PRINT

Social Entrepreneurship in India

with Sourabh Sharma, co-founder Milaap

Motivation for Social Entrepreneurship in India

SS: Social entrepreneurship in the Indian context can be divided into two parts – one would be those who work with the government and system to try and change policies to ensure that whatever is the agenda and mandate of the country gets executed to help the people who are below the poverty line, etc. For example, this is what we see in the RTI, Lokpal movements – someone who tries to take over and execute government’s responsibilities in a sustainable way. The second aspect of social entrepreneurship is essentially working where government has not been able to work – finding an opportunity where the government has failed and trying to fill in that gap. For instance, if government has not been able to provide electricity to a particular village, the villagers spend on kerosene for kerosene lights – here a social entrepreneur could try and provide lighting to the village by supplying solar lamps. But if you compare the two categories, the long term objective, for example, should be that the public schools run by the government function better, rather than a social entrepreneur trying to run affordable private schools. Milaap would be classified in the second category in the sense that banks are not reaching these poor rural people for multiple reasons – accessibility, cost of servicing the loan itself, the small amount of the loans and collateral free nature of loans which are in direct conflict with the way in which a bank works. So that is where we are trying to fill in the gap.

SS: It is indeed true that in the Indian context, the notion of social entrepreneurs doing social-good is still considered to be a predominant part of the non-profit and volunteering sector. For youngsters in early 20s who set up such for-profit social enterprises, convincing family and friends about the sustainability of the business could be a big task. I have personally fought with my parents to explain and make them understand that my venture is a for-profit organization. When we make people understand we are for-profit social ventures, there is this negative notion that builds up at times – that we are trying to make money out of the poor. In fact we have had lenders who didn’t lend only because we were a for-profit entity. What personally motivated me is that my liabilities now are the least. My financial liability is only to me. I believe that I can do a corporate job anytime so I might as well give part of my time and life to this venture and ensure that it is successful. Success doesn’t mean I have to make a lot of money. Success means that the venture scales up and really impacts a lot of people. All my colleagues have given up potential jobs and committed three to four years of our lives to Milaap. If the venture doesn’t scale up, it is not worth our time, and we will have to shut it down and do something else. Typically people get into entrepreneurship when they’ve made their money at 40-45, and retired as a CXO of a company. It all depends on what we want out of life, just money, or money coupled with helping people. Unfortunately, in India, an IIT+IIM qualification is highly demand for job security. This is because of our parents, who have come from the 70s and 80s where they have seen jobs in scarcity. Now that the economy and the situation in general improved, getting a job is not an issue and one keeps running after the highest paid venture. To answer the second question, Aravind Eye-care, a for-profit venture that provides extremely good eye-care for both poor and the rich by effective price-discrimination can definitely be termed as an inspiration. SKS microfinance is also a great example – even though people see it in bad-light today, it gave financial access to seven million poor people in India. This, I think is more important in the current Indian context.

Challenges of a Social Entrepreneur

SS: PThere are no specific metrics to measure the performance of a social entrepreneurial venture. It all again depends on what is the end objective and how you can quantify that end objective. In Milaap’ s case for example, when you give a person a loan for solar light, there are so many dimensions in which you can measure the social impact. For example, take into account the Rs. 2 a day that a person saves on kerosene, while he recovers an investment on a solar lamp in just two months. Apart from that, his kids and his family are not exposed to the harmful fumes of kerosene. The brightness of a solar lamp as opposed to that of kerosene lamp is again going to make an impact. Kids would be able to study better, without causing damage to their eyes. So number of people to whom loan has been given or number of people whose lives have been impacted can also be a measure of performance. Even if the loan has gone out to only one person, his/her entire household of five people actually benefit from it. Regarding financial performance, I think what is important is not making a profit, but being sustainable. Right now we are seeing a transition in India where social entrepreneurship is on the rise. We see social entrepreneurs entering with the prime aim of being sustainable. If revenues can cover the costs of the company, that is very good. If a social entrepreneur is able to cover the costs, make profits and also pump the profits back into the business that is even better. Non-profit organizations can also be sustainable. Non-profit only means that you don’t give out dividends to shareholders, or list the company or sell your stocks. Many micro-finance companies are registered as Section 25 (non-profit) companies.

SS: Setting up processes for a social entrepreneurship venture is actually more difficult than starting a regular business. There are so many complications right from registering, to society, to clearances from RBI for micro-lending, to getting a payment gateway online. Banks still don’t understand the concept of for-profit social entrepreneurial ventures – in Milaap’ s case for example, we face huge difficulties since most banks have the wrong notion that what we do is donation instead of a micro-lending business model. Had it been a mobile-app developing start-up, getting bank clearances would not take more than seven days. Here because we social entrepreneurs try to help people, the situation becomes more difficult. You hit barriers right from day one. I don’t think there are any standardized government procedures for a social enterprise. You can either be an NGO or a regular company – there is no concept of social enterprise in India. With regard to political challenges for social entrepreneurship ventures, just as any regular entrepreneur would have to, we need to adapt ourselves well to changing political climate.

