Investigation of social business background of corporations


1. Business being the organ of economic growth, its first social economic performance i.e. the efficient utilization of resources to produce economic goods and services that satisfy social needs. It also implies that business benefits itself in this process. The of a business is to remove/reduce any adverse impact on society (Socially responsible Corporations,2009)

2. The second social economic performance that arises in the course of its business

3. The ultimate social economic performance of a business is to catalyze progressive social development that will focus on social growth as well as address social problems. Benefits to society apart, such development is a source of significant economic opportunity for business (beyond image building) as it could greatly improve the company's competitive potential or addresses the key constraints that limit productivity, innovation, growth and competitiveness. This has been emphasized by pre-eminent management thinkers: Peter F. Drucker, Michael E. Porter and C.K. Prahlad.

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From the perspective of business, this significantly enhances its competitive advantage by upgrading its level of talent, knowledge, infrastructure, by ushering innovation, by expanding its markets and by making its internal and external working environment conducive to productivity. From the perspective of society, this catalyses progressive social development by ushering social growth and addressing social needs increasing the pool of talent, knowledge, infrastructure, satisfying needs of weaker sections, rural prosperity, strengthening of individual well being and values.

Business, being an organ of society, is inextricably related to society. A key factor in any successful relationship is the proper discharge of responsibilities. For business, the key factor is, therefore, the proper discharging of its responsibilities to society (and implicitly to itself) i.e. its social responsibilities.

Performance of its function is business' first social responsibility. Unless it discharges such performance responsibly, it cannot discharge anything else. A bankrupt business is not a desirable employer and is unlikely to be a good neighbour in the community.

Problem Definition

Progressive social development is an all-encompassing approach to development that not only addresses social problems but also focuses on social growth as a necessary condition for social development. Business should catalyze progressive social development because their doing so provides much needed benefit to both, society and business. Progressive social development addresses social weaknesses and harnesses social strengths leading to all round social development. (World bank, 2010)

Not every social problem/issue can be addressed by making it into a business opportunity. But at the same time, a healthy business and a sick/weak society are hardly compatible. Businesses cannot prosper on a sustained basis in a society that is plagued by dysfunctions/weaknesses simply because business is part of, and not distinct from, society.

Factor conditions refer to the state of key inputs to businesses i.e. talent, knowledge, infrastructure, necessary to compete in an industry. Well-developed factors promote innovation and sustain higher order competitive advantage in domestic and global markets for businesses.

Demand conditions in a nation refer to the size of local demand and more importantly, the composition of demand (that is, the demanding or difficult nature of buyer needs). Both these aspects (i.e. size and composition) greatly impact a company's competitive advantage. Buyers with demanding or difficult needs provide companies with insight into emerging customer needs and with the pressure required for innovation in cost reduction or in different product features. Such innovation then creates larger markets, domestically and globally. (B2B Trust,2007)

Firstly, the benefits reaped by the companies pursuing the said strategies will remain significant compared to those hoped by any competitor. This is because such companies will focus on particular needs or locations that may not be of equal importance to competitors. Also, companies that initiate such strategies will build superior reputation/relationships. Besides, companies that invest in their personnel and have an orientation towards innovation usually have low turnover of key personnel. Also, regular and rapid technological progress, not one-shot breakthroughs is the secret to retaining competitive advantage. To believe otherwise is a sign of a static conception of competition. Strategies aligning economic and social goals will have a significant bearing on the strategic context of the business of companies and should hence be driven by the CEO/Board of the particular company and not be delegated to the social development division of the company.

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The division could provide inputs as may be necessary. It is possible that some social issues cannot be resolved by linking them to a company's competitive context. And even these issues need to be addressed not only from a social perspective but also in the interests of Corporates for; after all, a sick society and a healthy business are incompatible. (World bank, 2010)

If business does not have and should not have authority - and in a great many areas it should not have it - then responsibility on the part of business should be treated with grave suspicion. It is not responsibility; it is lust for power. For example, it is not the task of business to substitute its authority for that of the government in areas that are clearly national policy. Of course, what are the limits depends in part on circumstances. In a society facing a crisis, the limits may be more flexible than in a society, which is not.

