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Social Entrepreneurship in India

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Title: Social Entrepreneurship in India


1
Social Entrepreneurship in India
  • Anna Agarwal
  • annaag_at_mit.edu

2
What Solutions do we have Today
  • Government alone is not the answer
  • Inefficiencies, slow, bureaucratic, prone to
    corruption.
  • Nonprofit Orgs. inadequate
  • dependent on donations (uncertain, demand far
    exceeds supply)
  • compassion fatigue
  • Raising money takes time and energy, which can be
    spent planning growth/expansion
  • Multilateral Institutions (World Bank) -
    ineffective
  • Conservative, slow, under-funded, unreliable
  • Success is measured by
  • a) GDP (might not be helping poor)
  • b) Volume of loans negotiated (not measuring
    impact)
  • Exclusively work with the government
  • Corporate Social Responsibility - fundamentally
    flawed
  • as long as it can be done without sacrificing
    PROFITS

3
New kind of BusinessSocial Business
  • Creating business models revolving around
    low-cost products and services to resolve social
    problems
  • Social business is for more-than-profit
  • combine revenue-generating business with a
    social-value-generating structure
  • Can be two kinds
  • Creating services for poor
  • Owned by poor ( not a SB )

4
  • How can you do business and serve social goals?
  • Why is profit-making not conflicting with social
    objectives?
  • Profits -
  • Promotes RD, innovation, new technologies
  • Increases efficiency
  • Enables penetration to new geographical areas and
    serve deeper layers of low-income people
  • Helps recover costs and pay back investors, thus
    encourages investments
  • PMBs (profit max. businesses) vs. SBs (social
    businesses)
  • How they are same yet different
  • Employ workers, create goods services for
    consumers
  • Must recover full costs
  • Profits are important
  • YET objective is to create social benefit and
    not limited to personal gains

Can there be a HYBRID i.e. 60 PMB and 40 SB??
5
Social Business Some Examples
  • Banking and finance is the biggest
  • beneficiary of technology-enabled social
  • startups
  • Muhammad Yunus, Grameen Bank
  • (Nobel Peace Prize 2006) not founded in India
  • Vikram Akula, SKS Microfinance (Social
    Entrepreneur of the Year Award 2006)
  • Kiva (peer-to-peer micro-lending website) not
    founded in India
  • Energy
  • Solar Electrification - Harish Hande, SELCO
    (Social Entrepreneur of the Year Award 2007)
  • Other examples
  • Education (Same Language Subtitling, Janarth -
    education solutions for children of migrant
    laborers)
  • Many more

What are their stories!
6
Need for Financial Services for Low-income People
  • Why do poor need financial services?
  • A study in Andhra Pradesh revealed that for the
    poor, about 50 of all risky events were
    characterized as health-related and another 28
    were nature-related.
  • Responses to these risks -
  • 1st preference of the rural poor is borrowing
    (money lenders have very high interest rates,
    subject to exploitation),
  • followed by mortgaging/selling assets (often
    under difficult conditions that limits the value
    received for such assets).
  • Why don't they just go to a bank?
  • The poor rarely have access to the formal
    financial sector
  • No money to open a savings account
  • No collateral or credit record to secure a loan
  • Illiterate so cant do paperwork

7
Microfinance - Role of SHGs
  • Microfinance is providing financial services to
  • the poor such as loans, savings, money transfer
  • services and microinsurance.
  • In India, Self Help Groups (SHGs) form the basic
  • constituent unit of the microfinance
  • SHG is a group of a few individuals usually
    poor women (group of 5 to 20)
  • They pool their savings (as low as Rs. 10 or 20
    cents monthly per member) into a fund from which
    they can borrow as and when necessary
  • Such a group is linked with a bank where they
    maintain a group account.
  • Over time the bank begins to lend to the group as
    a unit, without collateral, relying on
    self-monitoring and peer pressure within the
    group for repayment of these loans.
  • The group is eligible for bank-loan after
    atleast 6 months of inter-loan repayments
  • Maximum loan amount is a multiple (usually 41)
    of the total funds in group account starts with
    lower multiples (11 to 21)

8
Microfinance - Key Challenges
  • High Cost-to-Serve
  • Accounts are low in value but large in volume
  • High transactions costs (as frequent
    transactions)
  • Low levels of automation
  • Intense supervision requirements to maintain high
    recovery rates (trade-off between supervision
    cost min. and recovery max)
  • Very small scale figure shows SHGs linked to
    banks are in handful of States (mostly in South
    India AP) Chakrabarti, Georgia Tech, 2004

What is the role of technology in lowering these
costs? What is AP doing different?
9
Microfinance - Key Challenges
  • Deficiency of Capital Constrain on Outreach
  • Until recently, MFIs were dependent on donor
    grants, but grants are limited in size and
    availability and are becoming harder to access as
    the pool of global MFIs grows.
  • Many of the MFIs are registered as not-for-profit
    entities that make it an unattractive choice for
    investors
  • Low profitability of MFIs because of reasons
    mentioned above is also a barrier to raise equity
    capital
  • Regulatory/policy Issues
  • If the NGO earns a substantial part of its income
    from lending activity, it violates the Income Tax
    Act and could lose its charitable status.
  • If an MFI opts to become an NBFC, it should be
    able to satisfy the entry-level capital
    requirements of Rs. 20 million. (In India, there
    has been strong advocacy for bringing down the
    capital entry norms for NBFCs in the business of
    microfinance)
  • In the case of NBFCs, deposit mobilisation is not
    possible at least for the first 3 years, till a
    satisfactory credit rating is obtained.
  • Borrowing from foreign institutions is hard due
    to the credit rating requirements imposed by RBI.

10
Challenges present Opportunities
  • SKS, specializing in microfinance
  • is one of the largest and fastest-growing
    microfinance
  • organizations in the world (disbursements
    exceeding
  • 500 million to about 2.2 million women)
  • Inter-linked three principles
  • 1. for-profit methodology 2. best business
  • practices 3. latest technology
  • N-logue Communications, a company incubated by
  • IIT Madras, has built an entrepreneur-led
  • business model for deploying rural internet
    kiosks
  • across the country.
  • These networks are capable of providing multiple
    services such as agricultural information,
    education and health applications and
    communication.
  • For microfinance, this enables updation of
    databases real-time and remote monitoring
    (reduces the cost-to-serve)

11
Discussion
  • What are the important questions
  • Agenda for next meeting volunteers for leader?
  • Logistics date, time, venue

12
References (not appropriately referenced in the
slides!)
  • Creating a World Without Poverty, Muhammad Yunus,
    Book, 2007
  • MICROFINANCE IN INDIA  SECTORAL ISSUES AND
    CHALLENGES (By Thorat, 2005)
  • The Indian Microfinance Experience
    Accomplishments and Challenges (Paper, GATECH,
    2004)
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