Social enterprises are the organizations which aim their efforts on improving the general welfare of the society and they apply market based strategies to achieve a social purpose. The movement includes both nonprofit and profit organizations with nonprofit organizations using business models to pursue their mission and profit organizations incorporating a social agenda into their business model. The focus of this report is to understand what social entrepreneurship stands for, where has it originated from, what are the characteristics of a social entrepreneurship, what are the various types of is to address the growing trends of social entrepreneurs in Indian business including the history of social entrepreneurship in India and the new initiatives taken by various social entrepreneurs. However, many of India's social entrepreneurs continue to struggle as the social venturing landscape lacks appropriate sources of financing, proper regulations, societal recognition and suitable information systems. Therefore, it's the right time for various nongovernmental organizations (NGOs), governmental organizations and social entrepreneurs to come forward to encourage further development of social entrepreneurship in India.
Defining Social Entrepreneurship
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Social entrepreneurs play an important role of changing agents in the social sector, by:
â€¢ Adopting a mission to create and sustain social value and not just private value,
â€¢ Recognizing and relentlessly pursuing new opportunities to serve that mission,
â€¢ Engaging in a process of continuous innovation, adaptation and learning,
â€¢ Acting boldly without being limited by resources currently in hand, and
â€¢ Exhibiting a heightened sense of accountability to the constituencies served and for the outcomes created.
This is clearly an "idealized" definition. Social sector leaders will exemplify these characteristics in different ways and to different degrees. The closer a person gets to satisfying all these conditions, the more that person fits the model of a social entrepreneur. Those who are more innovative in their work and who create more significant social improvements will naturally be seen as more entrepreneurial. The truly Schumpeterian social entrepreneurs will significantly reform or revolutionize their industries. Each element in this brief definition deserves some further elaboration. Let's consider each one in turn.
Change agents in the social sector:
Social entrepreneurs are the reformers and revolutionaries described by Schumpeter, but with a social mission. They make fundamental changes in the way things are done in the social sector. Their visions are bold. They attack the underlying causes of problems, rather than simply treating symptoms. They often reduce needs rather than just meeting them. They seek to create systemic changes and sustainable improvements. Though they may act locally, their actions have the potential to stimulate global improvements in their chosen arenas, whether that is education, health care, economic development, the environment, the arts, or any other social sector field.
Adopting a mission to create and sustain social value:
This is the core of what distinguishes social entrepreneurs from business entrepreneurs even from socially responsible businesses. For a social entrepreneur, the social mission is fundamental. This is a mission of social improvement that cannot be reduced to creating private benefits (financial returns or consumption benefits) for individuals. Making a profit, creating wealth, or serving the desires of customers may be part of the model, but these are means to a social end, not the end in itself. Profit is not the gauge of value creation; nor is customer satisfaction; social impact is the gauge. Social entrepreneurs look for a long-term social return on investment. Social entrepreneurs want more than a quick hit; they want to create lasting improvements. They think about sustaining the impact.
Recognizing and relentlessly pursuing new opportunities:
Where others see problems, entrepreneurs see opportunity. Social entrepreneurs are not simply driven by the perception of a social need or by their compassion, rather they have a vision of how to achieve improvement and they are determined to make their vision work. They are persistent. The models they develop and the approaches they take can, and often do, change, as the entrepreneurs learn about what works and what does not work. The key element is persistence combined with a willingness to make adjustments as one goes. Rather than giving up when an obstacle is encountered, entrepreneurs ask, "How can we surmount this obstacle? How can we make this work?"
Engaging in a process of continuous innovation, adaptation, and learning:
Always on Time
Marked to Standard
Entrepreneurs are innovative. They break new ground, develop new models, and pioneer new approaches. However, as Schumpeter notes, innovation can take many forms. It does not require inventing something wholly new; it can simply involve applying an existing idea in a new way or to a new situation. Entrepreneurs need not be inventors. They simply need to be creative in applying what others have invented. Their innovations may appear in how they structure their core programs or in how they assemble the resources and fund their work. On the funding side, social entrepreneurs look for innovative ways to assure that their ventures will have access to resources as long as they are creating social value. This willingness to innovate is part of the modus operandi of entrepreneurs. It is not just a one-time burst of creativity. It is a continuous process of exploring, learning, and improving. Of course, with innovation comes uncertainty and risk of failure. Entrepreneurs tend to have a high tolerance for ambiguity and learn how to manage risks for themselves and others. They treat failure of a project as a learning experience, not a personal tragedy.
Acting boldly without being limited by resources currently in hand:
Social entrepreneurs do not let their own limited resources keep them from pursuing their visions. They are skilled at doing more with less and at attracting resources from others. They use scarce resources efficiently, and they leverage their limited resources by drawing in partners and collaborating with others. They explore all resource options, from pure philanthropy to the commercial methods of the business sector. They are not bound by sector norms or traditions. They develop resource strategies that are likely to support and reinforce their social missions. They take calculated risks and manage the downside, so as to reduce the harm that will result from failure. They understand the risk tolerances of their stakeholders and use this to spread the risk to those who are better prepared to accept it.
Exhibiting a heightened sense of accountability to the constituencies served and for the outcomes created:
Because market discipline does not automatically weed out inefficient or ineffective social ventures, social entrepreneurs take steps to assure they are creating value. This means that they seek a sound understanding of the constituencies they are serving. They make sure they have correctly assessed the needs and values of the people they intend to serve and the communities in which they operate. In some cases, this requires close connections with those communities. They understand the expectations and values of their "investors," including anyone who invests money, time, and/or expertise to help them. They seek to provide real social improvements to their beneficiaries and their communities, as well as attractive (social and/or financial) return to their investors. Creating a fit between investor values and community needs is an important part of the challenge. When feasible, social entrepreneurs create market-like feedback mechanisms to reinforce this accountability. They assess their progress in terms of social, financial, and managerial outcomes, not simply in terms of their size, outputs, or processes. They use this information to make course corrections as needed.