Social Entrepreneurship in the Micro-Finance context

SS: The main reason for the success of the Grameen Bank was that it was given to groups of people, without collateral. The biggest fear is without collateral is that people would run away, but the Grameen model takes advantage of the social collateral in rural areas where people form very closely knit communities. If two people who take a loan have lived next to each other and will be living next to each other for their entire life, the social stigma and loss of reputation associated with defaulting is too high for the villagers to bear. All loans were also given out for ventures that would lead directly to higher income generation. Therefore the people benefiting from taking loans from Grameen Bank were able to repay reliably. This can be implemented in the Indian context. Unlike India, microfinance companies in Bangladesh are allowed to take deposits allowing, for example, a group of women to make savings. When the savings accumulate to form a large corpus, any woman in need of a loan can take some money from that corpus. In India, primary sourcing of the loans comes from banks, so the cost of borrowing for a microfinance company is high adversely affecting the end borrower.

SS: Even In urban areas, there is no social collateral. People who are poor in urban areas are typically of a poor, migratory nature, for example, people who have come directly from villages for employment. They don’t have any kind of attachment to their neighbor in the slum or colony they are living in. There have been numerous cases where people have formed groups just to take a loan, but when there is a default they simply run away. What is the big deal if a person living in one area moves to another; it is extremely hard to keep track of his whereabouts. In the urban context, one should never lend cash to the end borrower; instead lend it out in such a way that you are sure it will get used for the right purpose. We fund some loans which are vocational training loans. The money never reaches the end borrower but is deposited as vocational training fees. The vocational training center has a relationship with the corporate so when the borrower gets a job, EMI’s are deducted directly from his salary. We sometimes give vouchers to avail a service instead of a cash loan. The money never touches the end borrower.

SS: It happened. There was too much money being pumped into microfinance. Loan officers actually had targets where they had to disperse a significant amount of money every month. That’s parallel to what happened to the sub-prime crisis. A person whose credit limit was only Rs. 10,000 was being given Rs. 25,000 loans just so the loan officer could meet his targets. What we saw last year with SKS in Andhra Pradesh was politically motivated, so only when the government passed the ordinals to stop paying the loans did the defaults happen. Whether they were using gunda methods is hearsay. Because the people were becoming financially independent, politicians were losing grip over the community. A person found dead with an SKS passbook in his pocket made for a good story. The government has never acted so fast before; it looks like they were waiting so they could pass such an ordinance. SKS is still around even though they had a 40% portfolio exposure in Andhra Pradesh. Now with the Malegam Committee Report and the RBI becoming a regulator for all MFI’s, things should be much better.

Future Outlook

SS: OThe most important thing is to make sure that one is regulatory aligned with the law because this sector has a lot of regulation associated with it. What one can do as a profit or a non-profit is very complex. Make sure that there is always a back-up option. For example in microfinance, people register themselves both as an NGO and as a NBFC (Non-Banking Financial Company) so that a switch is possible if regulation changes suddenly. Mr. Ambani worked through the regulations when they were very strict (the entire License Raj). As an entrepreneur, you just have to work with the government to overcome the barriers posed at every step.

SS: The first thing that should be done is to do away with the idea that working in a social enterprise can only be non-profit. For instance, the entire education sector in India is non-profit. How do we expect people to run good institutions if they’re expected to be non-profit only? People have focused their efforts on finding ways to get around the system (setting up service companies that consult to their schools) instead of concentrating on impacting more children. Open up the sector and allow schools to run as for profit ventures. That could potentially be as revolutionary the transformation we have seen with the telecom industry. Today, people without access to bathrooms have sim cards because telecom is a capital oriented market. It is important to open up the social sector to be more capital, investor and business friendly. This way, we can make sure that essential needs are available to the people, so that nobody loses.

Conclusion

Mr. Sharma elaborated on how social entrepreneurs help fill the gap created when the government is not able to reach the people effectively. It is often overlooked because of the difficulty of measuring the impact as well as the stigma associated with a for-profit venture. He talked about how Milaap does its part and utilizes different channels through which micro-lending can be carried out for the benefit of the working poor. Successful ventures are not just ones with great ideas, but also those that place emphasis on regulatory alignment and collaboration with the existing system.

Profile

Sourabh Sharma iis the co-founder of Milaap, one of India’s growing social entrepreneurial ventures in the micro-financing sector. A second time entrepreneur, Sourabh, sold his previous startup MicroAppli, a media sharing mobile application company to OnMobile Global before starting Milaap. Sourabh graduated with honors in Computer Science from National University of Singapore (NUS). Milaap is a micro-lending organization that is committed to boost income generation and enhance living conditions among the poor in India.

References

1. http://www.milaap.org/, Milaap.org, The Need, How we work, About Us, Last accessed on 12th November 2012
2. http://online.wsj.com/article/SB125012112518027581.html, Ketaki Gokhale , A Global Surge in Tiny Loans Spurs Credit Bubble in a Slum, Wall Street Journal, Last accessed on 12th November 2012
3. http://www.doingbusiness.org/data/exploreeconomies/india/, Ease of doing business in India, Last accessed on 12th November 2012

• Defining a Social Entrepreneur
• Motivating factors for talented youth

• Performance Measures
• Initial Hurdles

• Learning from the Grameen Model
• Urban-Rural Divide
• The other side of the Micro-Finance Story

• Advice for the first venture
• Requirements from Policymakers