Earlier this year, Women’s World Banking partnered with network member Ujjivan Financial Services, Pvt. Ltd. to conduct market research in North and South India to support the expansion of Ujjivan’s Individual Lending for Women program. Our goal was to understand the financial needs of micro-entrepreneurs and identify how Ujjivan individual loans could help them reach their business goals.
We explored a range of sectors in the service, trade and production industries, including those where women entrepreneurs have strong representation: beauty parlors in Jaipur (North India) and provision stores in Bangalore (South India).
One of the most interesting things we found is that while there is high demand for individual lending across these diverse business sectors, access to formal credit is quite low. Many of the business owners we talked to said that bank financing options were not available to them and many were unfamiliar with microfinance options. In this blog post, we will look more closely at the findings from one specific business sector that proved particularly promising because of its high growth potential, largely due to increasing demand for the services offered: beauty parlors in Jaipur, Rajasthan.
The growth of the beauty industry has been dramatic in India — now more than ever, Indian women across income levels relish treating themselves to the latest and greatest beauty treatments. Thanks to television and Bollywood, Indian women have become more aware of new trends and demand an ever-expanding range of services for their hair, skin and nails from local beauty parlors. The result is that beauty parlors can be seen in almost every neighborhood and street, from low-income neighborhoods to busy streets and markets to posh suburbs. They offer a variety of services, priced to suit their local clientele.
It is fairly simple to start a beauty parlor in India: a woman needs but a one room shop, not necessarily a very fancy one. Many salon owners opt to use an extra room in their home, thus avoiding rental costs. The furniture needed is also basic: one or two chairs and a table for massages and facials.
While the infrastructure needed to start a salon is relatively easy to acquire, formal training is a must! Some women spend as many as six years training, both in classes and as an assistant to an experienced beautician, before opening their own salon. This experience is also important for the lender institution, as it might suggest potential for future success as Ujjivan considers whether or not to lend to them.
The most successful beauty parlors have a steady client base that makes regular visits. One way to achieve this is to offer multi-treatment packages for higher-margin services that require regular visits. While threading and waxing are often the entry point for a new client, salon owners are also beginning to offer treatments such as “hair spas” to fortify hair, prevent hair loss, repair split ends, or moisturize dry hair. Such packages require clients to come once, twice or up to four times a month for the treatment, depending on their budget and needs. “Bride-to-be” packages are also on trend. These entail multiple visits over 2-3 months, and can be highly profitable for savvy salon owners: they usually break even on the cost of products used after the first few treatments, and profit on all additional treatments.
Salon owners learn about new products and technology from suppliers, and also from their increasingly savvy customers.
Salons have to create a unique and “special” experience for customers in order to be successful. As Women’s World Banking’s Manager of Financial Education, Marketing and Product Research Cathleen Tobin explained, “beauty is emotional and a bit mysterious”. One owner they interviewed explained, “Customers expect you to be the expert, so you have to be. That builds their confidence in you.” Women clients trust knowledge, expertise and qualified training; these qualities, together with interpersonal and sales skills, are critical to success.
Owning a beauty parlor is not all easy profit. One risk is that it is a seasonal business. Bridal packages may be a reliable way for salon owners to earn extra profit, however marriages in India take place only during specific months of the year. This means that salon owners need to find ways to promote their business with other services during slow seasons. There is also the risk of product waste, especially during summer months, due to low activity and high temperatures that can damage some products. One tactic employed by some owners to bring customers in during the hot summer months is to install an air conditioner. This is particularly useful for treatments like waxing, which otherwise could not be offered during the hottest periods.
Another challenge is the need for beauty parlors owners to have a continuous presence in the salon and for them to be involved in everything related to the business. She is the expert—she is the person has client has come to see. According to Cathleen, “if the owner cannot work, the business may suffer”. Likewise, as market competition grows, so does price competition on basic services.
Individual Loan Pilot Program
Despite these challenges, Women’s World Banking’s research with Ujjivan shows that the beauty parlor appears to be an attractive sector for individual loans. Salons are cost-effective, with high profit margins, low startup costs and need for working capital. In addition, the sector is growing; as Cathleen noted, “women love beauty around the world and Indian women are no different.” Nevertheless, the service sector requires some new ways of thinking about loan assessment: because the “product” sold isn’t tangible, loan officers aren’t able to count stock or assess business health by how full the shelves are, as they would in a provision store business where business health indicators are more tangible. As a lender, Ujjivan might instead consider the formal training and expertise of salon owners, customer flow throughout a given day, and their savviness in counteracting the challenges of their industry in order to consider them as potential clients. Women’s World Banking will further share our technical expertise with Ujjivan by training loan officers on the appropriate credit assessment methodology in this type of service sector.
Women’s World Banking looks forward to seeing how Ujjivan’s individual lending product can help empower women entrepreneurs to obtain economic independence and provide income to their families and households.
Women’s World Banking’s work developing individual lending products at Ujjivan was accomplished in partnership with Credit Suisse and the Swiss Capacity Building Facility.