NABARD's Cluster Development Programme

Cluster Definition

A cluster is generally defined as a geographically bounded concentration of similar, related or complementary

businesses with shared infrastructure, markets and services and faced with common opportunities and threats.
Defined differently, a cluster is a is competitive - collaborative arrangement characterised by

• Geographical concentration of rural artisans engaged in similar productive activity

• with shared infrastructure, markets and services.
• faced with common opportunities and threats.

National Programme for Rural Industrialisation (NPRI) for development of Clusters

The National Programme for Rural Industrialisation (NPRI) was proposed by the Union Finance Minister in his budget
speech for the financial year 1999-2000, with a mission to set up 100 rural clusters every year for the next five years
to, give a boost to rural industrialisation. As a part of its commitment to NPRI programme, 65 clusters were developed
by NABARD (against the self imposed target of 50) during the five year period 1999-2000 to 2003-04.

New Cluster Policy

Considering the excellent potential in the cluster approach for rural industrialization and the recognition of NABARD's
role in rural clusters by several agencies including the GoI, NABARD had decided in 2005-06, to go in for
development of selected clusters on its own by partnering with other government agencies. NABARD had decided to
develop 55 clusters (50 clusters on Participatory basis and 5 clusters for intensive development) in a period of 3-5
years starting from 2005-06. NABARD would follow two models of cluster development :-
(i) Participatory model of cluster development
(ii) Intensive Development model of cluster development

Participatory Clusters
Under participatory cluster, the approach would be to coordinate the efforts of all the agencies involved in carrying out
the action plan prepared for the cluster development. NABARD would be the main promoter and involve its
resources wherever assistance is not forthcoming from other agencies/ the other agencies do not have provision for
support. In this mode of Cluster Development, the intervention budget would be limited to Rs.15 lakh per cluster over
a period of 3 years.

Intensive Clusters
Under Intensive Development, NABARD would primarily be the source for meeting the resource requirements to
fund the planned promotional interventions. Support from other agencies wherever forthcoming would be utilised.
The implementation period for the intensive cluster development would be a maximum of 5 years with an outlay not
exceeding Rs. one crore.

Objectives
Strengthening of existing clusters, and development of new clusters in exceptional cases, towards sustainable
competitive advantage through technology upgradation & transfer, raw material access, skill development,
managerial inputs, credit support and marketing assistance. Broadly speaking, the cluster development objectives
and strategies are the same for both the types of clusters except that in the case of clusters for intensive
development , the size of NABARD financial intervention and challenges are different; interventions are more broad-
based, intensive and entailing higher level of financial support. In all cases the assistance should meet the criteria of
cost effectiveness in terms of the impact on livelihoods and incomes. The cluster development programme of
NABARD is a comprehensive strategy aimed at holistic development of the cluster through planned interventions to
achieve the main objective of raising the income level and thereby living standards of the artisans through various
interventions.

Cluster Philosophy

• Focussed assistance.
• Demand based assistance.
• Flexible instruments of assistance to meet specific needs of cluster.
 • Close monitoring to spur continuous development and innovation.

Focus Areas
The following sectors have been identified for development on priority basis under Cluster Development Programme:

• Agri & Allied Activities

• Food Processing
• Small & Micro Enterprises in rural areas
• Traditional arts, such as, handicrafts and handlooms

Cluster Development Strategy

The Cluster Development Strategy will have the following stages :

o Identification of the Cluster

o Identification of Cluster Development Agency (CDA - NGO) and
o Cluster Development Facilitator (CDF)
o Conducting Base-line Survey & Diagnostic Study
o Drawing up Action Plan.
• Implementation of the Action Plan.
• Review & Monitoring (Concurrent)
• Documentation (Concurrent)
• Evaluation and documentation of changes as a result of our intervention at the end of 5 years.

Selection of Cluster Development Agency (CDA)

CDA is the key to the success of the Programme. Adequate care is taken to select the CDA having personnel with
positive attitude, rural orientation and commitment for the responsibility devolving upon the agency. Identification of
a dynamic and efficient CDA is half the cluster objective achieved. CDA should be capable of systematic
implementation and bringing proper co-ordination among all the stake holders. CDA should be easily accessible and
should be in a position to respond to the cluster needs and provide all possible co-operation to the cluster members.
For this purpose, it is highly desirable that the CDA is located within the cluster area or as close to the cluster as
possible.

