation. This indicates problem with the public distribution system.

The question is, do we have to depend on government public distribution system? Theresponse is, people taking up entrepreneurship themselves in the form of Trading and

Cooperatives.

Even a unit set up by the government or a large company in a rural area could promote

rural entrepreneurship depending on how much opportunities it throws up for entrepreneurs

to use local resources, to fulfill the demands of such large units and the multiplier effect

such large units create. Any large unit coming up in rural areas more or less does have animpact in activating the surrounding economy for entrepreneurs to take advantage of. This

is precisely the reason why it is recommended to shift industries from urban centers to

neighboring rural areas. Such shifting initially may be a difficult proposition but in the longrun beneficial in many ways. Moreover, it would throw up lots of opportunities in the rural

areas and result in decongestion of the urban centers. Urban slums would start disappearing

with large number of industries getting shifted to rural areas resulting in increasingopportunities in the rural areas. Thus, both the rural as well as urban areas get benefited by

setting up more industrial units in the rural areas, making rural areas attractive locations for

investments.



Constraints of Potential Rural Entrepreneurs and Development Inputs

Sr.

No.

Constraints Inputs

1. Low self-image and confidence. Motivational inputs, unfreezing andexperience sharing by successful localentrepreneurs.

2. No faith on others includes friends. Group building experiences.

3. No exposure to industry/business. Field visit to factories and big markets.

4. Who to contact for starting a venture,

what formalities and procedures are to be followed?

Information inputs on procedures and

formalities.

5. How to know whether the identified

business is a viable and sound proposition?

Opportunity identification and guidance.

6. How to know whether the identified

business is a viable and sound

proposition?

Market survey, project report

preparation.

7. How does one carry out bank

operations?

Training in simple banking procedures

like filing up deposit and withdrawal slipetc.

8. How to manage the business? Basic management orientation through

simulation exercises.

9. How to read and write accounts? Functional and numerical literacy.

Simple accounting in terms of writing

income and expenditure.10. Almost no technical skills Technical training (on-the-job training).

1 2. TYPES OF RURAL ENTREPRENEURSHIP

Rural entrepreneurial activity can be broadly classified in four types such as:

i) Individual Entrepreneurship - It is basically called proprietary i.e. singleownership of the enterprise.

ii) Group Entrepreneurship - It mainly covers partnership, private limited company

and public limited company.

iii) Cluster Formation - It covers NGOs*, VOs*, CBOs*, SHGs* and evennetworking of these groups. These also cover formal and non-formal association of

a group of individuals on the basis of caste, occupation, income, etc.



iv) Cooperatives - It is an autonomous association of persons united voluntarily for a

common objective. An entrepreneur has to decide on a particular type of

entrepreneurship based on the various options available.

1] INDIVIDUAL ENTREPRENEURSHIP/PROPRIETORSHIP In this; it is theentrepreneur who is the only (100%) owner. The entrepreneur bears full responsibility for

each and every activity and is alone the strategic thinker and decision maker to make the

unit viable as well as profitable. There is hardly any difference between personal assetsand business assets. The entrepreneur has "unlimited liability under the law". This type of

entrepreneurship is quite prevalent in rural areas where an entrepreneur has limited

resources.

2] GROUP ENTREPRENEURSHIP It is classified into mainly three types such as i)

Partnership; ii) Private Limited Company and iii) Public Limited Company.

1

a. Partnership

In this case there is no individual ownership of the unit. There is another partner with youwho works with you and also bears the responsibility and shares profit. Like proprietorship,

the liability is "Joint and Several". For partnership type of entrepreneurship, mutual trust is

a must. Besides both the partners in partnership must understand their respectiveresponsibilities and complement each other for common objectives and goal. The

characteristics of partnership are a) association of two or more persons (maximum twenty),

b) contractual relation: c) lawful business, d) sharing of profit, e) agency relationship, f)

unlimited liability; and g) non-transferability of interest. The requirements of ideal partnership are good faith, common approach, written agreement, registration, adequate

capital, skills and stability. Partnership is governed by Indian Partnership Act, 1932.

