India Set to Emerge as Social Innovation Hub

Innovative business models that combine profit with social good could well be the country’s best-known export in the next five years, as India emerges as the social innovation hub of the world.

This week, a slew of Indian social enterprises grabbed global attention when social venture fund Aavishkaar Venture emerged as a joint winner of the SME Finance Challenge at the Seoul G20 summit and the Schwab Foundation picking Aajeevika Bureau – a non-profit agency that works with migrant workers of Rajasthan – as the Social Entrepreneur of the year from a pool of four other contestants with business models spanning low-cost health care, technical education in rural areas and vocational training.

“While the US will be the innovator for the top one billion (of the world’s population), India will become the innovation hub for the bottom five,” says Jayant Sinha, managing director & country head, Omidyar Network India that aims to invest up to $ 200 million in both for-profit and non profit social enterprises in India over the next five years.

Industry watchers say much of this attention is a result of the robust growth of microfinance companies that have proved that creating products and services for the poor offers scaleable business opportunities. Entrepreneurs and investors are now looking to recreate that success in other sectors such as education, health care, livelihood training and services.

“There is a hybrid model emerging for entrepreneurship with social good as the focus. This is not funded by charity, philanthropy or corporate social responsibility,” says Hilde Schwab, president and co-founder, Schwab Foundation for Social Entrepreneurship. She feels that social enterprises that run on government subsidy, family money and grants will not be sustainable in the long term. “Financial viability is very crucial in times of crisis,” she adds.

This concentration of forces around the social impact space is most evident in fund-raising activity that has hit an all-time high. Investors such as Aavishkaar are looking to raise fresh capital of up to $180 million to fund new businesses in these areas, following successful exits in three portfolio companies, including Servals Automation, Shree Kamdhenu Electronics and Equitas Microfinance in August this year.

Another social fund, Lok Capital, is aiming to close a $85-million fund, while Global Impact Investors is looking to raise a $100-million fund. This comes on the back of recent capital formation for the sector, including a $70-million fund by Elevar Equity.

“The announcement of a $528-million global fund to back winners of the G20 challenge proves that private initiative in the financial inclusion space can now leverage public funding,” says Delyse Sylvester, co-director, Community Team, Ashoka Changemakers, a non-profit that supports social entrepreneurship globally.

For social entrepreneurs, rising attention from a global ecosystem of supporters and ample pools of capital is proving to be the trigger for new innovation. In Udaipur, Aajeevika Bureau registers migrant workers, issues photo identity cards, provides financial services and imparts skills training in partnership with local government agencies.

In south Rajasthan, over 80,000 rural workers migrate seasonally to richer states such as Gujarat and Karnataka in search of livelihood. Most end up as construction labourers or find jobs in hotels, the textile industry and hospitals.

Since 2005, more than 50,000 poor seasonal migrants have directly accessed the Bureau’s services, registering a 50-80% growth in their incomes as well as increased citizenship entitlements. Additionally, Aajeevika’s model has been replicated by more than 30 civil society organisations in Bihar, Orissa, Maharashtra, Andhra Pradesh and Madhya Pradesh. Even Africa has adopted the model.

“After migration, lack of identity, employability skills, health care and legal services become the issues. They become a target of police harassment, can’t open a bank account. We help them address all these problems,” said Rajiv Khandelwal, co-founder, Aajeevika Bureau, who had worked in rural areas and with NGO’s in Uganda before launching Aajeevika.

Elsewhere, AISECT, a company which provides information and communication technology education in rural areas, is now hawking products of computer firms, banks and undertaking government projects through its network of 8,000 rural education centres in over 30 states that run on the franchise model. “By 2013, we aim to have 15,000 centres,” says Santosh Kumar Choubey, founder. The franchise network now employs 32,000 rural workers with over one lakh students graduating every year.

“We actually started as computer training firm to educate students in rural markets. And a lot of people thought that we could repair their machines and started to come to us for maintenance of their motors, TVs and electronic products. So we thought, why can’t we provide multiple services under one roof?” says Choubey.

“The beauty of our model is that we are not dependent on funding from outside. We motivate our students and faculty to become entrepreneurs and set up new centres.” With a current revenue base of Rs 200 crore per year, AISECT expects to achieve a topline of Rs 500 crore by 2013-2014.

Another such innovation is Goonj, which has grown as a mass movement for mobilising cloth and repositioning it as an important resource for rural India rather than wastage, fit only for charity. Started in 1998 with 67 personal clothes, Goonj is channelising more than 40,000 kg of material every month. This includes clothes for work, school, relief material for flood victims, for winter season and recycling of clothes.

“Today, we are not just addressing a basic need, but are using cloth as an entry point into the lives of people to address other important needs like health, education, employment generation,” said Anshu Gupta, founder, Goonj.

Even Nasscom, the apex IT body, has realised the potential of social entrepreneurship. Its social development arm, Nasscom Foundation announced this week the appointment of Rita Soni as its CEO. Soni will create innovative programmes that leverage information and communication technology for education, health, employability and entrepreneurship for under-served communities.

The most successful social enterprises have, however, come from the health care sector where latent demand and entrepreneurial focus has created a slew of models including Vaatsalya Healthcare and LifeSpring Hospitals.
Set up in 2005, LifeSpring was incubated by HLL and then by Acumen Fund. It provides affordable health care to low-income households without formal insurance.

“Our customers include families of mechanics, auto-rickshaw drivers and plumbers who usually don’t have any insurance,” says Anant Kumar, founder. The firm generates a revenue of around Rs 5 crore per year.

After early incubation when the company raised Rs 3 crore, LifeSpring got its second round of funding of Rs 7 crore from Acumen Fund and an additional Rs 4 crore from HLL in 2008. It is now planning to raise around Rs 150 crore to expand in other urban poor areas in cities such as Delhi, Mumbai and Bangalore with six more hospitals due to come up by March 2011.

“There are great innovations emerging for value-added services for mobile users at the bottom of the pyramid. Apart from education and health care, we see this as the next opportunity,” says Omidyar Network’s Sinha.

It is this combination of a large population with a daily income of less than $2, well-developed capital markets and impact investors willing to back entrepreneurship that is leading to a new Indian model of social innovation.

“No other country has this combination of factors driving social innovation,” he says.

Original Article: ARCHANA RAI & PEERZADA ABRAR, ET BUREAU, The Economic Times