Course of Investigation

We define Financial sustainability at the BOP enterprise level to mean that enterprises at this level have available sources of financing that are utilized by the BOP enterprise to finance and grow its operations in a manner where the income earned by such activity is sufficient to pay the providers of the source of finance in a satisfactory manner after the people running the BOP enterprise are paid a "living" income. SMEs are the biggest money churner today for the financial world and the financial model which can support SMEs is the most sustainable one. The business environment frameworks focus on competitiveness, supporting industries, and market input factors. It should be noted that these frameworks, and the categories within them, are relevant for all entrepreneurial activity, including that at the BOP.

Countries must design and implement programs which would assure them financial sustainability, required for growth and development. Countries must project their schemes and ideas to promote growth for the longer run; as such measures would help nations to ensure financial sustainability of their BOP enterprises.. Different models could be used by nations to support the financial activities of their BOP enterprises. There are many models like the BOP conventional enterprise finance model, the BOP social enterprise finance model, the government supported SME finance model, and the FDI finance model which could be used to support and sustain the financial outlook of BOP and SME enterprises.

Particular implementations of these frameworks within different business ecosystems can and do address the unique requirements of BOP entrepreneurs Essentially, this concept involves the BOP enterprise acting as a sustainable business in terms of meeting all its financial obligations while continuing to have access to or generating financial resources for its growth. While this is very close to the conventional notion of profitability, there are a number of alternative financial models possible where such a sustainable enterprise can be sel-sustainable. We discuss such models of sustainable finance below. (B2B Vs CRM,2006)

This funding model is the traditional one of using funds from banks, funding companies, venture capitalists, equity investors and other finance providers to bootstrap the enterprise in the start-up phase with the funds to be returned through regular interest and principal payments and ownership by venture capitalists and equity providers who are then paid back from the cash flows over the life of the enterprise. The focus here is on surplus extraction from the successful firm. This is the typical mode of financing for medium to large SMEs and organized sector start-ups in developed countries like the U.S., New Zealand, Ireland, Hong Kong and Singapore. (Credit Suisse, 2010)

New concept of funding that has gained usage in a limited number of developing countries like Bangladesh. In this model, a micro-lender or set of investors (which could be the village or the community) provide the initial funds for the BOP enterprise which is seen as a self-sustaining and growing entity which provides a reasonable "opportunity cost" return to the investor with all subsequent funds ploughed back in to the firm for its further growth and expansion. Such an enterprise has been called a "social enterprise" by Nobel Prize winner Muhammad Yunus of the Grameen Bank.(Grameen Bank, 2007)

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Nothing is inherently wrong with a corporation's generously contributing to efforts to find a cure for a rare disease- particularly when, as is the case here, the stockholders support corporate charitable donations and activities. Nor is it in appropriate for a leader to couch his or her decisions in moral terms. Businesses have gotten better at understanding the need to give employees space for family. But there is a profound difference between personal commitment to a philanthropic cause and the larger duty toward a companywide CSR program. (Consumers prefer socially responsible brand, 2009)

The funding comes in many varieties including debt, equity and loan guarantees. This growth is not surprising given that large MFIs have been doubling their portfolios annually, with few delinquencies or defaults.

Leading up to the financial crash in 2008, funding glutted the market as too much capital chased too few top tier MFIs. Both domestic and international capital markets vied to lend to MFIs, who played them off against each other for lowest priced and largest loans. But as soon as the crisis hit investors were quick to turn off the tap.