The merits of partnership are ease of formation, large resources, and combined abilities and judgment, flexibility, quick decisions, cautions operations, survival capacity, better human

and public relations, improved chances of growth and protection of minority interest. The

demerits could be lack of harmony, divided authority, instability of business, lack of publicconfidence, risk of implied authority, unlimited liability, non-transferability of interest and

social losses.

b. Private Limited Company

In this case the shareholders are the owners. There must be a minimum of 2 (two)

shareholders. The Indian law allows maximum of 50 (fifty) shareholders. The liability islimited in this case. As such if the company goes bankrupt then no one has to part with

one's other personal assets to meet the obligation of the creditors. Being a private limitedcompany, one can raise far less money than a public limited company. But there is better

control as the number of shareholders is few besides they may be your kith and kin. Many

provisions of Company Law are not applicable to private limited companies. There is much

less paperwork too. Companies are governed by Companies Act, 1956.



c. Public Limited Company

In this case the shareholders are also the owners. There must be minimum 7 (seven)shareholders. There might be millions of shareholders as there is no such upper limit. Being

a, public limited company it can raise more money from the public by issuing equity

shares, debentures, etc. to meet various expenses of the company. All provisions of theCompany Law are applicable here. It is more of a professional organization and is fully

governed by the Companies Act, 1956. It is to be noted that merit of forming a company

are many such as large financial resources, limited liability, continuity, transferability of shares, benefits of large scale operations, professional management, public confidence,

scope of expansion and growth, social benefits, tax benefits, etc.

3] CLUSTER FORMATION It is primarily a formal and non-formal group of people to

achieve a common objective. It basically covers Non-Governmental Organizations (NGOs),

Voluntary Organization (VOs), Self-Help Groups (SHGs), Community-Based Organizations

(CBOs) and networking of all these.

a. NGO’s

These are non-profit making organizations registered under the Society's Registration Act, 1860.

A group of seven people come on a common platform to carry out defined activities for the socio-

economic development of people. The main characteristics of NGOs are:

i) These are initiated, sponsored and constituted mainly by the Government as autonomous

bodies to fulfill specific developmental objectives.

ii) These receive funds mainly from the Govt. and channelize them through VOs.

iii) These are usually non-political in nature. These are formal organizations with rules,

regulations and procedures with professional management.

b. VO’s

These are voluntary agencies initiated by individual for welfare and development. They may or

may not be registered under any appropriate Act. Generally these are registered under any

appropriate Act like Societies Registration Act, 1860, Indian Trusts Act, 1882 or Religious Act,

1920. These frame their own Memorandum of Associations, rules and regulations and systems for

their governance. The VOs receive funds from various donor agencies including NGOs. VOs are

generally managed by persons with motivated leadership and commitment. Their main promoters

are honorary with a strong desire to serve the people.

c. SHGs

Self-help groups are a platform of 10-20 people mainly, below the poverty line (BPL) to form a

social group not only to mutually help each other but also to achieve common objective. Only one

member from a family is eligible for membership group. The Swanjayati Gram Swarozgar Yojana (SGSY) of the Ministry of Rural Development, Govt. of India covers all aspects of self-

employment of the rural poor viz. organisation of the poor in SHGs and their capacity building,

training, selection of , key activities, planning of activity clusters, infrastructure building up,

technology and marketing support. This is a non-formal group. The SHGs get funding from the

NGOs, VOs and even from the Government to carry out various activities in areas of common

interest and an objective for economic empowerment.



d. CBOs

These are community based organizations and are informal in nature. Specific community with a

specific avocation forms a group to carry out various activities in a group. A CBO is a group of people from a common living area of habitat who get together for a common cause. The overall

objective is to enhance the bargaining strength of individuals in the group. For example:

fishermen group, cobbler group, milk producers, etc.

