A 5-point list of policy recommendations for robust social enterprise development in India

 

The Nand & Jeet Khemka Foundation has for a while been deliberating with individuals and enterprises in the social enterprise (SE) sector for the need for a social entrepreneurship policy for India.  It’s not uncommon to hear about the lack of such a policy and how its absence has affected the sector in many ways. The results of a recent dipstick study with approximately 100 social entrepreneurs had opinions ranging from advocating an imminent need for such a policy that is based on a clear definition of a Social enterprise, to demanding a framework that distinguishes a ‘genuine’ social enterprise from a ‘profit-oriented’ social enterprise.

At Intellecap, we meet over 500 enterprises each year through our flagship initiative Sankalp Forum, and bring over a 1000 of them together annually at the Global Sankalp Summit, and the opinions and demands show a similar trend. Our interactions highlight how the lack of a (supportive) policy environment and framework adversely affects enterprises in their operations and potential to scale. Basic business processes such as registering a business, accessing finance through equity and debt and hiring high-quality talent all become uphill tasks when the enterprise in question is operating a business model that has social impact at its core.

Social enterprises tend to be categorized as part of the NGO/Development sector, which leads to a lack of investment from social enterprise investors are wary of non-profits, who feel that only grants work in this sector.  One option is for social enterprises to be recognized under a specific category of social infrastructure.  This will enable infrastructure investments with relevant norms and regulations into social enterprises, and it will open up more avenues for investment.  The social business can be registered under a single framework and there should be clarity of tax policies that social business needs to follow.

The need of the hour therefore is a robust policy environment to enable social entrepreneurship, especially a policy that grants concessions or incentives to create positive social outcomes. But before we go there, perhaps it’s also crucial that we have a clear, identifiable and widely agreed definition for the term social enterprise (SE). Otherwise, it will become hard to legitimize concessions, provisions etc, for SEs vs other new businesses. This definition framework should allow for SEs to be both for-profit / non-profit in nature, allow for incentives for operating high-risk or low-return geographies, and open up new avenues for funding, know-how and other resources crucial for socially-oriented businesses.

Here we present a five policy interventions that social enterprises need in India now:

  1. Building the financial spectrum: The burn out rate of startup enterprises who fail to ‘make it’ to the sustainable stage is extremely high, chiefly because of the lack of adequate support at the incubation and pilot stage. Enabling access to finance right at the early/ start-up stage, and covering the full spectrum of an enterprise’s working capital needs, scaling requirements etc. would be a critical policy contribution. This would require a combination of tools like grants for incubation and research and development (in the case of tech-heavy enterprises), preferential lending, exemptions and incentives for individual and institutional equity providers and leveraging government startup funds specifically for this class of businesses.
  2. Operating guidelines for government partnerships: Enterprises would benefit greatly from leveraging the government network. A useful, mutually beneficial arrangement could be Public Private Partnerships (PPP) in sectors such as primary healthcare, education and livelihoods where social enterprises could be preferred execution partners. Having requirements of this would boost the initial uptake of such partnerships.
  3. Clarity on CSR funding and corporate engagements: There currently exists a lack of clarity on whether corporates can engage with/ offer grants to for-profit social enterprises. This excludes a large chunk of players, many with proven results for BOP impact. Including this class of social enterprises, backed by that definition framework, through unambiguous and clear language can pave the way for many more creative collaborations, where corporates can not only offer capital, but also their distribution networks and know-how.
  4. Incentivizing outcomes generated: Make policies for providing massive upsides for creating desirable social outcomes. Construct frameworks for measuring social outcomes and translating them into financial returns. Impact Bonds are an example of such structures
  5. Encourage apex networks and self-regulation: Led by the government or even private sector, the need for an apex body that can advocate the role and contributions of social enterprises towards social impact cannot be stressed enough. While the starting point of such a body could be with the government or with the private sector, its success would hinge on the credibility it enjoys with a diverse set of stakeholders. We have seen these work wonders in sector such as microfinance post the crisis that hit the sector in 2010. There is every reason to encourage the formation of apex networks and self-regulatory organization for more streamlined growth of the SE sector.

In conclusion, we believe that the time has now come for building a strong policy framework for the overall development of the SE sector. And certainly the path to architecting it requires careful deliberation and involvement of a wide variety of stakeholders. Disruptive scale cannot be created in silos and at Sankalp Summits we have seen how magic happens when unlikely actors collaborate.

Aparajita Agrawal, is director of the Sankalp Forum at Intellecap.

Teresa Khanna, is the director of programs at the Nand and Jeet Khemka Foundation.


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