In their short life spans, these MFIs only saw their local currencies appreciating. "Though these organisations were advised to decrease their dependence on international lending, they refused to take precautions," Cox said. As a result there has been a fairly big demand for a shift to local currency albeit more expensive now. Greater attention is now being paid to foreign exchange risks, he said. Interest rates for MFIs on loans in US dollars and Euros increased between 50 to 250 basis points (bps) in 2008 and most investors expect them to go up by an additional 100 bps in 2009 according to an investor survey by USAID.(Grameen Bank, 2007)

Social Business Background

Viewed accordingly, a company manufacturing textiles, for instance, is accountable for efficient utilization of resources to provide textiles having lower costs or better features to customers. In this process, the company adds value to itself as well in the form of profits/EVA, which enable it to continue its purpose of economic performance.

At the outset companies should undertake an assessment of the level of such factors available to them (i.e., how advanced/unique is the company's talent/ knowledge?). Companies should also assess the rate of sustained growth of their talent/ knowledge given that knowledge has to progress continuously to remain knowledge. Companies can also create factors in a cost-effective way through active involvement in the efforts of educational/research institutions, government entities and foundations or by encouraging such involvement by industry associations.

If business does not have and should not have authority - and in a great many areas it should not have it - then responsibility on the part of business should be treated with grave suspicion. It is not responsibility; it is lust for power. For example, it is not the task of business to substitute its authority for that of the government in areas that are clearly national policy. Of course, what are the limits depends in part on circumstances. In a society facing a crisis, the limits may be more flexible than in a society, which is not. (Socially responsible Corporations, 2008)

Companies can also use Reporting Frameworks to aid such description. Reporting Frameworks, as the ones described below, focus on specific parameters / indicators regarding the social impact of a company's activities. It is pertinent to note that these Frameworks have originated since a few years and are still evolving. There are concerns that have been expressed regarding the way some matters are dealt with by the Frameworks; nonetheless, such Frameworks can serve as a reference point for companies seeking to formulate their own Framework since they do deal with a variety of parameters / indicators. (World bank, 2010)

Corporate social responsibility

While several and diverse views exist today on the meaning of CSR, and these are dealt with in below, it is well accepted that all said and done, CSR is essentially about and business & its social relation. Therefore, this section first analyzes, in fundamental terms, the relevant anatomy of business and links it to an analysis of its social relation. Such an approach is also necessitated by the fact that most CSR literature has a primary focus on social impact and the focus on business itself tends to remain hazy. However, to gain a proper perspective of CSR, both these aspects deserve equal focus. We live in a pluralist society of institutions, that is, a society made up of different institutions such as the defence sector, the business sector, the education sector, the healthcare sector and so on. Each such institution is an organ of society and has a specific and important purpose. (Consumers prefer socially responsible brand,2007)

Economic Performance results in addition of value to both the society as a whole and the particular business too. Economic Performance adds value to society by ensuring utilization of resources in an increasingly efficient manner to provide goods/services that increasingly satisfy needs of people who choose to pay the price for them. In return, business directly receives economic value from society in recognition of such performance that enables it to continue its economic performance. (IDC Home:Data Intelligent Unit,2008)

The result is overall economic growth of society. In an environment of competition, such need is expressed in the need to create and sustain competitive advantage, i.e. the ability to provide goods/services either at a lower cost than competitors or those that have different features from those of competitors.

Some key things that CSR initiatives can bring in from companies are-

Companies can establish working relationships with faculty in disciplines of interest to help such faculty understand the needs of industry and advice students accordingly.

Companies must maintain regular contact with all centres of research that bear on its activities, through sponsoring visits by faculty to the company's research facilities, creating programs in which company researchers spend time in university/research laboratories and vice versa, and participating in company sponsorship programs.

Companies can fund research by leading institutions through specific research contracts in areas of company's interest. Companies can provide financial support for research facilities and endowed research positions.

