Jumping on the Social Enterprise Bandwagon

Dr. Ruth A Shapiro is the Chief Executive and Founder of the Centre for Asian Philanthropy and Society (CAPS). CAPS is committed to increasing the quality and quantity of philanthropy and social investment in Asia. CAPS conducts policy and applied research. In collaboration with our research partners and local experts, CAPS has been conducting a landmark study to understand best practices specific to 30 excellent social delivery organizations (SDOs)—non-profits and social enterprises—across 11 Asian economies. 

Here's her article from our latest CAP news magazine. 

Ruth speaking at Centre for Advancement of Philanthropy's 30 year event

 

In January 2014, the Ministry of Finance announced the creation of the India Inclusive Innovation Fund “that will drive and catalyse the creation of an ecosystem of enterprise, entrepreneurship, and venture capital, targeted at innovative solutions for the bottom of the pyramid”. Some states have set up their funds which may include projects in the social investment area but primarily focus on information technology. As of now, the national fund is still designing the specifics regarding the who, why and how of the money in this fund is to be distributed.

Our research shows that India is not alone in creating such a fund.  In Asia, there is a great deal of excitement and buzz around social enterprises.  Hong Kong, Singapore, Thailand, South Korea, and Indonesia have created funds to support the creation of social enterprises.  The tricky part here is the definition of what is a social enterprise and the role the government can provide in supporting their creation and viability.  Here there is great variability across countries.

In the write up for the India Fund, the goal of supporting world class enterprises that focus on the problems of the poor is highlighted.  This is a broad definition.  South Korea uses the following definition, “a company which performs business activities while putting priority on the pursuit of social purposes”.   This definition stresses the primacy of the social bottom line.  A social enterprise must perform the delicate balancing act of meeting its financial obligations while staying true to its social imperatives.  As we know from the case of SKS Financial in Andhra Pradesh.  Unable to maintain the balance necessary SKS veered toward profit first, resulting in the state government closing it down after numerous suicides by overleveraged borrowers.  At the time of its IPO, Mohammed Yunus of Grameen Bank warned that by going public, there would be incredible market pressure to focus on financial returns.  He was right.  In order to create financial opportunity while protecting social mission, the Benefit Corporation or B Corp accreditation system was created. By becoming an accredited B Corporation, a company must maintain strict compliance with the profitability/purpose goals of the company.   The first Indian company to become a certified B Corporation is eKutir which listed in June of last year.  More are certainly on the way.

The most important component of government schemes is the availability of capital, especially in the start-up phase of the effort.  Again, there is great variability.  Singapore has put US$6 million into two funds – one grant and the other impact investment for social enterprises.  South Korea has put US$28.3 million in their social enterprise support fund and Thailand provides $1.2 million in financial resources to social enterprises.  For India, according to an article in the Business Standard at the time of the announcement, the fund has an initial corpus of Rs 500 crore, which it expects to expand to Rs 5,000 crore once launched.  

All of these funds also offer ancillary types of support ranging from help with networking, mentoring, incubation hubs and registration assistance.   The key question here is who is doing the mentoring?  Generally, government bureaucrats and officials do not necessary know what makes a business plan viable.  It is important that people with on-the-ground business experience are brought into the mix so that their experience can be brought to bear on the projects.  In Hong Kong, the Social Enterprise partnerships program serves as matchmaker between start-up social enterprises and private sector mentors who work with the teams as they develop their ideas and launch them as businesses.

As India is still working on the development of the details of this fund, we do not know what specific products and services will be provided.   We do know however that while government support is still forthcoming, there is ample private sector support in place.  The Ministry of Commerce  lists 209 funds offering financing to new business enterprises and while not all include social enterprises, many do.   The government’s fund will add to this support.

Looking across other countries in Asia however, shows that there is widespread enthusiasm and support for the creation and growth of social enterprises.  It is still early days and there is much experimentation and innovation taking place.  As more and more people try their hand in creating new social enterprises, we will learn a great deal and in the process bring about win-win solutions to a better world. 

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