Social entrepreneurship is all about recognizing the social problems and achieving a social change by employing entrepreneurial principles, processes and operations. It is all about making a research to completely define a particular social problem and then organizing, creating and managing a social venture to attain the desired change. The change may or may not include a thorough elimination of a social problem. It may be a lifetime process focusing on the improvement of the existing circumstances.
While a general and common business entrepreneurship means taking a lead to open up a new business or diversifying the existing business, social entrepreneurship mainly focuses on creating social capital without measuring the performance in profit or return in monetary terms. The entrepreneurs in this field are associated with non-profit sectors and organizations. But this does not eliminate the need of making profit. After all entrepreneurs need capital to carry on with the process and bring a positive change in the society.
Along with social problems, social entrepreneurship also focuses on environmental problems. Child Rights foundations, plants for treatment of waste products and women empowerment foundations are few examples of social ventures. Social entrepreneurs can be those individuals who are associated with non-profit and non-government organizations that raise funds through community events and activities.
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The concept of entrepreneurship, long hallowed in the context of business and economic ventures, has been increasingly applied to the context of social problem-solving. The challenges of finding effective and sustainable solutions to many social problems are substantial, and solutions may require many of the ingredients associated with successful innovation in business creation. However, solutions to social problems-such as sustainable alleviation of the constellation of health, education, economic, political, and cultural problems associated with long-term poverty-often demand fundamental transformations in the political, economic, and social systems that underpin current stable states. Successful business entrepreneurship is the creation of a viable and growing business, often embodied in the survival and expansion of a business organization. Social entrepreneurship, in contrast, may be a change in the social dynamics and systems that created and maintained the problem; the organization created to solve the problem may get smaller or less viable as it succeeds.
While the concept of social entrepreneurship is relatively new, initiatives that employ entrepreneurial capacities to solve social problems are not. We have found a variety of initiatives-particularly focused on the problems of poor and marginalized populations-that have transformed the lives of thousands of people around the world. As in other areas of social action, the practice of social entrepreneurship may be well ahead.
Origins of the Word "Entrepreneur"
In common parlance, being an entrepreneur is associated with starting a business, but this is a very loose application of a term that has a rich history and a much more significant meaning. The term "entrepreneur" originated in French economics as early as the 17th and 18th centuries.
In the 20th century, the economist most closely associated with the term was Joseph Schumpeter. He described entrepreneurs as the innovators who drive the "creative-destructive" process of capitalism. In his words, "the function of entrepreneurs is to reform or revolutionize the pattern of production." They can do this in many ways: "by exploiting an invention or, more generally, an untried technological possibility for producing a new commodity or producing an old one in a new way, by opening up a new source of supply of materials or a new outlet for products, by reorganizing an industry and so on." Schumpeter's entrepreneurs are the change agents in the economy. By serving new markets or creating new ways of doing things, they move the economy forward.
It is true that many of the entrepreneurs that Say and Schumpeter have in mind serve their function by starting new, profit-seeking business ventures, but starting a business is not the essence of entrepreneurship. Though other economists may have used the term with various nuances, the Say-Schumpeter tradition that identifies entrepreneurs as the catalysts and innovators behind economic progress has served as the foundation for the contemporary use of this concept.
CHARACTERSTICS OF SOCIAL ENTREPRENEURSHIP
Social entrepreneurship overcomes the gap between the business and the public sectors, as it is connected to the "non-profit" or the "third" sector, as well as to the concept of the "social economy", with emphasis on objectives to serve communities and society rather than generating a company's profit.
The main characteristics of social entrepreneurship, outlined in diverse theoretical resources, are:
Explicitly formulated mission to create and sustain social value and to benefit the communities;
High degree of economic risk and autonomy in activities related to producing goods and/or selling services;
Pursuit of new opportunities and exploration of hidden resources to serve that mission;
Quest for sustainable models, based on well elaborated feasibility study;
Ongoing engagement in innovation, adaptation and learning;
Decision-making power not based on capital ownership;
Participatory and collaborative nature involving various stakeholders;
Limited distribution of profit and minimum amount of paid work;
Change opportunities lying in the hands of every individual.
Globally, social business enterprises are active mainly in the social, environmental, human rights and gender equality areas. Examples include: street children; children's health; health insurance for disadvantaged people; housing; educational opportunities; poverty in degraded urban areas; ageing and the elderly; migrants and ethnic minorities; work and employment; climate crisis; pollution problems; clean drinking water; empowerment of women; human rights; gender equality; digital divides.
TYPES OF SOCIAL ENTREPRISES
For-profit Social Venture -
They are legally incorporated as for-profit entities, with one or more owners who have the formal right to control the firm and who are entitled to its residual earnings and net assets. For-profit forms include proprietorships, partnerships, corporations, limited liability companies, and cooperatives. Explicitly designed to serve a social purpose while making profit. Having social purpose involves a commitment to create value for community or society rather than just wealth for the owners or personal satisfaction for customers.
Non-profit Business Ventures -
While similar to for-profit social ventures in their objectives and operations, non-profits are legally prevented from distributing economic surplus. They are also free to use philanthropic support to subsidize their start-up costs and their on-going operations. Thus, they do not face the same capital markets and profit pressures as for-profit social ventures.
Socially Responsible Businesses -
A socially responsible business achieves commercial success in ways that respect ethical values, people, communities, and the environment. These businesses may even provide resources to and actively engage with public or non-profit organizations to serve a specific social cause. However, unlike for-profit social ventures, their primary goal is the creation of economic value.
SCHOOLS OF PRACTICE AND THOUGHT
Social Enterprise School
Definition: A social entrepreneur is any person, in any sector, who uses earned income strategies to pursue a social objective, and a social entrepreneur differs from a traditional entrepreneur in two important ways:
Traditional entrepreneurs frequently incorporate a socially responsible outlook into their activities: They donate money to nonprofits; they use environmentally safe materials and practices, etc. Social entrepreneurs are different because their earned income strategies are tied directly to their mission: They either employ people who are developmentally disabled.
