Theobarth Disbursement: Understanding Theobarth Grant Cluster Before Disbursement – Ahead of Theobarth Grant disbursement to applicants. Applicants need to understand and familiarise themselves with Cluster. This is very relevant to the disbursement of the loan.
How to Understand Clusters
Common Questions Asked!
1. What is a Production Cluster
A Cluster is a legal entity formed by primary producers and applicants. Theobarth Cluster can be a production company, a cooperative society or any other legal form which provides for sharing of profits/benefits among the members. In some forms like producer companies, institutions of primary producers can also become members.
2. What is the need Cluster?
The main aim of a Cluster is to ensure better income for the producers through an organization of their own. Small scale owners do not have the volume individually (both inputs and produce) to get the benefit of economies of scale. Besides, in grant sharing, there is a long chain of intermediaries who very often work transparently leading to the situation where the producer receives a certain part of the value that the ultimate consumer pays. Through aggregation, the primary producers can avail the benefit of economies of scale. They will also have better bargaining power vis-à-vis the bulk buyers of produce and bulk suppliers of inputs.
3. What are the essential features of a Cluster?
- It is formed by a group of producers or organisers for either applicant.
- It is a registered body and a legal entity.
- Producers are shareholders in the organization.
- It deals with business activities related to the primary produce/product.
- It works for the benefit of the member producers.
- A part of the profit is shared amongst the producers.
- Ensure the grant are received by applicants for business expansion.
4. Who owns the Cluster?
The ownership of the Cluster is with its members. It is an organization for applicants, by the the applicants, and for the benefits of applicants. One or more institutions and/or individuals may have promoted Cluster the by way of assisting in mobilization, registration, business planning and operations. However, ownership control is always with members and management is through the representatives of the members – Theobarth Disbursement: Understanding Theobarth Grant Cluster Before Disbursement.
5. Who can promote an Cluster?
Any individual or institution can promote a Cluster. Individual persons or institutions may promote Cluster using their own resources out of goodwill or with the noble objective of socioeconomic development of producers. If, however, the facilitating agency wishes to seek financial and other support, then they have to meet the requirements of the donor/financing agency.
6. Can NGOs promote Cluster?
Yes, it can. The NGO may be a non-profit organization, but not the Cluster. The NGO can promote Cluster which will provide better income to the members. Sharing of profit among members is an important objective of the Cluster.
7. Which legal form is preferable for Cluster?
Institutions registered as cooperative societies and producer companies have legal provisions for sharing of profit earned by the Cluster by way of dividends. Other legal forms do not explicitly provide for profit sharing. However, Cluster can offer a better price for the produce it procures from the members, thus, benefiting the latter. Similarly, it can procure inputs/raw material in bulk and sell to members with low margin. Such activities are permissible for Clusters under all legal forms.
8. What are the important activities of a Cluster?
The primary producers have skill and expertise in producing. However, they generally need support for grant, marketing of what they produce or own. The Cluster will basically bridge this gap. The Cluster will take over the responsibility of any one or more activities in the value chain of the produce right from procurement of raw material to delivery of the final product at the ultimate consumers’ doorstep. In brief, theCluster could undertake the following activities:
- Procurement of inputs
- Disseminating market information
- Dissemination of technology and innovations
- Facilitating finance for inputs
- Aggregation and storage of produce
- Primary processing like drying, cleaning and grading
- Brand building, Packaging, Labeling and Standardization
- Quality control
- Marketing to institutional buyers
- Participation in commodity exchanges
9. How would a Cluster help the members?
A Cluster will support the members in getting more income by undertaking the activities of the Cluster by aggregating the demand for inputs, the grant Cluster can buy in bulk, thus procuring at cheaper price compared to individual purchase. Besides, by transporting in bulk, cost of transportation is reduced. Thus, reducing the overall cost of production. Similarly, grant Cluster may aggregate the produce of all members and market in bulk, thus, fetching better price per unit of produce. The Grant Cluster can also provide market information to the producers to enable them hold on to their produce till the market price become favourable. All these interventions will result in more income to the applicants.