4] COOPERATIVES According to ILO, a cooperative organization is an association of

persons usually of limited means, who have voluntarily joined together to achieve a common

economic end, through formation of a democratically controlled business organisation makingequitable contributions to the capital required and accepting a fair share of risks and benefits of

the undertaking. According to International Cooperative Alliance (ICA) "A cooperative is an

autonomous association of persons united voluntarily to meet their common economic, social and

cultural needs and aspirations through a jointly-owned and democratically controlled enterprise".

1 3. DOMAINS OF RURAL ENTREPRENEURSHIP

India's rural economy is primarily agricultural based, but the rapid rise in its population with

consequent pressure on land has led the planners to lay greater emphasis on industrial

development.

Rural industries generated employment for 47.97 lacs persons in the year 1996-97 as against

37.21 lacs persons in the year 1992-93. Of late, Agro based industries have generated several

employment opportunities to rural people.

There are large number of products and service in rural areas, which can be leveraged by

entrepreneurs to set up new small and micro enterprises. In fact entrepreneurship can be pursued

in virtually any economic field. The idea here is to make the readers aware of the linkages between various economic activities within a particular category in the Indian context. The

following indicative sectors may be taken into consideration for gainful employment:

a) Original enterprises created out of opportunities in supplying rural products to urban

consumers and new products to rural consumers.

b) Replication of urban experiences in Rural Setting.

The village and small-scale industries was set-up with the following aims:1) to orient the rural population specially the rural youth towards entrepreneurship;

2) to increase the levels of earnings of artisans in rural areas;

3) to sustain and create avenues of self-employment among the unemployed youth;

4) to ensure regular supply of goods and services through use of local skills; 5) to develop entrepreneurship in combination with improved methods of production

through appropriate training and package of incentives;

6) to preserve craftsmanship and art heritage of the country.

Few domains for Rural Entrepreneurship are:

a) Food Processing b) Dehydrated fruits and Vegetables

c) Fruit based beverages



d) Mushroom “Dhingri” cultivation

e) Poultry Industry

f) Cottage & Handicraft Industryg) Oil Industry ( Vegetable seed oil)

h) Pottery

SERVICE SECTOR RURAL ENTERPRISE

The service sector enterprises are generally more successful, no matter whether co-

operating in rural or urban areas. What is more important is identification of the natureof need based services related business activity.

i)Repair of Phone/Mobile Phone, Electronic and Electrical goods

j) Rural Tourism

k) Entertainmentl) Modern Industries

1 4. PLANNING A RURAL ENTERPRISE

Planning is the foremost function in decision making to set up a rural enterprise. Project

planning aims at formulation of all the future project activities well in advance, determinethe quantum of resources required for the purpose and coordinate various activities to

complete the activities as per schedule at the right time. The first and foremost step to

initiate the planning process is the identification of a suitable project followed byinformation accessibility, market assessment, preparation of feasibility report, etc. Besides,

one has to know the registration procedure of the enterprise and various legal aspects of

business.

PROJECT IDENTIFICATION

Project Identification can be done with the help of Entrepreneurship Development

Institutions (EDIs) or Small Scale Service Institutes (SISI) or State level and DistrictIndustries Centres based at a district Head Quarter nearby.

A person once decides to set up own business, one has a wide choice before her/him. Like –

a) Manufacturing unit - Setting up an industry means one has to organize many things like planning, arranging for technical know-how, buying and installing machinery, building a

factory, managing several departments like production, sales, quality control, personnel and

administration, finance and so on and so forth.

b) Trading - Trading involves planning, purchase, sale, stock control and financial

management. A retail grocery shop, compared to an industry, is a simpler business. A large

departmental store, however, is not so simple.c) Service enterprise - A service enterprise can either be simple or complex. For instance,

setting up a photocopying centre and managing it may be simple but inspection of offshore

oil-gas lines is a rather complex business.