A reputed agency with proven track record and associated with NABARD in other programmes may ideally be
selected as CDA. SHG Federation / Registered Artisans’ Association, Govt Aided Agencies / Government
Departments, Co-operatives and other Technical / Financial Agencies could also be considered as CDA depending
on their suitability.

The CDA would be conducting and grounding the diagnostic study, preparing the Cluster Action Plan and its
implementation, networking with the institutions, capacity building of the cluster beneficiaries.

The CDA will identify a key personnel to implement the Cluster Development Programme. He will be designated as
Cluster Development Facilitator ( CDF). CDF is a person who oversees the implementation of the Cluster
Development Programme in a professional and effective manner directly at the cluster location. It is therefore,
necessary in the interest of the cluster development, that the CDF conducts the diagnostic study. The CDF is
expected to work for the set vision of the cluster in association with the supporting agencies. CDF creates trust
among the cluster stake holders. The CDF should be available full time for at least 3 days in a week in the Cluster. It
is imperative that the CDF is a graduate. The CDF would be suitably empowered in terms of skills through training,
adequate functional autonomy etc. necessary for achieving the objectives. With multifarious duties and assignments
on hand with District Development Managers, it is absolutely necessary to have an efficient CDF. DDM need to
adopt a role of ‘Project Programmer and Guide’ to the CDA & CDF. The CDA is suitably compensated for the monthly
remuneration of the CDF and other direct overheads on account of its involvement in the Cluster Development
Programme (as may be fixed by NABARD from time to time).

In-princple approval of the Cluster by HO

The proposals for cluster development received from the Regional Offices are subjected to a quick scrutiny at Head
Office and if prima facie found in order, Regional Offices are advised to get the Diagnostic Study conducted and draw
the action plan in a logical framework. No cluster would be approved unless finalisation of CDA and appointment of
CDF by the CDA is firmed up . A checklist for preparing the proposal is given below:
Selection of Cluster for Development - Appraisal Sheet

Diagnostic Study
The implementation of the Cluster Development Programme starts by gathering dispersed knowledge through a
participatory Diagnostic study. The diagnostic study aims at finding the gaps in the existing infrastructure, skills,
activity process, technology, design, credit , marketing and other linkages in the cluster to effectively address them
through planned development strategy.

The study has to focus not only on the potential and constraints but also the local linkages and support mechanisms
or the absence of the same in the cluster. The participatory process helps to have a clear understanding of the
prevailing situation.

The Diagnostic Study should be detailed in the coverage. In the case of Participatory clusters, the study would be
conducted by the CDF/CDA. Keeping in view the background data and other information already available with the
CDA, size of our clusters, and support of the DDM, it should be possible for the CDA official(s) to conduct the field
study for collecting data including conduct of semi structured interview of the cluster stake holders under the
Participatory Rural Appraisal (PRA) techniques in a matter of one week to 10 days.

Important Components of a Diagnostic Study

The implementation of the Cluster Development Programme starts by gathering dispersed knowledge through a
participatory Diagnostic study*. The diagnostic study is basically understanding and documenting. The complete
business cycle and working out an action plan to improve income levels of the artisans / primary stakeholders of the
cluster on a sustainable basis.
The Diagnostic Study should ideally be done by the Cluster Development Facilitator (CDF). In case of in-house
study, CDF may be actively associated.

Approach to the Study

The cluster members being the primary stake holders in the development process, bottom up approach is highly
essential to sustain the progress. The participation of the beneficiaries must be enlisted right from day one of the
planning process. The members of the study team should focus on maximum interactions with the cluster members
and elicit their views on all aspects having bearing on the cluster activity and their livelihood.
Broad frame work of the diagnostic study report

Base Line Survey

The purpose of the base line survey is to document the start up condition of the cluster and to identify the problems.
The baseline survey would indicate the following :

• How many people / families are employed ? How many of them are engaged in cluster activity?
• What is the monthly income for a unit / family / individual ? How does it vary with skill levels?
• How old is the cluster ?
• Sources of raw material
• Skill levels
• Methods of production (traditional or otherwise)
• Marketing
• Access to credit
• Extent of financial support from government or other collaborating organisation
• How are the products marketed?
• Any other relevant details which deserve special mention.

