May 2012 Editor's Choice: Social Enterprises on the Path to Scale in India
Many Indian social enterprises are small, but that reflects their youth rather than their potential. They have many other features that indicate they are aggressively going for growth.
In this they are quite different from typical Micro, Small and Medium enterprises (MSME). Typically, 90% of Indian MSMEs are structured as proprietorships and only 3% are private limited companies (PLCs). But amongst the 100 social enterprises surveyed, 80% are PLCs – a structure that involves more red tape to set up, but offers advantages for raising capital, expanding ownership and thus achieving faster growth.
This is one key finding from a review of India’s social enterprise landscape by Intellecap, entitled On the Path to Sustainability and Scale.
The study also illuminates the common constraint of lack of capital. Social enterprises are certainly capital hungry – the majority in need of equity. But the report concludes that it is not limited supply of capital that is the problem, so much as social enterprises lack of access to it. They cannot secure funds either because they do not meet investor requirements or because their business model needs further refinement to be ‘investor ready’. Not surprisingly then, another conclusion is that grants from foundations, incubators, fellowships and competitions are crucial at early stages.
The study questions the common assumption that lack of finance is the biggest challenge. ‘A vast talent gap has replaced financing as the biggest barrier to enterprise growth’. Finding and retaining good talent is a pressing issue for enterprises at all stages, especially those in the growth stage.
These findings are drawn from 95 surveys plus numerous interviews, with strong analysis and use of evidence. There are four criteria for inclusion of an enterprise in the study: it aims to generate profit; has an explicit mission to create social impact; focuses on people living at the base of the pyramid; and operates in a sector relating to critical needs.
The balance between profit and social impact is intriguing. Approximately two thirds treat social motives as equally if not more important than profit motives. So business is a tool for tackling social problems, rather than social gain being a by-product of business. But the motives of younger entrepreneurs indicate a growing preference toward prioritising profit over impact, with the belief this will lead to greater social impact over time.
A host of other fascinating findings leap out from this authoritative, analytical and readable report. For example, the industry took off in 2005-6 and has grown since, benefiting from the acceptance of market forces created by micro-insurance, and by displacement of some activity out of micro-insurance. Energy and agriculture have experienced greatest growth so far. Education appears poised for take-off.
The 2-page executive summary is an excellent read, and does justice to the rich 64-page report.