Mixing profit with pleasure

Social investing could be the solution that can assist the millions born without basic resources to bootstrap themselves out of poverty.

One of the better definitions of social investing is on the Web site of Mi India: “In social investment, money is used in such a way that there is also some social benefit, in addition to the increase in the investment value…Charity is a hand-out but social investment is a hand-up.”

Increasingly, people are beginning to realise that profit is a social good: It ensures that the person who receives capital not only benefits from it but also returns an economic value to society. There are countries where social security has become a disincentive to work. Charity creates dependence.

Limitations of microfinance

Microfinance is one answer, but it has a few limitations, such as abnormally high interest rates, triggered not only by the risk of the underlying business, but also by the cost of maintaining accounts and collecting/disbursing funds to a wide range of people, many of whom are either semi-literate or illiterate. The second method is “not-for-profit” outfits that give people the money to start businesses or train them to market their products better. This method is, of course, a hand-out and is often the only option for people who cannot integrate with the mainstream society.

Social Entrepreneurship

There is an intermediate solution — social entrepreneurship.

Wikipedia defines social entrepreneur as one who “recognises a social problem and uses entrepreneurial principles to organise, create and manage a venture to achieve social change. Social entrepreneurs are most commonly associated with the voluntary and not-for-profit sectors, but this need not preclude making a profit.”

Though this definition considers profit as a secondary objective of social entrepreneurship, I believe that profit has to be the core of any entrepreneurship.

In Thanjavur district of Tamil Nadu is a small firm called Aarohana Dairy Pvt. Ltd. started by a social entrepreneur, Devi Prasad Rao. He creates pooled infrastructure for clusters of villages and provides knowledge and resources for scientific cattle-breeding to the local cattle farmers — the “milkmen”. He targets reaching 2,000 such people and providing indirect employment to 1,000 more. This is pure social entrepreneurship.

The second feature of a social enterprise would be that it would employ the “sons of the soil” gainfully to achieve its corporate objectives.

The local milkman or farmer is at the core of this business, marrying his resources (cattle, land and labour) with the organisation and capital of the entrepreneur to achieve socio-commercial good. Thus, Devi is graduating the traditional milkman of Thanjavur to a dairy farmer.

Finally, the social enterprise must provide an opportunity for the financial investors to be able to provide capital and make their profits through a market exit, albeit after a longer gestation period.

CREATE EMPLOYMENT

The best form of employment is the kind that social entrepreneurs create — the gainful kind. Naturally, they should be given access to equity funds that can get them of the blocks.

Most of them depend on “Angel” investments from friends and relatives and there are a number of tiny Social Investment Funds in the country, but what we need is a large national entity, run along the lines of the National Skills Development Corporation (NSDC) and investing in social enterprise.

But such an entity must go beyond mere investment. It must actually conduct research, provide a forum for disseminating interesting entrepreneurship ideas, incubate people who have an idea, but not the requisite management skills required to run an enterprise.

It must also partner with the NSDC to develop training programmes and faculty that will help skill-up local people. In effect, it would be the twin of the NSDC, working on employment creation as NSDC works on skill development.

The National Social Investment Corporation (NSIC) would be an investment banker of sorts, providing the funding and advisory required to ensure that, at some stage, the social enterprise can be taken public through an IPO.

Among its clientele would be NGOs that need converting into “for-profit” enterprise, so that instead of perpetual dependency, these NGOs become wealth creators. Thus, NSIC would be not merely an asset manager but a full function investment bank in the social sector.

NSIC must have substantial capital (say, Rs 1,000 crore), which it would manage for profit by investing in social enterprises/entrepreneurs. Instead of the entrepreneur spending time on raising capital, NSIC would provide the seed investment required to build a scale at which commercial funding becomes viable.

The seed investment would not be micro-finance. Firstly, there is the advantage of scale when it comes to social entrepreneurship vis-a-vis micro-entrepreneurship: it is cheaper to deploy funds and monitor them. Second, the regulatory environment favours the investor. Finally, for the entrepreneur, the pressure of making regular payments does not compound the hard work of setting up the business.

Let us start working on a National Social Investment Corporation.

(The author is the MD and CEO of IDBI Asset Management Ltd. The views are personal.)

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