Socially Responsible Brand

The term sustainable responsible brand (SRB) has other terms used to describe it such as corporate social responsibility (CSR) or corporate social performance or corporate citizenship. This notion where brands must be responsible for their own behavior and as part of the performance measures should monitor their adherence to ethical standards, moral codes of conduct, international law and international norms of appropriate behavior is becoming increasingly discussed. Brands will vary with respect to the extent to which they adhere to sustainable responsible business practices and whether it exists as a 'nice message' in the corporate vision statement or whether it is practiced in the workplace and is part of the workplace culture. As such consumers will have different perceptions about the degree to which they perceive a brand as being responsible and acting responsible. For some consumers a sustainably responsible brand is important in brand buying and for other consumer it may have a lesser importance. For a value seeking customer it is more important that the brand deliver on value as perceived by the customer rather than an index which concerns about moral responsibility of the brand. (Consumers prefer socially responsible brand, 2007)

There is some discussion in the consumer behavior literature regarding the value of responsible behavior and its practice. Some argue that there is a strong business case for it as when businesses don't act ethically as this can impact negatively on brand equity. Similarly if a business is seen to be more ethically responsible that this can impact positively on brand equity, for instance, when MacDonald's began to sell healthier alternative fast foods and introducing fruit bags instead of fries, consumers perceived them to be acting more responsibility and MacDonald's brand equity rose in 2009. There is an argument that practicing sustainability means that a business should think beyond the short-term monetary gain and think about the long-term effect and what the brand means for all of its stakeholders, consumers, investors, employees and the general public.

A psychological competition right now in US is the criticism these industry is facing from large obese population. This is especially true for the concept of value meals which provide extra large portion of unhealthy foods. The nutritional value of the quick restaurant segment has sparked many a campaigns and few legal actions. According to New York City department of Health a law was passed in 2008 making it mandatory for quick restaurant to post all the calorie related information against the food item on the menu boards. One of the biggest outcries has been the promotion of this food habits among the socio economic classes and the direct correlation of the obesity among the people. In response McDonalds introduced new and healthier item in the menu and shifted its marketing. This is an example of socially responsible brand. The critic to the above says that being socially responsible sometimes just dilute the brand image of the brand.

Seven Principles of Social Business

Mohammad Yunus have classified seven main principles of social business. These principles if properly followed will help us achieve the social objective of the business. These seven principles are stated below:

The objective of the business should be towards reducing the targeted social problem. It should help in eradication of poverty and other such problems like health, education, access to technology & environment. It should never be profit maximization.(Grameen Bank, 2007)

Economic and Financial sustainability.

Investor will always get back their investment amount only and the dividends will go the poor. No additional fund is given to the investor

It should be very environmentally conscious business

Workforce that works for this business gets market wage rate but with better working conditions

The motto should be do all this with utter joy

Profit is not the motive the venture

These are the seven principles of social business which lay down the framework for any upcoming social business. An organisation that works on these principles in the right environment will generate wealth at the bottom of the pyramid which will ultimately drive social business in the region. The power of free market can be utilised to harness and remove the problems of poverty with a perfect business model built around.

A case study of CSR- Novartis

Novartis also used the leprosy program as a platform to further develop community-based health infrastructures. The company funded the development of local health clinics and the training of medical personnel to provide leprosy treatment, along with care for other health problems as well. Novartis medical staff worked with WHO to provide technical advice to these clinics on leprosy treatment. One of the major reasons that pharmaceutical companies like Novartis get involved in high profile projects is to build strong reputations and distinguish themselves in the eyes of the public. Novartis was interested in the leprosy project not only because the company possessed a product that could benefit the many people without access to treatment, but because it provided an opportunity to partner with WHO in a high profile, global disease-eradication program. According to Novartis, its role in the project allowed it to have a significant impact on reducing leprosy while improving its reputation, goodwill, and organisational learning.

Grameen family of Business

In the debate of whether rich investors can make money off poor people, Nobel laureate Mohammad Yunus, who pioneered the Grameen Bank in Bangladesh 25 years ago, seems to have won this round. Yunus who won the prize for peace and not economics has long decried investor hunger for the sector driven more by profits than social commitment. While there may be not enough government and socially-oriented capital to meet eventual worldwide demand for microfinance, commercialization of microfinance is inevitable. After all, chasing the bottom billion can be exciting.(Grameen Bank, 2007)

