Social Enterprise: The Unfulfilled Promise

Social enterprise or market-based solutions—businesses that engage the poor either as customers or suppliers—have been among the most exciting trends in the development space. Yet, a recent study of 439 market-based solutions in Africa found that a mere 13% of them had achieved significant scale (Monitor Group, From Blueprint to Scale: The Case for Philanthropy in Impact Investing). What can and should we be doing to help these innovative models achieve scale? What more could funders, government and impact investors be doing and what is holding them back? These were the questions at the heart of a recent panel discussion in Mumbai, co-hosted by the Aspen Network of Development Entrepreneurs (ANDE) and FSG.

In a room that reflected the vibrancy of the social sector in India, filled with young social entrepreneurs and development veterans, the panel picked up on the conversation which was kick-started by Deloitte Touche Tohmatsu India Private Limited’s 2014 report Beyond the Pioneer: Getting Inclusive Industries to Scale. The report was the culmination of a year-long research effort which introduced the concept of ‘industry facilitation’ as a key role needed to help address the scaling barriers that individual firms cannot or will not address on their own.

The authors of the report, Harvey Koh, Nidhi Hegde, and Ashish Karamchandani, who are now at FSG, were clearly excited to be bringing the discussion home to India after 10 months of discussions and presentations across four continents. They were joined on the panel by Paul Basil, chief executive officer and founder of Villgro; Maneesha Chadha, head of corporate citizenship, Citi South Asia; Aditi Rajyalaxmi, program manager, private sector, DFID; and Smarinita Shetty, director, Dasra.

One of the most interesting aspects of the lively discussion that ensued was the role that three key groups – funders, government and impact investors – could and should play in helping address scaling barriers.

Funders – the attribution contribution conundrum

Maneesha Chadha pointed out that philanthropic funding can be critical for addressing scaling barriers because it is flexible in terms of what it can support and does not require or expect a financial return, precisely the attributes required for effective industry facilitation. But what is holding back more funders from being more active in playing the role of industry facilitation?

A key issue is that of attribution versus contribution. As Smarinita Shetty explained, “Funders are hesitant to invest in field-building activities that do not have clear outcomes because impact can’t be attributed to their efforts.” For example, bringing key ecosystem players together in regular meetings can contribute to addressing barriers, but it can be very hard to directly attribute results to these meetings.

For donors, focusing on attribution makes a lot of sense because they need to know the impact that their efforts are having, and for there to be accountability on how money is spent. But the role of industry facilitation requires striking a balance between the need for accountability and the need to act in ways whereby outcomes cannot necessarily be attributed to their actions. While some funders have been on this journey for a while and have become more evolved in this regard, there is still a considerable way for many others to go.

Government – helping them help us

Government, despite good intentions, has been held back by a number of factors in supporting innovative models to scale. There has been the traditional skepticism of private sector approaches to addressing social issues, as well as a lack of capacity within government to effectively address the barriers for innovative models. But there is an opportunity to move things forward.

Funders like DFID have been engaging with government to build capacity, and the field has been seeing a change in government attitudes. The Indian government has been increasingly keen to initiate consultations with the private sector and there have been cases such as that of affordable housing in the state of Rajasthan, where a policy champion within government helped make immense contributions to helping the industry grow.

The sector needs to continue to strengthen its engagement with government as it can be a powerful ally. As Aditi Rajyalaxmi put it, “Industry facilitators need to help change the lens of government.” One important step in this direction could simply be to present a credible and coherent voice for the sector, which also includes the perspective of relevant industry associations. This could go a long way, as Aditi enthusiastically shared, “Today, government is eager to listen and open to change.”

Impact investors – leveraging their knowledge

Impact investors can be the most knowledgeable group about the barriers to scale as they are closest to the social enterprise. The first questions they often ask of any model are precisely those regarding key barriers to scale: Is government policy favorable? Is there a missing piece of the value chain?

However, Paul Basil was forthright in his take on impact investors when he noted that their perspective can be very different from that of an industry facilitator. It often does not make sense for them to invest in addressing barriers which are of a public goods nature. Why should an impact investor build a new road to connect a market, if all his competitors could then use that road without having to pay for it?

So perhaps the right approach is not to expect impact investors to always invest directly in addressing scaling barriers.  Should we rather be asking how we can best leverage the knowledge and expertise of impact investors about scaling barriers? Should there be greater efforts made to include impact investors in conversations around scaling barriers? Should these conversations begin much earlier on, before downstream investment becomes necessary? These are valuable questions for the field to consider.

The panel strongly echoed the key messages that came out of the Beyond the Pioneer report. The main takeaway from the evening was the belief that social enterprises can and will solve some of the toughest problems we face today, but they need some help. Key stakeholders need to take an industry facilitation approach that can accelerate market-based solutions towards scale. Funders, governments and impact investors all have a vital role to play, and the panel served as an important call to action for all three groups, as well as the broader field.

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