Secondly, traditional entrepreneurs are ultimately measured by financial results: The success or failure of their companies is determined by their ability to generate profits for their owners. Alternatively, social entrepreneurs are driven by a double bottom line, a virtual blend of financial and social returns. Profitability is still a goal, but it is not the only goal, and profits are re-invested in the mission rather than being distributed to shareholders.
Indentifies entrepreneurs as individuals who start their own businesses
Focuses on the generation of "earned-income" to serve a social mission
"Sector-bending" - blurring the lines between the business and social sectors
Experimentation with market-based solutions to social problems that seek to align economic and social value creation
Differentiates between innovation and entrepreneurship on the basis of earned-income.
Enterprising Social Innovation School
Definition: Social Entrepreneurs carry "out innovations that blend methods from the worlds of business and philanthropy to create social value that is sustainable and has the potential for large-scale impact. They play this role of the "change agent in the social sector", by:
Adopting a mission to create or enhance social value (not just provide value). Furthermore, the intention must be to add value that will be sustainable or amplifiable over time.
Recognizing and relentlessly pursuing new opportunities to serve that mission.
Engaging in a process of continuous innovation, adaptation, and learning. Innovations (what Schumpeter would call "new combinations") include the creation of a new good or service as well as producing or delivering an existing good or service in a new way or to a new market.
In order to be considered enterprising, â€Ÿ the innovation must involve some business-inspired elements whether through the adaptation of business methods to create social value, the operation of a social purpose business, or the formation of cross-sector partnerships." Acting boldly without being limited by resources currently in hand, and Exhibiting greater accountability to the constituencies served and for the outcomes produced.
Descends from the traditions of Jean Baptiste Say, Joseph Schumpeter, Peter Drucker, and Howard Stevenson.
Indentifies entrepreneurs as innovators who carry out "new combinations" that "reform or revolutionize the pattern of production" (Schumpeter)
Focuses on establishing new and better ways to address social problems or meet social needs. Recognizes the intimate connection between social and economic realities and the role of markets in the social sector.
Not defined around organizational structure, i.e., nonprofit or for-profit. Challenges the artificial barriers between business and the nonprofit sector.
Often incorporates themes of effecting large scale, lasting, and systemic change
Seeds of Change School
Definition: "Motivated by altruism and a profound desire to promote the growth of equitable civil societies, social entrepreneurs change the performance capacity of society and pioneer innovative, effective, and sustainable approaches to meet the needs of the marginalized, the disadvantaged, and the disenfranchised."
Identifies social entrepreneurs as individuals with innovative solutions to societyâ€Ÿs most pressing problems.
Social entrepreneurs are possessed by their ideas and commit their lives to implementing them on a large scale thereby affect lasting change.
They play an analogous role to business entrepreneurs in education, health-care, environmental protection, disability, and many other fields.
In altering the patterns of societies, social entrepreneurs bring about revolutionary change. Therefore, they represent the source of creative destruction necessary for major social advances.
Accompanying this disruption of old patterns or action and perception, they catalyze local change makers into being.
Differences between Business and Social Entrepreneurs
The ideas are attractive because they can be as easily applied in the social sector as the business sector. They describe a mind-set and a kind of behavior that can be manifest anywhere. In a world in which sector boundaries are blurring, this is an advantage. We should build our understanding of social entrepreneurship on this strong tradition of entrepreneurship theory and research. Social entrepreneurs are one species in the genus entrepreneur. They are entrepreneurs with a social mission. However, because of this mission, they face some distinctive challenges and any definition ought to reflect this.
For social entrepreneurs, the social mission is explicit and central. This obviously affects how social entrepreneurs perceive and assess opportunities. Mission-related impact becomes the central criterion, not wealth creation. Wealth is just a means to an end for social entrepreneurs. With business entrepreneurs, wealth creation is a way of measuring value creation. This is because business entrepreneurs are subject to market discipline, which determines in large part whether they are creating value. If they do not shift resources to more economically productive uses, they tend to be driven out of business.
Markets are not perfect, but over the long haul, they work reasonably well as a test of private value creation, specifically the creation of value for customers who are willing and able to pay. An entrepreneur's ability to attract resources (capital, labor, equipment, etc.) in a competitive marketplace is a reasonably good indication that the venture represents a more productive use of these resources than the alternatives it is competing against. The logic is simple. Entrepreneurs who can pay the most for resources are typically the ones who can put the resources to higher valued uses, as determined in the marketplace. Value is created in business when customers are willing to pay more than it costs to produce the good or service being sold. The profit (revenue minus costs) that a venture generates is a reasonably good indicator of the value it has created. If an entrepreneur cannot convince a sufficient number of customers to pay an adequate price to generate a profit, this is a strong indication that insufficient value is being created to justify this use of resources. A re-deployment of the resources happens naturally because firms that fail to create value cannot purchase sufficient resources or raise capital. They go out of business. Firms that create the most economic value have the cash to attract the resources needed to grow.
Markets do not work as well for social entrepreneurs. In particular, markets do not do a good job of valuing social improvements, public goods and harms, and benefits for people who cannot afford to pay. These elements are often essential to social entrepreneurship. That is what makes it social entrepreneurship. As a result, it is much harder to determine whether a social entrepreneur is creating sufficient social value to justify the resources used in creating that value. The survival or growth of a social enterprise is not proof of its efficiency or effectiveness in improving social conditions. It is only a weak indicator, at best.
Social entrepreneurs operate in markets, but these markets often do not provide the right discipline. Many social-purpose organizations charge fees for some of their services. They also compete for donations, volunteers, and other kinds of support. But the discipline of these "markets" is frequently not closely aligned with the social entrepreneur's mission. It depends on who is paying the fees or providing the resources, what their motivations are, and how well they can assess the social value created by the venture. It is inherently difficult to measure social value creation. How much social value is created by reducing pollution in a given stream, by saving the spotted owl, or by providing companionship to the elderly? The calculations are not only hard but also contentious. Even when improvements can be measured, it is often difficult to attribute an them to a specific intervention. Are the lower crime rates in an area due to the Block Watch, new policing techniques, or just a better economy? Even when improvements can be measured and attributed to a given intervention, social entrepreneurs often cannot capture the value they have created in an economic form to pay for the resources they use. Whom do they charge for cleaning the stream or running the Block Watch? How do they get everyone who benefits to pay? To offset this value-capture problem, social entrepreneurs rely on subsidies, donations, and volunteers, but this further muddies the waters of market discipline. The ability to attract these philanthropic resources may provide some indication of value creation in the eyes of the resource providers, but it is not a very reliable indicator. The psychic income people get from giving or volunteering is likely to be only loosely connected with actual social impact, if it is connected at all.
