Social enterprises — businesses aiming to tackle social problems — say it’s difficult to raise funds locally in India because people either donate to charity or they expect a quick return from their investment.
AS A new business in India offering environment-friendly rubbish disposal, ScrapApp has boomed in the past year while helping address one of the nation’s major problems — garbage.
In India, where recycling rubbish is not part of the formal sector, masked workers from social enterprise ScrapApp sift through mounds of rubbish daily at the country’s largest mall, DLF Mall, separating recyclable trash from other waste.
The mall contract is the jewel in the crown for the year-old startup, one of a growing number of social enterprises in India which are seeking funds to create businesses with a mission to tackle social problems.
A Thomson Reuters Foundation poll of nearly 900 experts on the best countries for social entrepreneurs found access to investment was one of the key challenges in the growing sector.
But India was one of the countries where it was easiest to access investment, coming behind Canada, Singapore, the US and Belgium.
ScrapApp’s CEO Vidhur Bakshi, 27, says overseas may be the best place to seek funds to have an impact in India, where one-third of the 1.3 billion population live below the poverty line and garbage pollutes streets and rivers, and spreads disease.
“There are sources of funding within India, but it’s not easy. Most people want a quick return,” says Bakshi, who started ScrapApp in September 2015 with three colleagues.
“There are a lot possibilities if we explore sources of finance overseas.”
The poll, carried out in partnership with Deutsche Bank, the Global Social Entrepreneurship Network (GSEN) and UnLtd, foundations for social entrepreneurs, surveyed social entrepreneurs, academics investors and support agencies in the world’s 45 biggest economies as ranked by the World Bank.
The survey found the difficulty in accessing funds was compounded by a lack of public awareness about the work of social entrepreneurs who run for-profit or non-profit businesses that try to drive social change.
While there are growing sources of capital within India, many entrepreneurs say it is easier to scout for funds in countries with better recognition of social entrepreneurship. The poll, conducted between June 9 and July 15, found none of the experts questioned in India thought the public understood the sector.
Experts say India could play a key role in accelerating development at home and in regions such as Africa.
In the last decade, thousands of Indian startups have pioneered ideas to help people access services from water and sanitation, education and health to housing and training.
With this growth, the challenge of finding capital has eased, say experts, with venture capital funds, angel investors, individuals and corporates all looking to invest.
Anurag Agrawal, CEO of Intellecap, a successful social enterprise which invests in startups, says there are a list of impact-focused funds looking for dual return on investments.
“If they have a strong commercial case and a solid team behind the business, then there will be no dearth of capital,” he states.
While there are no official figures, Agrawal estimates that investors have poured over US$3bil into hundreds of social enterprises over the last decade.
However, much of the capital for social enterprise comes from outside of India. In fact, 95% of Intellecap’s capital is from overseas sources, he says.
Social entrepreneurs say investors the US, Singapore and Europe are hungry to provide finance to development-focused startups in India. There are also foundations, multinational and philanthropic organisations like the World Bank, Rockefeller and Dell foundations.
Prashanth Venkataramana, head of operations of Essmart Global, which brings innovative products such as solar lanterns and rechargeable batteries to mud-and-brick villages, knows only too well where the capital lies. The company, registered both in the US and India, has been much more successful at raising funds through its US entity — 70%, to be exact.
“A lot of people see India as an opportunity, especially in America,” says Venkataramana.
“In India, people either want to do charity or expect very short-term, unreasonable returns. They either donate money to a temple or expect their money back within a week.”
Entrepreneurs say the absence of official recognition by the government means social enterprises are not entitled to concessions like tax breaks. And there is little public understanding of social enterprises.
But experts say there is one sector of social enterprise which has managed to attract capital easily over the last decade and which has mushroomed as a result: microfinance.
The microfinance sector grew 84% last year, to more than 32 million clients and a portfolio size of US$8bil.
According to Intellecap’s Agrawal, 70% of all impact investment in India goes towards microfinance enterprises.
“Microfinance actually provides formal funding to women in low-income households. People then come back for a second cycle, and then a third cycle, and that is how the sector is growing,” says Ratna Vishwanathan, member secretary of the Microfinance Institutions Network, a regulator for the sector. — REUTERS