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Why is social entrepreneurialism growing so fast in India?

With over 65 per cent of the population under 35 and close to a staggering 100,000 entering the job market every month, India is a young and dynamic nation. The formal sector isn’t equipped to deal with such a flow of young talent, which begs the question – what opportunities are there for the young and aspiring future generations? 85 per cent of people work in the informal sector and enterprise is a natural channel for both sustaining livelihoods and dealing with some of the societal challenges that the country faces.

Globally, there has been lots of attention on micro-enterprises and the opportunity they present in making financial as well as socio-environmental returns. Organisations such as the IFC, donors like DFID, and not-for-profit investors like the Bill & Melinda Gates Foundation are all looking at diversified models that inspire and encourage social ventures in the developing world.

Though the entrepreneurial spirit may be growing in India, 70 per cent of Indians don’t have access to credit. The response has been the mushrooming of organisations set to redress this balance and create cultivating environments for social ventures. From those mobilising to support fledgling ideas and incubating startups and the emergence of social impact investors and challenger models providing growth equity, the opportunities available to entrepreneurs are growing. Some critical challenges remain: navigating the different models is tricky, regulation is complex and the distribution of funds between urban metros and rural populations is far from equal. Overcoming these at pace and scale is an ongoing journey, for entrepreneurs and the societies that they seek to serve.

So, what’s the Government doing?

Since 2005 there have been a number of government initiatives to foster enterprise. The National Innovation Council developed the India Inclusive Innovation Fund, which provides funding for startups and social enterprise innovation, and it was prioritised in the government’s five-year plan. With the change in government in the last year, the focus on positioning India as a credible business partner has deepened and initiatives like “Make in India” need to prove that they are more than a catchy strapline. As Rajendra Joshi from the Aashray Business Incubator points out: “For “Make in India” to become a reality, more needs to be done to promote and enable entrepreneurs to flourish. It won’t happen through the formal sector alone, it’s just not equipped for it.” Aashray is also engaging with the Government to amend legislation that prevents corporate CSR spends from being invested in social investment funds. With the introduction of the mandatory CSR spend for businesses, there is an opportunity to drive change through innovations in corporate investment that isn’t currently being realised.

The role of incubators

The number of social enterprise incubators is increasing with academic institutions (CIIE-IIM Ahmedabad), NGOs (Dasra) and independent agents (UnLtd India, Villgro) all becoming active in the space. Incubators tend to provide a combination of:

  • capacity building

  • introductions to investors

  • access to office space and business services

  • finance: grants, loans and equity

Funding for incubators is largely through grants and donations with players like the Shell and Rockerfeller Foundations investing heavily in this area globally. Some, like the Aashray ecosystem incorporates CSR financing through an endowment fund for seed funding ideas. With the funds it provides support through dedicated business and social impact experts, mentors through partnerships with academic and specialist organisations such as Ashoka, and growth equity (if and when they get to that stage) through venture capital investment. Such an ecosystem recognises the holistic support that entrepreneurs need to get their ideas off the ground, to scale and to create financial and social returns. It draws in expert partners to help deliver services when needed. Importantly, the incubator recognises its remit is beyond just supporting the social ventures themselves, and Mr Joshi emphasises the role they plan in developing incubators around the country through shared learning and partnership.

The need for local solutions

Investments have predominantly focused on the large metros. Rural investment has remained more challenging as Gijs Spoor of UnLtd Tamil Nadu notes: “The needs in rural India are distinct to those in the cities. As a society, we haven’t really valued the contribution that rural communities can make, and this is evident in investor hesitance to invest in rural enterprise solutions.”

The needs of rural social entrepreneurs are distinct and include; language and literacy challenges – materials and support need to be delivered in local languages and dialects rather than English (of the 15 startups supported by UnLtd Tamil Nadu, seven don’t speak English), internet access is limited and so alternatives have to be found to engage local communities, and attracting and developing talent is also a major barrier to growth and scale.

For UnLtd, the emphasis is on supporting the entrepreneur and empowering the person behind the business to flourish. For Gijs, the significance of rural enterprise development is much more meaningful when looked at in the whole: “There needs to be a paradigm shift in the way that we look at meeting challenges such as climate change and biodiversity depletion. We need to value the historical and social contexts of rural communities. These are the people who understand and are experiencing the effects of such changes and they are the ones who are also managing and mitigating its effects. The opportunity to do this through sustainable social enterprises is great.”

The future’s bright

There’s definitely a positivity when you talk about the social enterprise sector in India with excitement about what can be achieved to bring about social change and impact. New ideas and models are constantly being tested. Rang De, a charity based in Bangalore has pioneered peer-to-peer lending giving the growing middle class an opportunity to invest in, and get a return from supporting social entrepreneurs. With over 8000 social investors, and close to £3.3 million in investments made, the organisation is tapping in to the growing social conscious of young Indians who are keen to see where their investments are being made and the change that they create.

Rohit Parakh, Global Chapter Lead notes: “Trust in NGOs and the social sector isn’t great in India so our model is based on transparency and letting people chose exactly who they support and seeing the tangible difference that a loan can make. The rate of return that we offer is comparable to the market so people feel good that they’re making an investment rather than providing a hand-out. Once they receive their repayment – and we have a 99 per cent return rate – they can choose to either reinvest with a different individual or withdraw their funds. We’d obviously like them to reinvest, and people usually do.”

The pace of change in India’s immense social enterprise sector is growing at an impressive rate. Market innovations are driving the way in which business is being done and the dual benefit of financial and socio-environmental returns is shaping the companies of the future. This is going some way in sustaining much-needed livelihoods for the young nation and facilitating the socio-environmental development that the country desperately needs – it’s proving to be both a movement and a necessity.

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