INFORMATION ACCESSIBILITY One needs various types of information about several

aspects such as opportunities, market, technology, finance, policies, location, etc. The different

sources of information could be:

a) Similar enterprise owners/producers

b) Raw materials suppliersc) Machineries suppliers

d) Packing materials supplierse) Customers

f) Dealers

g) Consultants

h) Employees of similar enterprises

i) Bank officials

j) Promotional agency and regulatory agency officials

k) Association of similar product(s) manufacturers and so on.

Information on Business Ideas - There are numerous directories, handbooks and

databases published by the Govt. of India, Associations and other agencies for obtaining

information on opportunities. These are information in the following forms:1 • Feasibility studies

2 • Project profiles

3 • Industry studies4 • Area development studies

The organizations in possession of information on business opportunities are are: 1)

District Industry Centres (DIC) - (one in each district) 2) Technical ConsultancyOrganizations (TCO) - (one each in most States) 3) Centres for Entrepreneurship

Development (one each in many States) 4) Small Industry Service Institutes (SISI) (one in

each of many large cities) 5) Lead Bank (one in each district) 6) Industrial ExtensionBureaus (these exist in several States) and are known as INDEXTB, Udyog Mitra, Udyog

Sahay and so on). 7) National Industrial Development Corporation (NIDC), New Delhi 8)

Khadi and Village Industries Commission (KVIC) 9) Commissioner of Cottage Industries(one in each State) 10) Entrepreneurship Development Institute of India (EDI), Ahmedabad

11) National Institute of Entrepreneurship and Small Business Development (NIESBUD),

New Delhi 12) National Institute of Small Industry Extension and Training, Hyderabad 13)Small Industries Development Bank of India (SLDBI), Lucknow 14) Industrial

Consultancy Firms

Ideas An ability of a business idea among various alternatives being considered is a must.

The key questions in settling down to a viable business idea are as under:1 • Uses/applications of the product or service

2 • Possible scales of production or operation for which economies of scale is to belooked into .

3 • Investment for a given scale and the sources of funds and related expenses

4 • Market prospects5 • Unit sale price

6 • Technical arrangements



7 • Expected annual turnover

8 • Expected profit and break-even analysis

9 • Success determinants, etc.

FINANCIAL VIABILITY OF A RURAL ENTERPRISE

Capital is the prime requirement and is said to be the life blood of any business enterprise.Lending Institutions such as State Financial Corporations (SFCs), State Industrial

Development Corporations (SIDCs), State Industrial Investment Corporations (SIICs),

Commercial Banks, etc. are the prime sources for meeting the project cost such as :

1 • Land cost and land development charges,2 • Construction of buildings,

3 • Purchase of plant and machinery,

4 • Acquiring technical know-how,

5 • Procuring miscellaneous fixed assets,6 • Margin of working capital,

7 • Contingencies, etc.

While sanctioning loans, the financial institutions consider the credit worthiness of the

project beside the payback capacity of the project. Hence assessment of financial viabilityis a must before releasing the funds.

Support System

Information about support system is a must for an enterprise. In short-term it is theinformation which helps in-sound decision making. The information could be on

infrastructure facilities, incentives available, financial tie-ups, availability of raw materials,

tax concessions, etc.Information on various infrastructure facilities such as availability of land, power, and

water, facilities for effluents or wastes disposal should be available from the District

Industries Centre of the District or from the concerned State Directorate of Industries. For financial tie-ups the State Financial Corporation and its branches which are located at

various districts of the State can effectively guide.