It will be desirable to document two - three case studies of different set of artisans to have better understanding of the
issue and to use as a reference point.
Though the findings of the baseline survey would form a part of the diagnostic study report, it is desirable that these
details are collected before submitting the proposal.

Other Components of the Diagnostic Study

History of the Cluster – Brief history of the evolution of the cluster, traditional importance, activity & skill involved in
the cluster, spread of the skill in the cluster etc.
Social status of the beneficiaries – A sketch of the social background of the cluster members may be given. The
details of Government schemes available for their welfare and the extent to which the members availed of the
benefits under these schemes / programmes to be covered. The social problems and the possible remedial measures
thereof may be explored.
Economic status of the beneficiaries – The sources of income to the family, the level of income, details of
employment by each member of the family to be clearly brought out in the study. This is with a view to estimate the
income on account of the cluster activity alone in the pre-development phase. The study will comment on the
adequacy of income for consumption needs, working capital needs and emergent needs ( personal and professional
).
Present Scenario - Present employment in the cluster, turnover, existing associations of the cluster, manufacturing
process, phases of production, quality of product, packaging , storage, marketing avenues etc.
Scope for Collective efforts - The possibility of SHG formation or artisan associations which can later confederate
into a Federation, the type of leadership prevalent in the cluster and level of cohesion among the cluster members
need to be studied to assess the possibility of forming registered association / co-operative of the entrepreneurs.
Availability of raw material – Details of all the raw material components required for making the cluster product,
sources of the raw material, access to the sources, the quality and reasonableness of the raw material cost etc. to be
discussed.
Availability of infrastructure – Basic amenities like water, electricity, housing , other infrastructure such as roads,
transport, health facilities, education, work sheds, improved tools, common facilities, raw material and finished goods
storage .etc to be studied and mentioned.
Product Range - Study on products manufactured, range of products, modifications to products, innovations,
substitutes etc.
Existing technology and need for upgradation - Keeping in view the findings of the market survey, the type of
technology introduction / upgradation may be recommended to orient the products towards the market requirements.
However, it may be borne in mind that the technology should only aim at reduction of drudgery for cluster members
and enhancing quality of the products. Technology should not displace people from their jobs or reduce employment
opportunities. It should only contribute to value addition of the cluster products.
Existing skill levels - Whether the proposed new technology requires imparting new skills and upscaling the
existing skills? If so, suitable institutes for imparting such training may be identified. The training costs involved may
also be computed.
Market Survey - Existing market networks, channels of distribution, channels of marketing, Market potential
(including export potential), possibility of diversifying the range for the products based on market demand, pricing for
different qualities of products may be carried out before arriving at the type of technology / skill / quality control
measures to be adopted to meet national and international specifications ( Environment friendliness eg:- how to
tackle the polluting nature of screen printing industry or switch over to eco-friendly dyes , treatment of effluents
released by leather tanneries, HACCP certification for Food processing, etc.) Comments on the quality of the
products in relation to the market standards - Measures to improve the existing standards.
Creation of sustainable market linkages - The obstacles envisaged in marketing tie-ups , buy back arrangements
that could be envisaged may be dwelt upon. The type of publicity that will lead to enhanced sales may be explored.
Value Chain Analysis - A value chain analysis will be done for the purpose of bettering the production process,
reducing the wastage and cost of production. This will also include value addition process.
Stake Holders - Study on various agencies and people who are directly or indirectly interact with the cluster for
development or business purposes. This will include all the agencies / partners who have scope to interact with the
cluster in future.
Cluster Map ( before and after interventions) - Mapping of all the cluster stake holders will be done for graphical
representation of the cluster. This will include the mapping of the relationship of the stake holders with the principal
stake holders ( artisans) for the purpose of strengthening. These cluster stake holders can be broadly divided into 4
categories:

• Forward Linkages
• Backward linkages
• Business Development Service Providers ( BDS)/ Consultants
• Support Institutions ( including Financial Institutions)

The mapping will be done on the basis of existing linkages ( Pre Intervention map) and envisaged future linkage (
Post Intervention map).

