se mirg 12 sept[1]
TRANSCRIPT
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Social Entrepreneurship in
India
Anna Agarwal
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What Solutions do we have Today Government alone is not the answer
Inefficiencies, slow, bureaucratic, prone to corruption.
Nonprofit Orgs. inadequate
dependent on donations (uncertain, demand far exceeds supply)
compassion fatigue
Raising money takes time and energy, which can be spent planning
growth/expansion
Multilateral Institutions (World Bank) - ineffective
Conservative, slow, under-funded, unreliable
Success is measured by
a) GDP (might not be helping poor)
b) Volume of loans negotiated (notmeasuring impact) Exclusively work with the government
Corporate Social Responsibility - fundamentally flawed
as long as it can be done without sacrificing PROFITS
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New kind of Business
Social Business
Creating business models revolving around low-cost products and services to resolve socialproblems
Social business is formore-than-profit
combine revenue-generating business with asocial-value-generating structure
Can be two kinds Creating services for poor
Owned by poor (** not a SB )
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How can youdo business and serve social goals?
Why is profit-making not conflicting with social objectives?
Profits - Promotes R&D, innovation, new technologies
Increases efficiency
Enables penetration to new geographical areas and serve deeper layers of low-income people
Helps recover costs and pay back investors, thus encourages investments
PMBs (profit max. businesses) vs. SBs (social businesses)
How they are same yet different
Employ workers, create goods & services for consumers
Must recover full costs
Profits are important
YET objective is to create social benefit and not limited to personal gains
Can there be aHYBRID i.e. 60% PMB and
40% SB??
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Social Business
Some Examples
Banking and finance is the biggest
beneficiary of technology-enabled social
startups
Muhammad Yunus, Grameen Bank
(Nobel Peace Prize 2006) ** not founded in India
Vikram Akula, SKS Microfinance (Social Entrepreneur of the Year Award2006)
Kiva (peer-to-peer micro-lending website) ** not founded in India
Energy
SolarElectrification - Harish Hande, SELCO (Social Entrepreneur of the YearAward 2007)
Other examples
Education (Same Language Subtitling, Janarth - education solutions forchildren of migrant laborers)
Many more
What are their stories!
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Need for Financial Services for Low-income
People
Why do poor need financial services?
A study in Andhra Pradesh revealed that for the poor, about 50% of all risky events were
characterized as health-related and another 28% were nature-related.
Responses to these risks -
1st preference of the rural poor is borrowing (money lenders have very high interest rates,
subject to exploitation), followed by mortgaging/selling assets (often under difficult conditions that limits the value
received for such assets).
Why don't they just go to a bank?
The poor rarely have access to the formal financial sector
No money to open a savings account
No collateral or credit record to secure a loan
Illiterate so cant do paperwork
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Microfinance - Role ofSHGs
Microfinance is providing financial services to
the poor such as loans, savings, money transferservices and microinsurance.
In India, Self Help Groups (SHGs) form the basic
constituent unit of the microfinance
SHG is a group of a few individuals usually poor women (group of 5 to 20)
They pool their savings (as low as Rs. 10 or 20 cents monthly per member) into a fund from
which they can borrow as and when necessary
Such a group is linked with a bank where they maintain a group account.
Over time the bank begins to lend to the group as a unit, without collateral, relying on self-
monitoring and peer pressure within the group for repayment of these loans.
The group is eligible for bank-loan after atleast 6 months of inter-loan repayments
Maximum loan amount is a multiple (usually 4:1) of the total funds in group account
starts with lower multiples (1:1 to 2:1)
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Microfinance - Key Challenges High Cost-to-Serve
Accounts are low in value but large in volume
High transactions costs (as frequent transactions)
Low levels of automation
Intense supervision requirements to maintain high recovery rates (trade-off between
supervision cost min. and recovery max)
Very small scale figure shows SHGs linked to banks are in handful of States
(mostly in South India AP) [Chakrabarti, Georgia Tech, 2004]
What is the role of technology in
lowering these costs?
What is AP doing different?
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Microfinance - Key Challenges
Deficiency ofCapital Constrain on Outreach
Until recently, MFIs were dependent on donor grants, but grants are limited in size andavailability and are becoming harder to access as the pool of global MFIs grows.
Many of the MFIs are registered as not-for-profit entities that make it an unattractive choice for
investors
Low profitability of MFIs because of reasons mentioned above is also a barrier to raise equity
capital
Regulatory/policy Issues
If the NGO earns a substantial part of its income from lending activity, it violates the Income
Tax Act and could lose its charitable status.
If an MFI opts to become an NBFC, it should be able to satisfy the entry-level capital
requirements of Rs. 20 million. (In India, there has been strong advocacy for bringing down
the capital entry norms for NBFCs in the business of microfinance) In the case of NBFCs, deposit mobilisation is not possible at least for the first 3 years, till a
satisfactory credit rating is obtained.
Borrowing from foreign institutions is hard due to the credit rating requirements imposed by
RBI.
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Challenges present Opportunities SKS, specializing in microfinance
is one of the largest and fastest-growing microfinance
organizations in the world (disbursements exceeding
$500 million to about 2.2 million women)
Inter-linked three principles:
1. for-profit methodology 2. best business
practices 3. latest technology
N-logue Communications, a company incubated byIIT Madras, has built an entrepreneur-led
business model for deploying rural internet kiosks
across the country.
These networks are capable of providing multiple services such as agricultural
information, education and health applications and communication.Formicrofinance, this enables updation of databases real-time and remotemonitoring(reduces the cost-to-serve)
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Discussion
What are the important questions
Agenda for next meeting volunteers forleader?
Logistics date, time, venue
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References (not appropriately referenced
in the slides!) Creating a WorldWithout Poverty, Muhammad Yunus, Book, 2007
MICROFINANCEIN INDIA : SECTORALISSUES AND CHALLENGES (ByThorat, 2005)
The Indian Microfinance Experience Accomplishments and Challenges
(Paper, GATEC
H, 2004)