FEASIBILITY REPORT It is very essential to prepare a feasibility report covering all the activities and the resources

needed for the project. The feasibility report broadly contains the following:

a) The background of the entrepreneur i.e. the educational background, family background

and professional exposure

b) Market potential and marketing strategy

c) Selection of location of the project which should be on the basis of proximity to the

source of raw materials and/or markets, availabilities of labour, infrastructural facilities,

incentives, etc.



d) Requirements of land and building. It is to be ensured that the land is free from any

legal encumbrances

e) Requirement of plant and machinery including their installationf) Manufacturing process

g) Requirements of utilities such as water and electricity

h) Requirements of raw materials and sources of supplyi) Estimated cost of the project

j) Means of finance

k) Cost of production, taxes and profitabilityh) Break-even point

A feasibility report must provide a base-technical, economic and commercial-for an

investment decision on any industry/entrepreneurial project. It should define and analyzethe critical elements that relate to the production of a given product together with

alternative approaches to such production. Such a report should provide a project of a

defined production capacity at a selected location, using a particular technology or

technologies in relation to defined materials and inputs, at identified investment and production costs, and sales revenues yielding a defined return on investment. It must

consider all aspects of business right from project background and history, location and siteto conclusion covering its advantages, drawbacks and implementation of the project.

ESTIMATION OF WORKING CAPITAL/PRODUCTION COSTS can only be doneafter a feasibility study and after the allocation of the respective Overheads under which the

budget is to be analyzed

Production Management is very essential. Production management is the process of arranging and allocating work, men, money, and material resources in such a structured

manner to achieve the twin goals of an enterprise - reducing costs and increasing profits.

Once an enterprise is set up, i.e., once the entrepreneur has organized space, machinery,equipment, and other fixed assets, and also recruited and selected required work force, she

would start production. She/he is ready and set to start operations of her/his enterprise.

The entrepreneur needs working capital for starting production. She tries to understand the

operating cycles of production assesses working capital requirements and sets about

producing goods. So s/he needs to understand operating cycle, Working capital, etc. Then

the new entrepreneur would make attempts at production, engages in trial production- andadopts a pricing policy based on the costing of making the products.

Working Capital: An entrepreneur needs finance for various operating expenses. Sheneeds to buy raw materials, consumables, packaging materials, etc., and needs money for

salary and wages, rent, premium and other services. So, in order to cover all these,

expenses she would need money, which is known as the working capital. This money can be recovered once the entrepreneur sells the finished goods. Till that time, the funds gets

locked up in the production process. So, working capital can be defined as the amount of

capital perpetually locked up in the form of current assets viz. raw materials, work-in-

progress, finished goods, credit may lead to wrong decisions and result in a chaos in the



enterprise, which tin be easily avoided given and cash required to sustain a specified level

of activity in terms of production and sales.

To find out the requirement of working capital, one needs to understand the concept of

operating cycle.

Operating Cycle: One needs to buy and maintain the stock of raw materials for a certain

minimum period. This will depend upon various factors like nearness of the market, cost of

procurement, availability of the raw materials and their shelf life.

The stocking period will vary from a day to even 5-6 months.

To convert the raw material into finished products will also take certain time. This willdepend upon the process involved and timely availability of all the needed resources.

Once the product is ready it has to reach the buyers and in return the sale proceeds are to be

collected.

This also takes some time depending upon the demand and terms of sales. The time takenfor all the three stages above, i.e., the stocking period, production time and sales realization

time put together constitute an operating cycle of the business.

The working capital is the total funds required to meet all the expenses of one operating

cycle. Usually, the small entrepreneurs consider the production expenses only as working

capital. They neither consider the stocking period nor presume the sales realization time.

So it is very important to understand the concept of operating cycle and calculate the

working capital required for the entire period. And working capital is the sum total of all

operating expenses for the period of one operating cycle.

Working capital management is the most dynamic concept of financial management in an

enterprise. Effective working capital management would lead to:a) Lower investment of finance in working capital for a given activity level.

b) Effective management of cash, which is an idle investment.c) Reduction in cost of production as a result of lower investment of finance in working capital.

Operating cycle should be as fast as possible so that the working capital is required for only a

short period of time as it incurs interest costs. Faster operating cycles also enable more number of

operating cycles and greater volume of production.