Areas of Concern -
After in-depth study , the areas of concern will be identified. These are the areas which are the bottlenecks for the
development of the cluster.
Documentation of the entire business process (one full operating cycle) in the cluster may be done and photographs
and other visual clippings incorporated in the report.
Existing Policy Frame Work
Government Policy on licensing, taxes, infrastructure, other rules and regulations relevant to the identified sub-sector
and compliance with existing legislations need to be incorporated. Study has to highlight the issues arising out of
WTO stipulations on the sub-sector and suggest possible solutions thereof as the future of the business will lie largely
on the competitiveness of the cluster products both in terms of quality and pricing in the liberalised post WTO
regime. Possibilities of branding of cluster products including protection of traditional knowledge through
Geographical Indications Act, 1999 to be discussed.
SWOT / Stake holder / STEP Analysis
On the basis of the extensive study SWOT Analysis, Stake holder Analysis and STEP analysis of the cluster may be
made. Suggestions to overcome the weaknesses, combat threats, utilise the opportunities in order to maximise
cluster progress may be clearly brought out in the study.
Interventions - After the indepth study of the areas of concern and analysis of the scenario, the interventions will be
formulated with a brief picture of their expected impact, costs involved and the implementing agencies through whom
these will be facilitated / conducted. The interventions will have to be cross-checked with the objectives and vision of
the Cluster.
Vision - A vision statement for the Cluster will have to be formulated impregnated with the dream of the cluster
beneficiaries as to how the cluster should be after 3 - 5 years. The vision will be the heart of the entire cluster
development activity.
Launching of the Cluster & Trust Building
RO may formally launch the cluster development programme by organising a small function at the cluster location by
inviting all the organisations involved / to be involved in the development of the cluster.
Establishing an atmosphere of trust within the cluster is an essential pre requisite for formulation of a realistic action
plan for the cluster that will have support from the clients, service providers and support agencies. The participatory
approach like creating Artisans Association, if the same is not already existing, conducting orientation programmes
for development of soft skills which have been successfully adopted under IGWDP watershed model could well be
adopted in the Cluster Development Approach. The participatory approach would go a long way in enhancing the
social capital and building of Trust. The trust building process should ideally start during the diagnostic study. All
the stake holders, viz. artisans, govt departments, bankers, prominent traders / service providers etc. should be
invited for ‘cluster workshop’ wherein the important findings of the diagnostic study would be discussed. The meet
could be decided well in advance and major stakeholders could be asked to present a paper indicating their version /
opinion / suggestion for implementation of the cluster development programme. This would enable the stakeholders
to appreciate mutual inter dependence and the challenge. The participatory need assessment exercise could help
in trust building among the stakeholders.

Constitution of Cluster Development Committee( CDC)

A Cluster Development Committee may be constituted with the District Collector or Head of DRDA as the Chairman,
and Lead Bank Officer, General Manager-DIC, DDM, Representative of DC-Handicrafts, representatives of CDA,
Artisan/ Entrepreneur representatives from the cluster, representatives from local banks, KVIC, KVIB, experienced
market intermediaries/ traders and any other suitable local resource persons as members. CDC should be a
compact body comprising those functionaries who are important stake holders in the Programme. DDM of the District
will be the convener of the CDC.
The Committee may meet at quarterly intervals to review the implementation of the Action Plan. The constitution
of CDC is considered essential for all the clusters for the following reasons:

• The support of the district administration is crucial for provision of infrastructure and extension services.
• The participation of bankers in the Committee will help in easy access to credit
• It is also necessary that agencies external to NABARD oversee the implementation of the project to suggest
mid-term corrections and evaluate the programme objectively.
• After NABARD's exit from the cluster, the cluster representatives will be in a position to approach any of the
authorities/ agencies in view of their earlier rapport to sustain the progress achieved.

It is often observed that on account of preoccupation of the District Collector, the CDC meetings are not being held
regularly. In such situations, the CDC meetings may be conducted and the participants may elect a member
amongst themselves to act as Chairman for the Meeting. However, a copy of the proceedings may be forwarded to
the regular Chairman.

