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Social enterprises: innovating for business at the bottom of the pyramid

N Ramakrishnan | Updated on January 24, 2018

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Though it is an impact investment, the investors look at financial returns first



What do Umesh Malhotra, Kiran Anandampillai, Murali Vullaganti and Samit Ghosh have in common?

Well, they are social entrepreneurs. That is, they have started ventures catering to the bottom of the pyramid, making a social impact and, yet, making money in the process. Each one of them has left lucrative corporate careers to start their ventures.

Take Umesh Malhotra, for instance. A B.Tech from IIT-Madras, he worked in Infosys, started and sold an IT company before founding Hippocampus Learning Centres.

It identified a gap in the teaching process in rural areas and is aiming to plug that gap. It conducts a kindergarten programme for children in the 3-6 age group and an after-school programme in English and Mathematics for children in the first to seventh classes.

Learning centres

Right now, Hippocampus is present in three districts of Karnataka, but by 2016 will expand to another State – either Tamil Nadu, Maharashtra or Andhra Pradesh.

The whole issue is how do you make it affordable for parents in the rural areas and at the same time deliver noticeable results, says Umesh Malhotra, Co-Founder and CEO, Hippocampus Learning Centres.

Hippocampus charges about ₹3,000 a year for the pre-school programme and ₹950 a year each for the Mathematics and English after-school programme. The bigger challenge for Hippocampus is in finding the teachers, especially for English.

Eye care hospital

Kiran Anandampillai, Director, Disha Medical Services, which runs a rural eye care hospital in Karnataka under the Drishti brand, had also worked in Infosys, before he decided to start something on his own along with his wife Anjali Joshi.

“The whole problem that we set out to solve with Drishti was affordable eye care in under-served markets,” Kiran says. He wanted a model that would cover a distributed population. Drishti, therefore, chose a district as a unit and designed a system that would cover the whole district. The challenge, according to Kiran, was to price it right to cover everybody and to cover a wide area.

Both Kiran and Anjali had three criteria for their venture. One, it must have a social impact. Two, it must be self-sustaining. And, finally, it must be scalable. That is, they must be able to take the same model to other under-served districts. They were also clear that they did not want a grants-based model, as they would all along be chasing organisations for funds.

This is where impact investment firms come in. Venky Natarajan, Managing Partner, Lok Capital, an impact investment firm, says they fund companies, which either through innovation in business or revenue models or in products or services, deliver and build a business to scale to sections of the population that are not catered to by others.

If you are looking at something like eye care, with Drishti being an example, Venky says a mainstream entrepreneur or a large hospital chain would be hesitant to go an under-served or rural market because the number of patients who come in or the revenue per patient would be lower.

Rural BPO

Murali Vullaganti, a BITS-Pilani and IIT-Kharagpur alumnus, who had worked in the IT industry in the US and India, founded a rural business process outsourcing company, Ruralshores, because he felt that it would have a direct impact on society. While in the IT industry, he had recruited graduates from rural areas and brought them to cities, trained and employed them. Instead of doing that, why not start a venture that will provide back-office services in the rural areas itself. This way, jobs are created in the rural areas and the economy benefits. That was the idea behind Ruralshores, which now has nearly two dozen such centres.

Samit Ghosh, a career banker with stints in multinational banks in India and abroad, started microfinance institution Ujjivan Financial Services as the urban poor were financially excluded.

This is the fastest growing segment of the population and nobody was looking at them. “My ambition was to build an institution which would serve the working poor in India,” says Ghosh.

A large number of people living in the slums run businesses, all trying to earn a living.

Ujjivan started off targeting this segment of the population, but has now grown to more than 350 branches across the country, serving more than 1.3 million customers.

Is there a contradiction between serving the poor and being a for-profit enterprise? “You have 600 million unserved. You have to provide them financial services. You can’t do that with grants and aids,” says Ghosh, and adds that you have to strike a balance between the moneylender, who charges usurious rates, and the government, which is doling out cash that quite often does not reach the targeted population.

Says Krishna Srinivasan, Founder and Chairman of Everest Edusys & Solutions, which develops educational teaching aids for both government and private schools, social problems can be only solved through innovation. To innovate, you need two things – an ecosystem of entrepreneurs and of investors. You can figure out a way to balance the product needs to adhere to both the private and public sectors.

Financial return

Just because it is an impact investment does not mean that the investors in impact investment firms ignore financial returns.

They look at the double bottom line. The first and foremost is the financial return.

There is some degree of compromise investors in these funds are willing to make in the financial returns if the firms enable companies deliver and reach a section of the population not being touched by mainstream companies. At the end of the day, impact investment firms too need an exit option to return money to their investors.

Published on January 26, 2015

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