The growth of Swasth India, a provider of affordable healthcare services to low-income households in the slums of Mumbai, demonstrates the potential of social enterprise.
Sundeep Kapilla and Ankur Pegu established Swasth in 2008 to fill the gap in primary and preventive health services left by the government. In Mumbai alone, 32 million people a year fall below the poverty line due to the cost of their healthcare. To address this issue and the lack of a public health infrastructure, Sundeep and Ankur set up health clinics in Mumbai slums to offer an integrated platform of affordable primary healthcare, low-cost drugs and low-cost pathology services. The first clinic opened its doors in June 2011 and the company has already expanded to 11 centres where they have registered over 21,000 families and administered 44,500 health visits. In the next 12 months, they plan to open 50 more centres in Mumbai. Complementing the Swasth clinics, community outreach and school health programmes have also been launched.
The story of Swasth reveals the triumphs, but also the hurdles of early-stage social businesses – and this was the topic of Impact Lab and LAB Open Innovation’s 30 January event on ‘The Role of Enterprise Philanthropy and Impact Investing’. Sundeep and Ankur spent three years testing the market, and while their operation is now growing at an exponential rate, it is still in the developmental stage and therefore not always a desirable investment for traditional ‘impact investors’ seeking proven business models and ready markets.
This issue of pioneer funding, best explored in the Monitor Group’s report From Blueprint to Scale, was the focus of Impact Lab’s event. As Harvey Koh of Monitor Inclusive Markets explained, impact investment alone cannot always take new social business models from the idea stage to scale. The field of social enterprise is young and most inclusive business models are unproven, requiring flexibility and re-tooling in their nascent stages. Moreover, there are challenges of variable and volatile income streams, poor infrastructure, missing value chains and lack of customer demand. This high-risk environment has resulted in a so-called ‘Pioneer Gap’, where few impact investors are willing to invest in early-stage social ventures. Monitor’s thesis is that philanthropy can close this gap, by providing the catalytic capital needed to take a social enterprise through the blueprint, validate, and prepare stages (whereas traditional impact investors usually then take the prepared business model to scale). In describing the pioneer gap, Koh quotes his colleague Mike Kubzansky: ‘Imagine if Google had to create the internet first before it could operate.’
Fem Sustainable Social Solutions (fems3) took the Monitor Group’s thesis to the testing ground. Based in Bangalore India, fems3 has been running a three-year pilot to identify which market based solutions work in India and why. As project director Martin Vogelsang described, fems3 has been testing projects across India in the areas of water supply, telemedicine, affordable housing, organic farming and waste management.
In time, they aim to be a hub for social businesses and investors in India. But Vogelsang warned that while there is a great deal of hype in impact investing – the ecosystem is still new and to speak of an impact investment market is too immature, because the market has to be created first. It took nearly 30 years to see profits in the microfinance space, and we should expect the same in impact investing. Moreover, the sector is missing critical infrastructure, government regulation and other key intermediaries.
What brought all of these speakers together on 30 January was the recent launch of the Opes Impact Fund. Represented at the event by Stefano Magnoni and Rodolfo Fracassi, Opes is an atypical fund because it is a donor’s fund. It does not aim to give money back to its investors; rather, it is focused on investing capital in high-risk early-stage enterprises. Opes aims to discover entrepreneurs like Sundeep and provide them with capital and technical assistance to help them through the pioneering stages of their business model.
The panel discussion raised questions about whether impact funds and foundations are prepared to provide the necessary capital to prepare and validate innovative business models. As Harvey Koh explained at this earlier stage, capital needs to be much more flexible. Without the pioneer gap being built, impact investors may not have any businesses to invest in.
Julia Guren supports Impact Lab with communications
Alliance magazine is offering a 20% discount on subscriptions to those who attended the event.