FINANCE MANAGEMENT FUNCTIONS

The financial management functions include those functions that deal with handling cashand finances, costing, pricing, break-even analysis, managing cash flows, accounting and

book-keeping, writing a balance sheet and income statement for budgeting. Financial

management is a very important area of control. It involves management and long-termfinance for establishing enterprise, expansion and growth; as well as short-term finance for



getting working capital. Proper estimation and management of finances for the enterprise

are necessary for the success of any enterprise.

Costing

An entrepreneur needs to understand the role of both these costs in fixing prices for finished goods. While the direct costs for each product unit increase proportionately, the

indirect costs will generally decrease with increase in number of product unitsmanufactured. Care should be taken to include the costs incurred in production wastages,

loss in handling and transit, customer rejections, after sales service, loss in man-hours,

transportation costs, distribution and sales costs, local taxes, etc., as these directly affect

the price of finished products. An entrepreneur-manager needs to calculate these costs

carefully in order to arrive at reasonable profits.

Pricing

The process of setting a price for the finished products poses a great challenge to a new

entrepreneur. Price of the products or services depends a great deal on the cost of doing

business. The cost of sales tells what to charge to stay in business. This is known as

setting the floor price; or the minimum price. The competition will set the ceiling price,

or the maximum price. The entrepreneur needs to charge enough for the product or

services so that both fixed costs and variable costs will be covered by sales and a small

profit is also derived. If prices are set too high, it may not be possible to attract sufficient

business to cover fixed-costs; if prices are too low, the larger number of customers

attracted may not still generate enough revenue to cover all costs.

Break-even Analysis

A break-even analysis can and should be done to check the reasonableness of the prices

fixed. Break-even helps to take fixed costs and variable costs into account when fixing

the prices. Initially, in the first and second operating cycles of production, it may not be

possible for the entrepreneur to break-even but over time the entrepreneur moves beyond

break-even point and starts making profits. It is always better to reach break-even point

sooner than later. The break-even point is a valuable tool to analyze how much one needs

to sell to make profits. If the entrepreneur knows approximately how much they needs to

sell, they can order the proper amounts of stock of raw materials, produce, and find way

to sell that much. Once these basic elements are identified and estimated, one can

calculate the break-even point. Breakeven analysis determines the point at which sales

revenues equal production costs. The break-even point can also be defined in terms of

physical units sold, or the level of capacity utilization at which sales revenues and

production costs match each other. So entrepreneurs always attempt to utilize maximum

capacity of their equipment, machinery and labour and reduce idle capacity utilization.

Cash Flows Management

The new entrepreneurs need to know as to what amount of money has come in and how

money has gone out in a certain period. It will give them an idea whether the business is

likely to yield profits and enable them to realistically forecast money movements. The



money movement into and out of business is a matter to be controlled by the

entrepreneur. Cash flow refers to the actual movement of cash into and out of an

enterprise. A cash flow statement is prepared for a few years, and it is usually sub-

divided into the cash movements on a monthly basis for first two years and even on a

daily basis in the initial stages.

Cash inflow from sales depends on the method of payment to be expected. This is

because credit trading has the effect of shifting cash flow into a later period than the date

of actual sales. In cash outflow the actual payment is considered, depending on the credit

terms arranged with the material suppliers, as this will allow payment some time after the

delivery of raw material. If a business is to keep out of trouble, it must have enough cash

inflow to pay day-to-day expenses like wages, suppliers, rent and electricity, etc.

Monitoring cash flows and ensuring smooth flow of cash forms one of the healthy

practices of an entrepreneur. A healthy cash flow and finance management would ensure

healthy enterprise and thereby entrepreneurial success.

Accounting and Book-keeping

Every new entrepreneur is advised to form a system of maintaining books of accounts

and records from inception. Recording all accounts regularly is a routine work that may

be monotonous and boring but its worth can only be seen in its absence. Absence of a

system of accounting is one of the important reasons of failure. Accounts are eyes of

business and show the economic condition and financial health of the business very

clearly.