10. Can a person become member of more than one Cluster under ?
Applicants cannot become a member of any Cluster operating either within the same location or producing the same primary product. BVN is the basis for registration and as there is no way out to use the same BVN twice for different persons on the applicant’s database that is prohibited by the terms and conditions of Theobarth.
11. Who will manage the Cluster?
Each Cluster will have an elected Board of Management / Board of Directors as per the bye-laws. The Board can engage professionals to manage its affairs. In the initial years, professional and managerial assistance is usually extended by organizers. As the leaders of the Cluster gain experience, they should take over the affairs of the Cluster completely – Theobarth Disbursement: Understanding Theobarth Grant Cluster Before Disbursement.
12. How much expenses will be incurred for registration of a Cluster?
Expenditure towards registration fee, stamp duty, preparation of documents and facilitation charges etc., will depend on the legal structure of the Cluster. In general, establishment of a producer company is more expensive than other legal forms. The estimated cost of incorporating a producer company is below:
13. What critical areas could be covered during training/capacity building of BOD of a Cluster/other staff?
The critical areas to be covered under training /capacity building of Board of Directors of a Cluster and staff of a Cluster are as follows:
- Vision and Mission: The vision and mission of the Cluster is very important for the Board Directors as well as other staff. Creating value to the members by solving existing problems in the value chain, marketing and reasonable share of price realization in the rupee spent by the consumer on the members’ produce, should be the focus. All other activities / services should be to engage the members comprehensively throughout the year and to reduce their expenditures and increase their welfare.
- Good Governance: Governance which is responsible, transparent and keeping the interest of the members of the Cluster above all considerations is a must for the success of a Cluster. Various aspects of good governance to be covered.
- Sustainability: Another most important aspect to be covered in the training is that the Cluster should not venture into unsustainable ventures which may create short term profits and harm the long-term interests/welfare of the community.
- Networking: The success of a Cluster depends on networking and continuous interactions with various stakeholders. The BODs and staff should have the understanding and importance of networking to obtain maximum benefits to their members under convergence mode.
- Social Capital: The training should concentrate on making the Cluster relevant to the members at all times, which creates social capital and trust – Theobarth Disbursement: Understanding Theobarth Grant Cluster Before Disbursement.
- Statutory Requirements: The BoD and staff should have an understanding of the constitution of the Cluster, statutory provisions under which it is formed, various other requirements under the statute and compliance thereof.
- Business Planning: The training covers aspects of business planning to maximize benefits as well as to reduce the business risks. The aspects like SWOT analysis, Balance Sheet Analysis, simple financial ratios for profitability, ratios that are seen by banks for financing, need to be covered.
- Financial Management: The training also should cover management of the finances like maintenance of books of account, Management Information System, share capital, borrowings, savings, loans, cash flow, funds flow, receivables management, payables management, investments etc.
- Monitoring: The BOD module should have various aspects of monitoring to ensure that the business goals are achieved and the business is carried out in a professional manner.
14. What support is available for Cluster ?
Mainly three types of supports are available to the Cluster.
- Organisers coordinate the formation of Cluster under her watch and lead them through to access support from the Federal Government of Nigeria CBN Anchor Borrowers Programme at a single digit interest rate without collateral and facilitate the payback from proceeds from the Cluster produce sales.
- Organisers operates a Credit Guarantee Fund to mitigate credit risks of financial institutions which lend to the Cluster without collateral. This helps the Cluster to access credit from mainstream financial institutions for establishing and operating businesses.
c. Organisers provides matching equity grant up to NGN10m at 9.9% per annum to the Cluster to enhance their borrowing power, and thus enables the entities to access bank finance – Theobarth Disbursement: Understanding Theobarth Grant Cluster Before Disbursement.