Challenges for Social Entrepreneurs in India
The positive feedback of success and attention will naturally encourage new entrants, driving more and more effective social entrepreneurial initiatives. Peredo & McLean (2006) indicate that there are nevertheless tremendous hurdles and challenges that many social entrepreneurs face while operating in India and that hinder the entrance of new social entrepreneurial ventures. Some of the major challenges are outlined in the following text.
Lack of Education in Entrepreneurship:
Entrepreneurship in India is still encumbered by the traditional educational system of the country. As education is the main source for promoting entrepreneurship in the business sector of the economy, there is still a lack of specific curriculum on entrepreneurship development in the Indian education system. Due to the increasing demand of this sector, currently, the entrepreneurship education is a "new cup of tea" limited to graduates of business schools and management institutes, whereas for other streams of education like the sciences and arts there is not a single course on entrepreneurship in the curriculum. Due to this gap in the Indian education system the country's entrepreneurial sector is still underdeveloped and struggling. Even business schools that have developed curriculum on entrepreneurship are lacking in terms of social entrepreneurship. This lack of social entrepreneurship knowledge presents a major challenge for social enterprises in finding competent and skilled promoters.
Lack of Financial Assistance:
Lack of financial sources is a major challenge for the Indian entrepreneur. Generally, the social entrepreneurs run their business with their own funds or by raising funds from the local money lenders at a high rate of interest, which sometimes becomes a financial burden on them. The reason behind this is the bank's avoidance to providing loan facilities for social entrepreneurs given the various social complications attached with them. Hence the social enterprises have to deal with the challenge of facing a hostile reaction from financial institutions and governments as far as funding is concerned. This forces social entrepreneurs to take, what can be, a more difficult path of approaching venture capitalist and philanthropic organizations.
Social and Cultural Effect:
In India, the social and cultural perception of social entrepreneurship sometimes becomes a challenge for social entrepreneurs in running their business activities. As in the case of Water Health International, the major focus of this social venture was to awaken the people about various water diseases and how they can be cured, but people were still skeptical about how, and why, WHI is providing the purified water at such a low cost. This impression shows the lack of knowledge or foresightedness of the local community in distinguishing a social business from a normal profitdriven business.
Comparative disadvantages to business:
Social entrepreneurs mainly deal with the difficult task of improving the welfare of the society and they are always keen to find affordable solutions to various societal problems. But every activity of social business carries a cost, which is mostly borne by the owner out of his own pocket or by taking loans from money lenders. Social entrepreneurs are not necessarily working in a lucrative market; they identify a problem within society and try to find affordable solutions for them. Once they find the way to earn some profit after providing the best low cost solution to the needs of the society, more traditional businesses will enter the market competing with a similar solution and technique, increasing transaction costs and competition for social entrepreneurs and hampering their future growth.
Lack of Government support:
Lack of government support is a major hindrance for social business development in India. Currently, the government is not providing any kind of assistance for promoting these social cause ventures. The government's policies and regulations for social entrepreneurs are very complex and strict, with no tax incentives or subsidies being provided for a social business, the combination of which acts as major impediment to the growth of social businesses in India.
Lack of Skilled Manpower:
Social enterprises have to get competent manpower from a variety of sources; professionals, volunteers, laborers and community participants. To align the motives of all these groups with the long term growth of the organization is a challenge for the founders. In order for social enterprises to fulfill their mission in a holistic manner they must typically employ manpower from the underprivileged sector of the society, leading to increased training and developmental cost as these people are typically uneducated and unskilled. The organizations have to attempt to fulfill the aspirations of all these divergent groups and still come out with the best results.
Social entrepreneurs in India face a variety of challenges and problems in their day to day operations and while many of them have come a long way in meeting these challenges, there remains a long journey ahead in terms of satisfying their social mission.
THE SOCIAL ENTREPRENEURSHIP CASES
HUSK POWER SYSTEMS, INDIA
India has a serious shortage of electricity, and people living in villages suffer the most. This is particularly acute in the state of Bihar, where even for those that are connected, the supply is very unreliable. Most households have to use kerosene for lighting, and businesses turn to diesel generators for power. The founders of HPS looked for affordable ways to address this shortage of electricity, and identified the potential for making gas from rice husk - a plentiful local resource - and using this for power generation at village level.
- HPS builds plants where there is local demand for electricity, and a source of rice husk or other agricultural residues within 10 km.
- Plant consists of rice husk gasifier, series of filters to clean the gas, gas engine, 35 kW generator and 240 V ac electricity distribution system to connect customers within a 2km range of plant.
- Plants run each evening for up to eight hours..
- Basic connection supplies two 15 W CFL lights and phone charging. Costs US$2.20 per month. Customers can pay more for a higher power connection.
- HPS trains a local operator, electrician, fuel handler and fee collector to run each plant, with specialized regional staff available to help with problems. All customers are trained in safe use of electricity.
- High availability of power (over 93% of scheduled time) due to design of equipment, and the rigorous maintenance, safety and monitoring procedures instituted by HPS.
- By March 2011, 65 plants in operation, supplying electricity to about 32,500 households and businesses.
- Household kerosene use cut by 6 to 7 liters/month, saving about US$4.40 per month or twice the cost of a basic connection.
- Overall kerosene saving of 2.7 million liters/year cuts greenhouse gas emissions by 8,100 tons/year CO2. Further CO2 saving from reduced use of diesel.
- Reliable electricity makes families feel settled and part of the wider world.
- Good quality lighting enables children to study properly and families to relax in the evening, as well as reducing snake- and dog bites and petty crime.