Book-keeping or maintaining a record of all accounts of the enterprise - the expenditure

incurred, the wages, the payments due and the overall income-expenditure-profit details

help the entrepreneur to assess the financial health and financial discipline of the

enterprise.

If an entrepreneur is keeping all records of vouchers, bills, account slips, etc. in various

cash books and registers, then she is practicing book-keeping for her/his enterprise and

also running the enterprise in a systematic manner. Successful entrepreneurs resort to

regular counting and book-keeping of their enterprises which provides ready data on

finances and may guide them in making appropriate decisions and running their enterprises efficiently.

Balance Sheet: Balance Sheet describes the enterprise's financial condition at a given

point in time, in terms of its assets, liabilities and net worth. The successful entrepreneurs

usually write their balance sheets on a regular basis and may turn out to be good

enterprise managers and hence achieve success in their entrepreneurial ventures. Theunsuccessful entrepreneurs, more often than not, do not prepare any balance sheet

whatsoever.

Income Statement: Income statement summarizes the enterprise's financial capability.

An entrepreneur, after all, works to earn an income from her/his enterprise. If she is not

aware of how much she had earned over a period of time, she is not in a position to

decide whether to continue or stop or change the course of action. Through an income

statement, the entrepreneur will have a fair idea of the operational costs, cost of products

sold, administrative expenses; taxes and interests paid, and the net income earned. The



income statements of over; a period of years or cycles of production will also help the

entrepreneur to actually know whether there are incremental gains or losses in her/his

enterprise.

Effective financial management practices form the core of managing a rural enterprise.The rural entrepreneurs need to grasp the intricacies of costing, pricing and breakeven

analysis in order to attain entrepreneurial success.

SOURCES OF FUNDS Normally an entrepreneur tries to meet at least part of the fundsrequirement from one’s own sources, which we call as capital of the promoter. He/she

arrange this fund either from friends, family members or from own saving. In most cases it

is founds that this funds is quit insufficient to run the business. Therefore he approaches

various agencies for meeting the requirements. The credit and landing agencies operatingrural areas can be divided into two types:-

1 1) Institutional

2 2) Non- Institutional

The former comprise commercial banks, co-operative societies, development banks,regional rural banks and non banking financial companies. These institution operate inregulated environment and observe fixed norms & guidelines enumerated by the

government. Since they are more amenable to policy prescriptions of government

authorities they have fixed criteria on rate of interest, primary & collateral securities &

selection procedures. The non institutional agencies are lending agencies operating in nonformal manner. They are mostly money lenders operating in rural areas. They are only

lending agencies before the entry of institutional agencies. Rural people have easy access to

these sources of finance, as there are no Rules & regulations guiding their activities. Theycharge very high rate of interest and many of them take away the entire property of the

poor people which is pledge by them for granting loans of even very small amount.

Institutional financial is of three types:-1 1) Banking Institutional:- Commercial banks, co-operative societies, Regional

Rural Bank.

1 2) Development banks:- Small industries development bank of India(SIDBI) , National Bank of Agricultural and Rural Development Bank (NABARD), National

Housing Bank (NHB)

1 3) Non banking financial companies

TYPES OF CREDIT FACILITIES AVAILABALE TO RURAL ENTREPRENEUR

Credit facilities can be fund based or non fund based. In case of non fund based facilities bank do not lend funds directly. They issue Letter of Guarantee and letter of Credit (LC),

which are simply commitments on the part of the bank to pay for the borrower in case of contingencies. Fund based facilities are those where banks have to land funds directly. It

include

1 1) Cash Credit (for Working capital Requirement)

2 2) Term Loan (for appearing Fixed Assets)3 3) Bridge Loan (short term finance)

rural entrepreneurship for rural development

Documents