Bangladesh is a country of villages even today but on account of lack of infrastructure resulting in lack of opportunities for the population migration of youth continues unabated. The urban centres are getting flooded with masses. To stop this migration we have to provide opportunities to under privileged people of rural areas. Microfinance is a major tool available to create opportunities and help people to raise their quality of life. (Grameen Bank, 2007)

Although this fact is well established and understood the approach taken to achieve is yet to prove itself and hence despite huge money being made available for these projects success is nowhere visible. The business correspondent and business facilitator model envisioned by Grameen needs major revamp. (Grameen Bank, 2007)

The major issues in making this model a failure is:

After opening the account the beneficiaries are expected to deposit their surplus cash by handing it over to the agent as and when he visits the customer. As there is no certainty of visit of the agent, the customer doesn't find it convenient to keep waiting for the opportunity to deposit or withdraw cash. In fact the normal human expectation is that he should get cash as per his need which may be at any point of time during the day. Similarly he would like to deposit the surplus cash as soon as it is available with him without waiting for anyone to collect it from him. The agent appointed for this work has to cover five to six villages every day hence he visits only as per his schedule, which may not be to the linking of the customer. (Grameen Bank, 2007)

The agent or the business correspondent is expected to carry cash for disbursement to the account holders physically. The law and order situation in rural areas is the major hurdle in giving comfort to these agents to move to remote villages, hence the cash withdrawal by the customers is discouraged. Thus the agent doesn't not have sufficient work and he gets discouraged to continue the work and after some time the whole system comes to a grinding halt. (Grameen Bank, 2007)

There is strong need to understand the skill level of rural populace to create opportunities for skill enhancement through training and appropriate backward linkages for marketing of products, which he would be producing with enhanced knowledge. The present model focuses on opening of deposit accounts. Thus customers do not get encouraged to use the system. (Grameen Bank, 2007)

The government is giving grants/stipend/allowances to many categories of people like old age persons, meritorious students, handicapped, individuals, widows etc. As also to farmers in case of crop failure from time to time. These doles are being distributed through existing physical channels of bureaucracy but it is common knowledge that they do not reach the right beneficiary because of imperfect distribution channels and human involvement at various levels. Present model also involves agents to make cash available to beneficiaries and hence technological enablement is not made use of. (Grameen Bank, 2007)

Benefits of Social Community vs Charity

There are hundreds of business that is coming up on the model of the social business. This social business model has gone to huge places. It is very difficult to shown the benefits of social community and charity. Lot of charity is done by some method or the other but these charities are not empowering people. As a result of which social businesses are not developing in certain places.

Empowering vs taking Away responsibility

This model tries to show how women empowerment is taking place in India. On my dining table in Delhi, there stands a small insignificant plastic bottle with a red lid. What is significant is that the bottle contains delicious bamboo shoot pickle purchased by me in a remote village of Jharkhand being preserved and sold by a woman under the self help group scheme and sponsored by the block level thrift and credit society. A part of Rs 60,000 crore industry is slowly catching up in the sleepy state of undulating hills and meandering rivers.

Despite being a mineral abundant state and also rich in non timber forest produce as well as

amply endowed with educational facilities, the abysmally low economic and social indicators is a stark reality. The complex poverty syndrome partly stems from the demography of the region which pre-dominantly comprises of tribal people. The tribes are further categorised into various ethnic groups based on religion, language, occupation and area of domicile.

As there have been vigorous missionary activities in the region since mid nineteenth century, the state has a substantial tribal Christian population. This segment is educated, socially aware and economically better off than their non Christian brethrens who adhere to animistic rituals and are prone to ignorance and exploitation. The challenges to human development in the area are innumerable. Apart from structural deprivation, social and economic exclusion, geographic isolation, disintegration due to rural migration and indiscriminate urbanisation are the critical inhibitors in realising full potential of the state. Very often the villagers are victims of caste ridden feudal economy in the hands of money lenders, petty businessmen and landowners. The young tribals, especially the girls are so desperate to eke out a living that they easily fall prey to human trafficking or work as domestic helps in far flung parts of the country wholly alien to their culture and environment. The men are lured by the different naxalite groups. Either way they are vulnerable and open to exploitation. The civil strife in the form of naxal turbulence is a socio economic challenge and less of law and order problem as it is made out by the administrative machinery. This model shows that it is more important to empower people rather than showing charity and helping them. Social business helps in empowering people and using the wealth at the bottom of pyramid. This venture at bottom of pyramid is seen as the next opportunity. (IDC Home:Data Intelligent Unit)

Selecting the best grantees

Resources can be channelled to their most productive uses within the social sector by funding beneficiaries that represent urgent or overlooked problems or that is the most cost effective.