- Shops and businesses have lower costs and can work more easily without the need for diesel generators, and some new businesses have started.
- Phone charging at home enables families to keep in touch with relatives who work elsewhere in India or abroad.
- HPS is starting businesses that use the char left over from rice husk gasification, including the manufacture of incense sticks.
- 270 people trained and employed by HPS, most of them at village level. Additional temporary work created during plant construction.
HPS has a target of over 2,000 plants in operation by the end of 2014. Husk Power Systems is a for-profit company, registered in 2008. It has a mission to provide renewable and affordable electricity to rural people in a financially sustainable way. Most of its income comes from electricity sales.
India has a serious shortage of electricity, and people living in villages suffer the most.
125,000 villages lack grid power altogether, and even where the grid extends the supply is unreliable and does not reach all households. When grid rationing takes place, villages often receive power only after midnight when 'priority' demands from cities and industry is low. This is of little use to rural households and businesses.
The state of Bihar in North-East India has a very low rate of grid electrification and acute power shortages. It is estimated that the grid can meet only 10% of demand. The founders of Husk Power looked for affordable ways to address this shortage of electricity, and identified the potential for making producer gas from rice husk - a plentiful local resource - and using the gas for power generation at village level.
The first power plant that ran on 100% producer gas was commissioned in 2007. In 2008
Husk Power Systems (HPS) was registered as a for-profit company with a mission to provide renewable and affordable electricity to the rural population around the world in a financially sustainable way. Three of its founders (Gyanesh Pandey, Ratnesh Yadav and Manoj Sinha) come from Bihar, and Charles Ransler comes from the USA. Most have had education and professional careers in the USA. The growth of HPS has been helped by substantial grant-funding from the Shell Foundation, which has supported R&D, strategy and training. US$1.65 million investment rom six social investors (Acumen Fund, Bamboo Finance, International Finance Corp, Draper Fisher Jurvetson, LGT Philanthropy and CISCO) were secured in December 2009. In 2010/11 HPS had 270 employees. About 80% of its income comes from sales (mostly electricity, but also char products) and 20% from Government subsidies to new power plants.
Power plants are installed in places where there is a reliable source of rice husk and other biomass residues within a distance of 10 km. HPS staff visit a village, at the invitation of village representatives, to assess its suitability for a plant and explain how the scheme works. If 400 or more households commit to paying a monthly fee for electricity, HPS will install a plant (rice-husk gasifier, gas engine, generator and 240 V electricity distribution system) and connect the homes and small businesses that have signed up. A village operating team maintains and runs the system, which supplies electricity each evening for up to eight hours.
How does it work?
Sackloads of rice husk or other biomass residues are poured into the gasifier hopper every 30 to 45 minutes. The biomass burns in a restricted supply of air to give energy-rich producer gas. The gas passes through a series of filters which clean it, and it is then used as the fuel for an engine that drives the electricity generator. Electricity is distributed to customers via insulated overhead cables. The basic connection provides a household with two 15 W compact fluorescent lights and mobile phone charging throughout the period each day that the plant runs (up to eight hours in the evening). Sometimes poorer households share a basic connection and get one light each. If a household or business wants to pay more for a higher power connection, then this can be provided. A fuse blows if the customer attempts to use more than their agreed power. Each plant serves about 500 customers, and has sufficient capacity to allow for demand to increase. About 70% of homes within the distribution area get connected.
How much does it cost and how do users pay?
US$1 = INR 45 (Indian Rupees) [April 2011]
Electricity fees start at INR100 (US$2.2) per month for a basic connection. One month's deposit is required when a customer signs the supply contract with HPS. The local HPS collector goes from house to house to collect the fee each month in advance, and checks that everything is working well. All complaints are logged and followed up. Under the terms of the contract, HPS agrees to provide service for at least 27 days every month and pro-rates the fees if this level is not met. However, average provision is now over 28 days per month (93% availability).
The total landed cost of a 35 kW plant, including distribution system, is less than US$1,000 per kW. HPS is paid a subsidy of up to INR 320,000 (US$7,100) for each plant, by the Ministry of New and Renewable Energy. The remainder of the capital comes from investment and sales revenue. HPS loses only about 4% of revenue through default on payment or electricity theft, considerably lower than most power suppliers in India, who often
How is it manufactured, managed and maintained?
The gasifiers were originally made by Ganesh Engineering. HPS improved the design considerably and now does much of the manufacturing itself. Gasifiers are optimized for rice husk (a difficult material to gasify) but can also work with other types of agricultural residue or with wood. The engines are manufactured by a local partner who worked with HPS to develop an engine that could run on rice husk gas alone (rather than dual-fuel operation with diesel fuel). This is a technical challenge because of the amount of tar in the rice husk gas.
Promotion of the plants is largely by word-of-mouth and also through local press and media, and their benefits are now well known in Bihar. HPS receives several hundred enquiries about installations each year.
HPS's value proposition lies in making the plants so simple to operate and maintain that high-school educated people from the village can be trained to manage and run them. Tars and other particulates in the producer gas can damage equipment, in particular engines so a key factor for successful operation is the rigorous HPS maintenance programme. This schedules cleaning and maintenance tasks on a daily, weekly, monthly and quarterly basis.
HPS also requires high safety standards and detailed monitoring, with individual plant managers sending a daily report to the manager of their local 'cluster' of four or five plants, and the cluster manager relaying data to the regional level and onwards. It is through this attention to maintenance and monitoring that HPS plants achieve over 93% availability.
By the end of March 2011, HPS had 65 fully operational plants, and a further ten under construction or starting operation. 48 plants are wholly owned and operated by HPS, and the other 17 run under some type of franchise or partnership.
Plants have 500 customers on average, so about 32,500 households are supplied. With five or six members in a household, this means that about 180,000 people benefit from HPS electricity.
Surveys show that households stop using kerosene lamps when they get HPS electricity, and save 6 - 7 liters/month of kerosene on average. The total kerosene saving for the 32,500 households supplied at the end of March 2011 is therefore about 2.7 million litres per year.