Preparation & Implementation of Action Plan

On the basis of the diagnostic study which identifies the areas of concern that impede the growth of the cluster, a
three year (five years for intensive clusters) Action Plan in logical framework has to be chalked out. The Action plan
would identify the interventions for each of the areas of concern. There could be many interventions for one concern
and many activities for one intervention. The Action Plan may cover all the interventions necessary, indicative time
frame for conduct of individual interventions, budget estimate, source of fund, agency identified for conducting the
intervention, expected outcome, etc.
The Action Plan prepared at the beginning of the Cluster is of tentative and indicative nature. Hence, the operative
Action Plan for each subsequent year has to be prepared well in advance taking into consideration the evolving
scenario and need based requirements of the cluster beneficiaries/ members.
The Action Plan prepared may be placed before the CDC for discussions and finalisation. The Action Plan so
finalised by the CDC may be forwarded to NABARD.

Interventions for cluster development

The interventions that may be planned in the cluster could be categorised in 5 broad heads viz. Social interventions,
Technological interventions, Infrastructure related, Financial and Marketing interventions. The interventions may be
decided based on the nature of activities of the Cluster.

Role of different partners

NABARD
DDM will oversee the implementation of the programme in the identified cluster. Besides providing refinance support
to the eligible units under various refinance schemes of NABARD, need based promotional support may also be
considered.

VAs/ NGOs(CDA/CDF)
The identified NGO will act as the Cluster Development Agency (CDA) for implementing the project. The CDA will
identify a key personnel to implement the programme. He will be designated as Cluster Development Facilitator
(CDF). His close rapport with the cluster artisans is very important particularly in identification, planning, monitoring
and assessing the development of clusters from their (artisans') point of view.

Govt. Departments/ Promotional/ Developmental Agencies

The involvement of these agencies is to be ensured right from the beginning and efforts may also be made for
deriving support from higher level officers.

Banks

• Integrating Cluster Action Plan into Service Area Plans.

• Identifying potential entrepreneurs / enterprises.
• Ensuring focussed attention to meet the credit needs of the entrepreneurs.
• Ensuring qualitative lending with close supervision and support services.
• Sponsoring potential entrepreneurs to participate in the Rural Entrepreneurship Development Programmes
(REDPs).
• Deputing field level functionaries to various training programmes, meets, workshops.
• Associating with Cluster Development Committee,
• Monitoring the progress of Cluster Action Plan and
• Maintaining proper data base.

Monitoring and Evaluation

Monitoring
Monitoring of the project needs to be given high priority. Following system of monitoring is recommended :
i) CDA personnel / CDF has to visit the cluster at least 3 days in a week to coordinate the implementation of the
interventions envisaged in the Action Plan. CDF will furnish a brief summary of the achievements vis-a-vis action
plan to DDM. CDC will conduct quarterly review of the performance on the basis of such Statements. CDF will also
document the success stories, including pictorial presentations relating to the cluster. Release of money to CDA /
NGO/ concerned Agencies should be linked to submission of progress reports and documentation. CDA would be
responsible for making quarterly presentations before Cluster Development Committee on achievement of
programme objectives.
ii) District Development Manager - DDM will work in close association with the CDF and directly interact with the
cluster members through monthly visits to the cluster. DDM should cross check the data on different social and
financial parameters, authenticity of the success stories prepared by the CDF. DDMs will send the monthly progress
report to the RO.
iii) Regional Office - RO officials may visit the cluster every quarter, to the extent possible, coinciding with the
Cluster Development Committee Meeting to directly assess the developments during the quarter and interact with
the stake holders. A consolidated brief note may be submitted to HO on quarterly basis.
iv) Head Office - An annual review of the cluster progress may be conducted through a field study. The action plan
for the ensuing year may be suitably modified based on the study findings.
Evaluation

• A survey should be conducted at the end of the project period to help assess the development in
comparison to the pre development phase as documented in the first Diagnostic Study.
• CDA should submit a final evaluation report (end of the project report).
• A video-film may be made to document the process of development in the cluster.

Status as on 30.11.2009
As on 30.11.2009, 107 clusters have been adopted by NABARD for implementation. Purpose wise classification is - 2
NPRI; 57- Handloom; 33 handicraft ; 7 Food Processing ; 5 Rural Tourism ; 1 Bee Keeping ; 1 Leather work ; 1
Rural Tourism cum handicraft cluster. A list of NABARD supported clusters is given in Annexure.