Key recommendations for growing the social sector in India

 

Alison Bukhari and Dasra

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Alison Bukhari

Alison Bukhari

‘Firms die, industries prosper’ – this was the conclusion of Jayant Sinha of Omidyar Network at the recent Impact Investor Forum in Bangalore, run by Dasra and supported by the Rockefeller Foundation and Omidyar Network.

Citing their recent publication in the Stanford Social Innovation Review, Sinha described the image of a crowd of impact investors around a water pump, waiting for a pipeline of investible businesses to start flowing, but no one is ‘priming the pump’. I think the overwhelming conclusion of the forum confirmed this opinion ‒ that we have to take a systems approach to social entrepreneurship and build support systems, dialogue and collaboration between stakeholders (particularly government, investors and practitioners) if the impact investing industry is to live up to everyone’s expectations of social and financial returns. We need to invest in the industry, not just in individual entrepreneurs or businesses.

Dialogue at the event was open and honest and some truths were aired. The forum saw over 100 social entrepreneurs, intermediaries, philanthropists and investors gather for the launch of the India Impact Economy Innovation Award, and two days of discussions.

As an organization that puts problem solving at its heart, at Dasra we too often hear discussions about impact investing and social entrepreneurship that seem to miss the point. Rather than talking about social entrepreneurship or social investing for their own sake, shouldn’t we start with understanding the social issues and then concluding what the right approach is to solving them at scale? Sometimes that will be a market-based solution, and sometimes it won’t.

We have three key recommendations for how we can make a contribution to the growth of the social business sector in India.

1. A range of capital

Along the trajectory from grants to commercial capital we need to encourage players to collaborate where they are most comfortable – we need investors not to see grants as a weakness, and grantmakers not to see underwriting early-stage social businesses as lining an investor’s pocket. A range of capital is required if we are to solve social issues sustainably and at scale.

The range of capital required for social businesses to thrive needs to be readdressed. Firstly, grant capital is most certainly required. Take Grameen, for example: we all know how much grant capital allowed microfinance to flourish and become successful, but given its current successes, people seem to have forgotten that grant capital was once required. Even in the commercial world new sectors are underwritten by government grants or companies – particularly if we look at technology, pharma etc. We have to see social business as one such ‘new industry’ and invest grant capital to enable it to flourish. We are not just talking about a new product or technology here, we are talking about solving some of the world’s most intractable problems – we are seeking solutions where everyone has failed before. There is therefore an even stronger argument for investment of non-returnable capital than in industry.

Even equity and debt need to be structured differently, and investors need to realize that there need to be very different risk/return expectations, particularly at this experimentation and acceleration stage.

Currently, 83 per cent of impact investing capital in India is ‘northern’ or neo-colonialist, as some people have described it. Dasra is passionate about encouraging philanthropists within India to consider supporting social business with grant capital or 0% loans, as part of the chain of capital and build a more buoyant Indian impact investing scene.

2. The development of the ecosystem
Whether it be capital providers, support services, capacity builders or advisors, the ecosystem for social business needs to be developed. Omidyar’s publication, mentioned above, makes a strong case for taking a sector approach rather than focusing on individual businesses. Funding for ecosystem builders, support services and organizations building the skills of entrepreneurs has been scarce and the new Impact Economy Innovation Fund supported by the Rockefeller Foundation and run by Dasra has been conceived to do just that ‒ $800,000 of grants will be deployed to fund initiatives aimed at building the support infrastructure for social businesses.

3. Nurturing and supporting the entrepreneur

Social entrepreneurs are different from regular entrepreneurs. The majority are very comfortable with low financial return and high social return, building sustainability rather than profit for profit’s sake. In Dasra’s experience, some of the best social entrepreneurs come out of the social sector and so need a very specific type of nurturing to build the business skills they need. The fact that their experience is social activism, community development and poverty alleviation means that they have a fast-track knowledge of how their business could work on the ground, and create impact. They have the right networks, local knowledge and understanding of the products and services that people will buy. However, these types of entrepreneurs often have weaknesses such as management structure, building teams, tweaking the operational and scale-up models and creating the right financial model. Investors cannot play this hand-holding role, and sadly too often do not seem prepared to pay for it. Hands-on assistance and management advice is expensive when the investment is low, and many times with this kind of entrepreneur and business the investment may be as little as $100,000-200,000.

The Indian social enterprise scene needs this sector approach and it is really exciting that both Omidyar Network and the Rockefeller Foundation have taken the initiative, seeking to invest in organizations likes Dasra and the many others we hope to identify through the new award.

If you want to get inspired by the various sectors that Dasra is seeking to nurture through its entrepreneurs’ training programme, take a look at the videos of this year’s cohorts and see how we are helping to build social entrepreneurship sectors such as health, technology, livelihoods, environment, energy, education and community development. Why not also check out Bloomberg’s news series Down to Earth, a weekly programme that looks at the work of a number of our social entrepreneurs, including Grassroutes and SMV Wheels.

Alison Bukhari is director of investor relations at Dasra

Tagged in: Impact investing India Social entrepreneurship


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