Kerosene savings cut greenhouse gas emissions by an estimated 125 tonnes/year CO2 equivalent per plant (assessed as part of CDM certification). Thus the total saving for the 65 plants in operation at the end of March 2011 is about 8,100 tonnes/year of CO2e. Further CO2 savings come from the reduced use of diesel generators to supply small businesses: these savings vary from plant to plant because they depend on the type of customers served.
Note that some CO2 is produced from the fossil fuels used in the transport of rice husk, but the amount is small (less than 1 tonne/year CO2 per plant) since HPS plants are sited within 10 km of the rice mill, and some transport is done by bullock cart.
Having a reliable electricity supply makes families feel more settled and connected to the wider world. Even in villages with grid power, households and businesses choose to connect to the HPS supply because of its greater reliability and lower cost. HPS makes sure that customers understand how to use electricity safely, and that every member of the household agrees to abide by safety rules.
Good-quality lighting throughout the evening is a huge benefit to households. Children can study properly, housework is easier, and families can relax and socialize. Better lighting deters petty crime, and reduces the frequency of snake-bites and dog-bites - a common reason for emergency hospital admission in Bihar.
Removing kerosene lamps reduces exposure to smoke and fumes, and the risk of fire: many village homes are built from woven bamboo, and house fires are common in rural Bihar. Mobile phones are important for keeping in touch with the many family members who work elsewhere in India or abroad. In one village mobile phone ownership increased from 10% to 80% of households after the HPS supply was installed, because previously people had to go out of the village to have their phones charged.
Economic and employment benefits
Households with HPS power save typically INR 200 per month on kerosene, so their net monthly saving (after paying for their CFLs) is about INR 100 (US$2.2). With household earnings of typically US$75 to 100 per month, this frees up a significant amount of cash. Businesses benefit from better quality light and electric fans and some new businesses have started because of the HPS supply, including photocopying shops and mini cinemas. Rice mills are paid about US$25 per tonne of rice husk, so earn an extra US$3,000 per year by supplying an HPS plant, as well as solving a disposal problem. Some mills have shared this benefit with their customers by cutting the charges that they make for milling. HPS provides good employment at a local level. Plant assembly provides temporary employment for about 10 local laborers. Each plant then employs four people (plant operator, electrician, fuel handler and fee collector) who have training, income and safe working conditions. The collector is encouraged to earn extra as 'travelling salesman', selling goods that are not usually available in the village at the same time as collecting fees. Further skilled and professional employment is provided in the cluster-level, regional and central operations. HPS provides full medical benefits and retirement contributions for its full time employees, who number about 270. Rice husk char is produced as a by-product of the gasification process. HPS is investigating ways of using this that will add value and create employment. At five plants, groups of about 15 women work part-time making incense sticks from char, and can earn about INR 80 (US$1.8) per day.
Potential for growth and replication
HPS aims to continue its rapid growth, with a target of 2,014 operating plants by the end of 2014. Recent investment is supporting the immediate expansion, and HPS is also working to obtain carbon finance and expand its franchising operations, to enable further growth. A key factor in the success of HPS is its emphasis on staff training and strict operating procedures, at village level and right through its organizational structure. The main challenge for achieving growth is providing training to the 9,000 or more people that will be needed to operate over 2,000 plants to the same level of performance. HPS is planning to build a training centre, and also provide some training by distance learning. The basic technology and plant operation are not expected to change, but the R&D and monitoring that HPS undertake will lead to technical and operational improvement and bring down costs. Current ideas under development and testing include programmable pre-payment meters, char removal systems that cut water use, and automated plant monitoring. Other ways of adding value to char are also under investigation. Rice husk is a plentiful resource in India and many other countries, since about 25% of the weight of the dried paddy is husk. Bihar alone produces three million tonnes/year of paddy, which could provide sufficient husk to supply electricity to three million households. HPS technology could therefore be used in many other rice-producing areas, as well as places with other biomass residues.
CASE 2: BASIX-Bhartiya Samruddhi Finance Limited (BSFL): A New
Generation Livelihoods Promotion Institution
Bhartiya Samruddhi Finance Limited (BSFL)1 is a flagship company of Hyderabad-based BASIX Group of institutions established in 1996. BSFL, founded as a Non-Banking Finance Company (NBFC), facilitates financial inclusion of low-income and poor groups by offering reasonable lines of credit along with savings facilities based on the principles of operational efficiency, financial viability and sustainable social value. Although begun on a credit-based approach to financial inclusion, BSFL shifted its operational paradigm to that of livelihood facilitator to meet more effectively the needs of its customers. In its current strategy, operational since 2003, BSFL offers livelihood related products and services through the strategic concept of 'Livelihood Triad' that comprises livelihood financial services (credit, savings, and insurance), agricultural and business development services and institutional development services for low-income and poor groups in rural and urban areas across multiple sectors of the economy.
In its service verticals, BSFL lays stress upon leveraging new technologies and uses innovative risk mitigation products, such as insurance products, catering to the vulnerabilities of its customers and their economic budgets. One of its key areas of expertise, acquired from a portfolio of innovations built over 14 years, lies in its practice of strategic interventions to enhance the economic productivity and to reduce costs for its customers engaged in various subsectors of the economy.
Its future strategy and growth lies in expanding its presence across rural and urban spaces. At present, BSFL has a customer base of approximately one million with 90% concentrated in rural areas and it plans to expand its base to 10 million by 2014 covering both urban and rural areas.
Influenced by a mentor at his alma mater IIM Ahmedabad (IIM-A) Professor Ravi Matthai2,
Professor Ranjit Gupta and some others, Vijay Mahajan founded an NGO called PRADAN (Professional Assistance for Development Action) with Deep Joshi3 in 1983. With some insights gained working with the rural poor through a project run by Matthai, Vijay felt that "technical know-how" is critical for the poor.
