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Growth of Social Entrepreneurship in India: Funding Woes, FCRA Guidelines and More...

Apr 28, 2018 4:07 AM 5 min read
Editorial

The very concept of business has been repackaged as ‘Entrepreneurship’ in the Millennial age. Derived from the French word, ‘entreprendre’, meaning ‘to undertake’, entrepreneurship adds a sense of adventure to the drab notion of business, combining qualities of development, organization, and management. In literal terms, it means to take on financial risks in the hope of profit. Social Entrepreneurship, on the other hand presents a rehash, seeking to develop, fund and implement solutions to social, cultural, or environmental issues.

 

The inception of a social enterprise can be traced back to a social problem, and to the objective of finding a sustainable solution to it. Instead of a conventional framework of profit and return, social enterprises are assessed by the scale of their impact across a matrix of social parameters, including but not limited to job creation, skill development, empowerment, etc. The concept is premised upon the emerging trend of the triple bottom line, a concept which seeks to broaden the focus on the financial bottom line by businesses to include social and environmental responsibilities.

 

The Indian Context

What Does it Take To Be A Social Entrepreneur in India: Funding Woes, FCRA Guidelines and More...
Source: User: (WT-shared) Jtesla16 at wts wikivoyage [CC BY-SA 4.0 (https://creativecommons.org/licenses/by-sa/4.0)], from Wikimedia Commons

Social impact and entrepreneurship are deeply rooted in our ethos. Ventures such as Amul, Lijjat Papad and FabIndia starting within a decade after independence. The trio of these enterprises set a paradigm for generation of upcoming Indian social entrepreneurs. Amul and Lijjat Papad started as cooperatives run by milkmen and women respectively, FabIndia was started to bridge the gap between retail market and craftsmen & artisans.

 

What has changed over a century is the sheer number of social enterprises and the sectors which they target. As per a British Council survey, 57% of existing social enterprises in India are setup 5 years ago or even earlier with the primary focus around skill development and education.

What Does it Take To Be A Social Entrepreneur in India: Funding Woes, FCRA Guidelines and More...
Source: 

State of Social Enterprise in India, British Council 2016

 

Apart from focusing on specific sectors, most social enterprises aim to generate employment and increase awareness of social taboos amongst the citizens. A lot of them create direct employment opportunities for the disadvantaged and transfer essential skills to vulnerable groups of society. A substantial number of these enterprises have women leadership and eventually the statistics for gender equality in workforce for them are, in general, better than at most commercial enterprises. Nevertheless, there are some major issues plaguing this sector, funding being the most significant.

 

Social Enterprise Funding in India

 

While most “commercial” start-ups avail funding via Angel investments, venture capital, crowdfunding, banks, etc., funding for for-profit social enterprises is a big challenge as investors generally don’t prefer risky ventures without a promise of a requisite return. Non-profit social enterprises (NGOs) still have it easy with structured access to philanthropic disbursements and tax breaks. But for-profit social enterprises find it incredibly hard to convince investors to back them without the surety of high returns. Social investing at the end of the day is a specialist domain, requiring a fit in appetite and expectations.

 

The process for for-profit social enterprises to avail capital often calls for an assessment of their to-date social impact. This makes it difficult for budding companies to raise funds for their pilot. Many entrepreneurs complain of a lack of awareness and understanding within the investment ecosystem. Shortage of managerial & technical skills thanks to lack of talent, an ignorance within the general public are other roadblocks these enterprises face from time to time.

 

To add up to this, social enterprises also face regulatory constraints when securing capital from foreign investors. Foreign Contribution Regulation Act (FCRA) guidelines are although comprehensive but too cascading and time consuming. Recent amendments are not helpful either. Restriction imposed on proportion of foreign funds that could be used for administrative expenses by Civil Society Organisation (CSOs) and licence expiry-renewal processes are uncalled for and daunting.  All the challenges converge to a general apathy to the empathy model adopted by social enterprises.

 

Government Schemes

What Does it Take To Be A Social Entrepreneur in India: Funding Woes, FCRA Guidelines and More...
Source: By Lisrael22 - Own work, CC BY-SA 4.0, https://commons.wikimedia.org/w/index.php?curid=44054106

The government has implemented a number of schemes in the past few years to nurture a niche for blooming start-ups. Department of Financial Services of the Ministry of Finance and Ministry of Micro Small & Medium Enterprises have framed key policies for Skill Development and Entrepreneurship. But again there has been a very few social entrepreneurship specific policies barring a few lines on fostering Social Enterprises.

 

An umbrella scheme for all entrepreneurial ventures, Start-up India was launched to offer an initial corpus of INR2500 crore and total corpus of INR10,000 crore over four years. Its implementation has been disappointing. With only 10% of the total fund disbursed and only 75 start-ups funded, the figures definitely cast a gloomy shadow on a generation which look forward to start their own enterprises, leave alone social ventures.  

 

There have been some excellent initiatives though, one such being the India Inclusive Innovation Fund (IIIF) which was launched with a INR500 crore corpus, to provide investment to innovative ventures that are scalable, sustainable and therefore profit-making, but also address social needs of the citizens at the bottom of the pyramid. While conventional venture capital asks for an Internal Rate of Return (IRR) of over 20%, IIIF seeks a much lower threshold of 12%. Many more such programmes are needed.  

 

Along with these initiatives, new incubators and innovation centres have been designed at National Institutes to mentor Indian social entrepreneurs and to supplement start-ups in their growth phase. Holistic approach for honing skills in youth, at present is the prime objective of government’s schemes. Better implementation of funding and support schemes hence becomes essential.

 

Future Looks Bright

 

India has become the third largest start-up ecosystem in the world. Online platforms and media give greater reach to these enterprises. YourStory and other similar online platforms along with National dailies and magazines such as Outlook, India Today feature social story segment as well. The rise of forums and networks is enabling Indian social entrepreneurs to engage with other stakeholders. National Entrepreneurship Network supports student entrepreneurs across colleges and institutions in India. Another benign initiative, Jagriti Yatra (‘Awareness Journey’), an annual train journey that takes hundreds of young Indians from small towns and villages, on a 15-day, 8,000-kilometre national journey to familiarize them with social and business entrepreneurs around the country.

 

Although, an inclusive growth of investors and enterprises needs to be seen, many young entrepreneurs are adopting a hybrid model, i.e., combining aspects of both Non-profit and For-profit ventures to gain some flexibility. The creation of an initiation fund which would make it easier to fund pilot projects in the social space would be key. Skilled youth with the right skill set would bridge the talent gap for such enterprises.

 

As per the British Council Report on Social Enterprises in India, more than 2 million social enterprises already exist in India. A sustainable ecosystem, with concurrent connections between social enterprises, investors and incubators and government looks plausible. However unless the vacuole between Government, investor community, and people at the bottom of pyramid is filled, any zealous push by motivated Indian social entrepreneurs would be a half measure.