Of the $1.6 billion invested in Indian social enterprises, 70% is in financial inclusion.
And 67% of what went into other sectors went into just 15 enterprises.
Naren Karunakaran dissects this skew to see what is holding back the social entrepreneur
Ramasubbu Shankar, given his
ordnance factories background, likes to cite the works of Lieutenant
General Mikhail Kalashnikov, who developed the versatile AK-47 series of
assault rifles. Just like the late Russian officer, Shankar, with just
an engineering diploma, revels in tinkering. He doesn't possess strong
academic credentials but betrays an intuitive hold on engineering from
his decades of hands-on work in defence-related technologies. “You
know why Kalashnikov could do it? Because he was a soldier,“ says
Shankar, implying researchers in fancy labs are far removed from the
needs of those on the field. Shankar, therefore quit the ordnance
services a couple of years ago to pursue his dreams of “designing
something which would benefit society and rural India“ and quickly
realised he had no clue on how and where to start.
He soon
receded into doing contract jobs in automation for companies in Chennai,
leaving weekends for his tinkering. The money was good but he was
restive. “I was running an engineering paan shop,“ he says, till someone
pointed him to Villgro, a Chennai-based incubator for social
entrepreneurs.
After several rounds of interviews, Villgro
decided to have him as entrepreneur-in-residence, a relatively new,
yearlong programme aimed at innovators with nothing but an idea in their
heads.
“We are now focused on the ideas stage; we want to build a
pipeline of entrepreneurs,“ explains Mukesh Sharma, chief investment
officer, Villgro, alluding to a challenge that straddles the impact
investing and social enterprise space.
Waiting for the arrival of
savvy entrepreneurs with a promising product or service, a good team, a
business model, and ready to absorb a million dollars in investments
for starters is futile. It's not happening.
An April 2014 study
by Intellecap, a strategy advisory firm, highlights the gravity of the
situation. Of the $1.6 billion invested in social enterprises since
2000, around 70% was in the financial inclusion space (both microfinance
and non-microfinance). Of the investments that went into other
sectors--including agriculture, energy, education, healthcare and
livelihoods--about 67% was in just 15 enterprises.
Financial
inclusion does require large doses of capital because of the very nature
of the business. But the fact also is, even as investors begin to
transition from microfinance, which has had it heydays, too much money
is chasing too few entrepreneurs.
This is where people like
Shankar begin to matter. People like him have to prised or coaxed out of
the woodwork, and nurtured. Till he engaged with Villgro, he didn't
even know what an incubator was and is still tickled by the concept.
“They are paying me for building my own business and also developing a
prototype,“ he says.
A confident businessman in the making, he is
now tweaking CAD (computeraided design models) for an audacious shot at
addressing the `missing link' in energy--an attempt to do away with
batteries as storage devices. He is working on compressedair energy
storage (CAES) for micro-grids. But till he found his way to Villgro,
Shankar symbolised the one big question that bedevils the impact sector
today: where are the bankable social entrepreneurs and what's holding
them back?
Systems And Design A Vijayasimha, co-founder and CEO of
OneBreath, which is preparing to launch low-cost ventilators globally,
lays his bet on those in their 50s, his peer group. “They have empathy
for the underprivileged,“ he says. “Youngsters are yet to develop this
caring attitude.“
In the recent past, Vijayasimha has engaged
with industry lobby group Ficci and also academia to bring together
seniors from varying backgrounds into innovation sand-boxes, prodding
them into mind-expanding exercises, to brainstorm on challenges,
solutions.
What is needed is more of this.
He would like to
see some sort of a flowing, institutionalised way of unlocking all the
science vested in individuals, and channelling them into companies and
products. A quick scan at some of the emerging early-stage social
enterprises that hold promise proves Vijayasimha is indeed right about
the empathy bit; he, Shankar, and GNS Reddy can be a triumvirate.
GNS Reddy, managing director of Akshayakalpa Farms and Foods, formerly
with BAIF, one of India's largest NGOs, took voluntary retirement in
2012 to try and answer a question: can we make agriculture
entrepreneurial? He often wonders why the owner of a paan shop in the
city, with a 3 feet by 3 feet set up, earns more than a farmer with
three acres of land. For him, it's a systems and design issue.
Reddy is creating a decentralised, hub-and-spoke dairy cluster in
Tiptur, Karnataka, which is different from what he describes as the
“milk mopping up“ models of an Amul or a Nestle.
Akshayakalpa farmers
own the dairy units, while Reddy helps build their capacities on
organic farming and herd management. He extends them technologies,
developed in-house, to generate on-farm power from biogas plants.
He
installs milk-chillers and automated milking systems. And finally, he
buys their milk, processes it and distributes it in Bangalore.
Vasant Kumar, who earned Rs 12,000 at a Bangalore factory, is now back in his
village earning over Rs 30,000 a month from his dairy. “I am now with my family and without the stress of city living,“ he says.
Reddy insists a 5-acre farm with 25 cows, in a rain-fed area, can
easily earn over Rs 50,000 a month. He is aiming at a 300 dairy units
cluster in Tiptur before he moves on to proliferate more. He is also
designing a model for small farmers with one acre holdings and also
exploring the offer of equity to farmers in the holding company at a
later stage.
Credit Availability The second category of entrepreneurs
the impact sector is banking on is midcareer professionals or those
with an earlier brush in entrepreneurship. The IT types pushing new apps
as revolutionary abound, but those with a social mien are rare.
Sabarinath Nair, co-founder and CEO of Chennai-based Skillveri Training
Solutions, is looking to address the severe skills gap with a welding
training simulator that simulates every aspect of welding, complete with
light and sound, minus the smoke. While its utility to manufacturing
units and training institutes is a given, Nair is now battling mindsets
by taking his simulator to the rural hinterland and demonstrating it to
parents and their wards. “The idea is to enhance the aspirational value
of welding among unemployed youth,“ he says.