Another critical learning for Vijay, while working in PRADAN, was that the economically poor people lacked appropriate access to formal credit, and as a result the informal moneylenders held sway in the villages, who charged interest rates ranging between 5% and 10% per month, forcing the poor into a vicious cycle of servicing unending debts. Hence the capacity to accumulate savings among the poor never developed. Vijay realized that the poor needed proper and regular access to reasonably priced credit for purposes of investments in self-run enterprises, as well as for consumption and emergencies. After working in PRADAN for a few years, Vijay was convinced that technical knowhow and credit, as two inseparable components, will form the basis for a successful microfinance enterprise serving the poor.
The analysis of various government schemes to reach credit and support to the poor led him to conclude that a new generation of development financial institutions with certain attributes is required (see Annex 1). As a result of his analytical findings, Bharatiya Samruddhi Investments and Consulting Services Ltd. (BASICS Ltd.) was established as a holding company in Hyderabad by Vijay in 1996 with the mission "to promote a large number of sustainable livelihoods, including for the rural poor and women, through the provision of financial services and technical assistance in an integrated mannerâ€¦BASIX will strive to yield a competitive rate of return to its investors so as to be able to access mainstream capital and human resources on a continuous basis".
Vijay and his team created a complex operational and management structure, with BASIX as holding company (see Annex 2), along with registering two non-bank financial companies in
â€¢ Sarvodaya4 Nano Finance Ltd. (SNFL), aimed at small individual borrowers such as landless, marginal and small farmers and women.
â€¢ Bhartiya Samruddhi5 Finance Ltd. (BSFL), focusing on larger loans to commercial farmers and micro-entrepreneurs, including non-farm sector enterprises that generate employment opportunities for the poor
Indian Grameen Services (IGS) - an existing Section 25 non-profit company was included in the holding company with intentions to provide Technical and Support Services (TASS) to the borrowers7. The complex structure of BASIX is justified with the argument that livelihood promotion is indeed a complex task and therefore needs complex solutions.
BASICS Ltd. has a Governing Board of five members who represent a balanced mix of social development and finance professionals, besides academic and consulting experts. One of its
Board of Directors' members is Vijay, along with Deep Joshi, Bharti Gupta Ramola, Anoop Seth and Joe Madiath. BSFL has a Governing Board of 11 members and Vijay is the Chairman of the Board. The Board looks at mission validation, compliance strategy, and periodic reviews of the progress on social and financial performance. The Governing Board lays down broad policies without being involved in the operational management. The Board meets every quarter and has set up committees to oversee specific functional areas such as audit, investments and human resources. While BASIX, as a group, offered other support services to its customers from inception, lending remains its day-to-day focus for a long time. However, with its innovative approaches, BASIX, together with its group entities, soon achieved a number of firsts for itself.
In sum, the BASIX team realized that the less enterprising and poor rural workforce required inputs beyond just credit. As a result, the strategy of microcredit was changed to livelihood support. Such a strategy envisioned a range of support services such as advising customers on the appropriate use of pesticides to dairy farming to cotton crop cultivation practices to mitigating the risk factors in agriculture and allied areas to forming new organizational forms.
BASIX-BSFL Stakeholders and Value Creation
VALUE CREATION FOR RURAL INDIA
In the sleepy village of Sujatanagar, in Khammam district of Andhra Pradesh, the field team of BSFL successfully encouraged seven dairy farmers to form a producer group, to engage in farming of green fodder for animals. Located close to Kothagudem and Bhadrachalam towns, there is demand for milk throughout the year, so dairy farming is the main source of livelihood for most inhabitants in Sujatanagar. However, the shortage of nutritious and affordably priced animal fodder has been forcing the landless and marginal dairy farmers to exist on subsistence for several years and constrained their growth. The large farmers' dependence on dairy is comparatively less as they usually have crop residues to manage the animal feed, but the landless and marginal farmers have no such choices and have been buying dry paddy grass, which not only was expensive but also affected the milk yield per buffalo and the health of the buffalos42.
BSFL has been operating in the area since 2001, providing microcredit to farmers and others and had 250 credit accounts in the village. Visiting Sujatanagar regularly, the BSFL team understood well the problem of dairy farmers there and, as part of the Livelihood Triad Strategy, motivated farmers to form a producer group to engage in fodder farming as an entrepreneurial venture. The BSFL field team provided farmers with advice and assistance in locating the land, technical support for cultivation of two varieties of green fodder farming, an exposure visit to Buffalo Research Station in Venkataramannagudem, as well as credit support of Rs. 70,000 (US$1,500). Producer group members were excited and put in the hard work necessary to make the venture successful.
After harvesting, the venture ensured continued supply of fodder throughout the year to all the producer group members. The cost of cattle-feed, which was coming to Rs. 1040 per month (US$22.30) earlier, came down to Rs. 675 (US$14.47) per month post BSFL's intervention. Also, green and nutritious fodder helped in increasing the milk production by almost a liter a day per buffalo, generating additional revenue of Rs. 18-20 per buffalo per day, and Rs. 1,000-1,200 per month (US$22-27). There was also surplus fodder, which was sold to other dairy farmers in the village. In the first year, a total sale of surplus fodder came to about Rs. 40,000 (US$857), generating further additional revenue of Rs. 5,700 (US$122) per member for the producer group. Further, this local venture saves their costs and time spent in travelling long distances for procurement of fodder from outside the village. With hard work of farmers, both the farmers and BSFL team declared the venture as successful and subsequently demand for BSFL team and their support in Sujatanagar has gone up, as several other dairy farmers, who did not show interest in the venture earlier, started lining up for help in joining the existing producer group or forming a separate group. Some farmers also sought support in engaging in green fodder production individually in their own land. Besides the farmers, the BSFL field team is happy with the overall outcomes of the intervention.
The above anecdote is an example of the triad strategy through which the rural customers, in this case the landless and marginal dairy farmers, have successfully improved their incomes, reduced costs and increased their productivity. The unique mix of credit with support services is likely to make productivity and income increases more sustainable for rural customers.
After almost 14 years of operations, as of March 2010, the customer base across BASIX group companies was over 1.5 million, and the group had helped support the livelihoods of over a million poor and low-income households in the agriculture, allied and non-farm sectors by extending microcredit worth over Rs. 20,000 million44 (US$428.80 million) cumulatively.45 BSFL, with close to a million customers, is the largest entity in the BASIX structure. With over 739,581 active loans to women, BSFL has a good portfolio quality with high repayment rates at 98.6% and is present in 21,163 villages spread across 14 states as on March 2010.
An interesting trend emerging in BSFL's loan structure is the move towards funding non-farming micro-enterprises in rural areas. Borrowing in this segment is slightly more than 50% of total lending. Total loan amount was Rs. 19 million (US$0.41 million) and Rs. 37 million (US$0.79 million) in 2008 and 2009 respectively. Of this total, 51% and 55% of loan amount was given to non-farming enterprises. Agricultural loans of all types amounted to 25% of the total amount of the lending. This reveals that BFSL is in tune with the ground reality of rural livelihoods scenario wherein rural farming is not sustainable for supporting much of the workforce. In fact, only 40% of the rural workforce is engaged or can be absorbed in agricultural activities.47 So BSFL is experimenting in high value creation for the rural workforce by providing credit to non-farming entities in order to deploy credit productively instead of sinking purely in the non-performing assets or diminishing returns' sector like agriculture alone. The alternative in the absence of BSFL would likely have been migration to metros, or in worst case scenarios, stagnation and social unrest. BSFL has thus provided a constructive outlet for the rural non-farming population.
Apart from credit and technical assistance, BSFL encouraged institution building - such as producer groups - and further enabled marketing and sale of surplus produce, while also developing interest in several other farmers, who stayed away from the intervention in the first instance, towards BSFL. Such interventions take time, effort and expertise in managing rural and farming issues. BSFL is able to intervene effectively because of the triad concept and its past experience in interventions.
BSFL plans an impact assessment study in 2010 to evaluate its impact on rural lives in both qualitative and quantitative ways. However, although not comprehensive, a preliminary assessment is now possible through existing indices, such as the repayment rates, customer outreach rates and amount of lending for the years 2007-2009. Repayment rates of loans have tended to be in the high 90s for BSFL, indicating that its disbursals have been sound and that their clientele are also financially viable. Secondly, customer outreach rates are only growing in all its service lines. Geographic coverage is also on the increase year upon year. Thirdly, the amount of lending is higher in non-farming category and for women; both in total amount of lending and 'in terms of volume of lending'. Women mostly avail of general purpose loans and through groups such as Joint Liability Groups. In terms of impact on poverty, these indices show a declining workforce in agriculture and resultant increase in non-farming rural population is well supported by the credit and other program services of BFSL.
Another important indication is the inclusion of women who tend to be most vulnerable in times of crisis and this can be construed as another positive check on poverty. By increasing its reach every year, the impact of BFSL, in conjunction with these other statistics on poverty, can only be positive in the sense that it may be minimizing it through creation of alternative livelihoods and supporting vulnerable populations like women in rural areas.
VALUE CREATION FOR BANKS AND DONOR AGENCIES
BSFL has established constructive relationships with channel partners, NGOs and other civil society organizations, and state agencies. Apart from state and regulatory support for BSFL, financial institutions like banks also began to play a supportive role48. Banks like ICICI Ltd., for example, found ways to partner with MFIs and minimize their exposure to risks setting new pathways and allowing equity strained MFIs to function in initial phases.
Initially, ICICI Bank found that the risks of lending to MFIs were relatively high, and in order to cover risks ICICI moved away from organization-based lending model and towards direct loan contracts with MFI customers. ICICI Bank imposed a First Loss Default Guarantee (FLDG) - here the MFI exposes itself to the first 10%-20% of loan defaults for instance - and an overdraft facility to cover the MFI's capital requirement50. Apart from providing tier 1 or tier 2 capital adequacies, in recent times banks like ICICI Ltd. have provided overdraft facility for MFIs to cover their capital constraint.
However, much credit has to be given to Vijay, the prime mover and actor in BSFL, and the
BASIX Group. Vijay successfully mobilized his personal, academic and professional contacts to give shape to BASIX Group with all its entities. Besides Deep Joshi, the head of PRADAN and Vijay's long time friend and colleague, Vijay also roped in Bharti Ramola Gupta (a fellow classmate of IIM-A), who was and still working with Price Waterhouse, as copromoters of BASIX and other entities.
In 1995, Vijay leveraged his connection with the Sir Ratan Tata Trust, established through a consulting assignment for the Trust, and managed to generate a start up loan52 of US$250,000 at a nominal interest rate of 1% per annum for a pilot crop lending operation to run through his non-profit entity Indian Grameen Services (IGS). This pilot operation was run successfully and led to the formation of BASIX's, as well as India's first commercial microfinance company Bhartiya Samruddhi Finance Ltd. (BSFL).
Ford Foundation has consistently supported Vijay Mahajan and BASIX. Similarly the Swiss Agency for Development Cooperation (SDC), for whom Vijay engaged as consultant earlier, has also been a consistent supporter of BASIX and its activities. In 1997-1999, BASIX borrowed a US$3.5 million loan for a period of 10 years from the Ford Foundation and the Swiss Development Cooperation - payable contingent upon it being sufficiently profitable, and to be used as equity and loans for BSFL. This quasi-equity was used to raise loans from foreign banks (Standard Chartered Bank, CORDAID, ABN AMRO Bank) and Indian apex development lenders such as NABARD and SIDBI. Both Ford Foundation and SDC have generated tremendous learning on rural economic development through their support to BASIX, which they have used in other developing countries.
VALUE CREATION FOR GOVERNMENT AND REGULATORS
With a much broader vision of contributing to poverty alleviation and livelihoods promotion,
Vijay realizes the limitations of one institution (BASIX) working towards the objective. "At
no conceivable growth rate can BASIX address even a fraction of India's livelihood
promotion challenge, says Vijay. The country needs twelve million new livelihoods a year due
to increase in the labour force, apart from enhancing incomes of about 50 million households
who are working but poor."53
Most importantly, the rural economy and the households are not the target of the economic
stimulus policy of governments post-liberalization and hence the rural economy, and
particularly the farming community, has been sidelined largely in economic growth schemes