KR Karthic,
co-founder of Surya PowerMagic, a Coimbatore-based manufacturer of solar
water pumps for irrigation, is also engaged in building a favourable
ecosystem. Rural-focused entrepreneurship is extremely difficult.
Assumptions often evaporate in the heat and grind of peculiar rural dynamics.
Karthic,
for instance, hoped to sell over 100 solar systems a month. He was
doing one a month! It shattered him. “The biggest barrier between us
and the farmer, we soon realised, was access to credit,“ he says.
Cracking it took time and ingenuity. After exhausting early solar
adopters like Thangamuthu, a flowers farmer from Nachalur village in
Trichy who spent Rs 2.5 lakh on diesel for his
Sabarinath Nair SKILLVERI TRAINING SOLUTIONS Wants to address the skills
gap with a welding training simulator that simulates every aspect of
welding, complete with light and sound, minus the smoke. Nair is
battling mindsets when he demonstrates the simulator and aims to enhance
the aspirational value of welding among rural youth pumpsets a year,
Karthic banked on farmers affiliated to sugar factories to sell his
systems.
He chose this set as he knew factories provided finance
linkages to farmers they bought cane from. At the same time, Karthic
understood there was nothing in his solar pumps for the factories. He
has now turned the entire initiative on its head. He scours the Cauvery
belt for farmers who leave their land fallow, not growing anything or
growing a single crop, due to power scarcity. He then approaches
factories with an assuring line: “I have a farmer who wants to give you
cane.“ It has changed the nature of the engagement altogether.
Cane shortage is serious across the belt. EID Parry alone needs 45,000
acres of sugarcane next year to bridge its deficit. As cane suppliers to
such factories, access to credit for solar systems turns into a virtual
non-issue for farmers. “In rural India, we have to go out with the
assumption that what we are doing is wrong, and that there is always a
better way,“ explains Karthic.
The credit issue is also haunting
Reddy. His company has had to extend temporary loans of Rs 1 lakh to Rs 5
lakh to farmers to set up their dairy units so that they develop
revenue streams, pay off old crop loans and turn creditworthy in the
books of banks once again. This is something he hadn't reckoned.
Mentoring
At The Roots Even innovators in education, with fairly tried-and-tested
models, have had to trudge difficult paths. Krishna Srinivasan,
chairman and founder of Everest Edusys & Solutions and a Silicon
Valley serial entrepreneur, wants to
take the education effort to the next level and focus on learning
outcomes.
Srinivasan is working with government schools, and is
changing how science is taught through the use of learning exhibits and
aids. He is bringing dynamic content into the classroom. “I would like
to take the average student and make him smart,“ he says. And it's
showing in the maiden survey conducted by the education department of
the Chennai Corporation. Teaching effectiveness and learning efficiency
has increased by 48% between term 1 and term 2 in schools under the
Everest tutelage.
This bunch of professionals--Nair, Karthic and
Srinivasan--form a category in their background and approach to issues,
but what is interesting is a fascinating turn in the search for the
ever-elusive social entrepreneur. “We are now trying to identify
non-English speaking, non-PowerPoint types; those who live in rural
communities, understand the context, and have thought about the
betterment of their communities,“ says Surabhi Rajagopal, principal
analyst, Selco Foundation.
It plugs into Selco founder Harish
Hande's strategic decision to not scale up his enterprise beyond
Karnataka. His new incubation centre, focused on solar, seeks to
identify and mentor small entrepreneurs from underserved regions in
central and eastern India, and pass on all his learnings, especially
those from the failures of his 16 years and 150,000 installations in
solar home-lighting systems.
Villgro is doing something similar.
It is expanding its reach into tier-II and tierIII cities. Last year, it
held conventions in Ranchi, Lucknow, Bhubaneshwar, Pune and Hyderabad,
and plans to expand further into towns where, as Michelle Abraham,
leading the initiative says, “there is no buzz around social
entrepreneurship“. The initial feedback is encouraging. “Small town
people are clearly more empathetic to bottom-ofthe-pyramid issues,“ she
says.
Patient Capital While incubators, a small band of entrepreneurs,
mentors, angels and organisations like Dasra, the Ennovent Network and
Intellecap are keen to expand the tribe by fostering the right
environment for entrepreneurs to rise and shine, more is expected from
one particular community: investors.
Paul Basil, founder and CEO
of Villgro, would like a tighter engagement of investors with
incubators. “If, for example, a $100 million fund is being raised, a
mandate from limited partners for deploying a couple of millions towards
fostering an entrepreneurial culture is not entirely unthinkable,“ says
Basil.
Vishal Mehta, co-founder of Lok Capital, which is now
veering towards non-microfinance investments, doesn't think it's easy
given the way funds are structured. “We just don't have the elbow room
for building ecosystems,“ he admits, and would like to leave that task,
and that of taking first-loss position, to philanthropic capital. In
April, Lok exited from RuralShores, its first nonmicrofinance investment
and India's first rural BPO, with a six-fold return.
Mehta
suggests maybe it's time to explore new models of attracting patient
capital, pooling it together and deploying it for the long-term in
social enterprises. “Do we need an `open holding company' structure?“ he
asks.
Today's impact funds largely follow the model put forth by
the VC and PE industry. They have to return money to investors within a
set timeline, which means liquidating their portfolio even before
long-gestation companies have had the time to gather roots and mature. A
holding company structure does away with inadequacies in the present
system.
ProCredit, which operates in Europe and Latin America, is often cited as a worthy experiment in open structures.
The road to finding social entrepreneurs flows through innovations like these.
naren.karunakaran@timesgroup.com