Signalling other Funders

Further social value can be created by educating and attracting other support groups.

Improving the performance of grant recipients

Still more social value can be created when resources are used to improve the performance of the grantees.

.Similar thoughts have been expressed by Charles Handy, management thinker and social philosopher, rated in many quarters, as being next only to Peter F. Drucker. The purpose (focus) of a business has been discussed in paragraph 2 above. A company whose objective is profit maximization will have a different focus one in which its leadership and management are obsessed with financial goals thereby misdirecting most efforts into financial context (reflected in, among others, regular meetings to discuss profitability, continuous analysis of profitability statements, etc.) rather than other important business objectives and resulting in a culture which can only be self defeating in the long run.

Irregular repayments may jeopardize access to new loans. "If those borrowers who are prompt with repayments are not provided with fresh credit, there may be possibility of increase in delinquency. Any sustained slowdown in supply of funds usually leads to galloping delinquency."

Sources of Funds

Source of traditional MFI funding has been hit - grants by foundations. Some of the big foundations have survived a 30% loss in their endowments since they had invested their monies in equities. Currency fluctuations during the crisis have hit MFIs dependant on foreign currency loans. MFIs in the emerging economies of Eastern Europe and Central Asia that depended on foreign funds were hit by unanticipated local currency depreciation. Burdened with dollar liabilities, relatively credit worthy MFIs are now finding it difficult to get loans, Brian Cox, Executive Director, MFX Solutions, a firm that helps MFIs hedge against exchange rate fluctuations said. (Consumers prefer socially responsible brand, 2007)

Private Equity investors look at hard growth numbers and these organisations threw up incredible growth figures, year after year. "What drives investors is the double bottom line approach. The returns are comparable with the risk and returns of mainstream assets, but in addition to it - there are social benefits," Brad Swanson, managing partner at Developing World Markets (DWM), a socially oriented investment bank. At the height of the crisis, it closed two funds, equity and a debt fund in the last six months. One of the investors of the equity fund is US pension fund Teachers Insurance and Annuity Association, College Retirement. Equities Fund (TIACREF). Swanson said, "TIACREF made it clear to us that they expect serious returns as they would from a mainstream asset."

In the play of economies of scale, returns are huge for the relatively small amounts that venture capitalists invest. Even at the height of the crisis, SKS Microfinance, one of the largest MFIs in India sealed a $75 million deal in November 2008 with Sandstone, a US hedge fund. Now as a part of its borrowing plan for next fiscal, SKS will be the first nonbanking financial company (NBFC) in India to issue commercial paper to raise short-term funds.

Difficult market conditions have ensured that MFIs use new strategies to cut borrowing costs. Last month, another Indian MFI, Equitas securitised its assets. In securitisation cash flow producing financial assets are pooled, packaged and then sold to investors. This pool is then sold to a bank at a discounted rate, to become a part of the bank's books. This frees up the MFI's balance sheet to lend more. Although securitisation is a bad word post the sub-prime crisis, investors are interested in such paper given the 99% recovery rates for MFI loans. Banks and institutional investors have endorsed the Equities deal since it is backed by good asset quality and a strong underlying cash flow.

Social Dow Jones index

Besides, rating agencies like the Standard and Poor's have rated structured investments that make this type of paper more transparent for investors. "MFIs are now coming forward to have themselves rated given that investors are extremely selective about the kind of paper they want to invest in," Gary Kochubka, senior director, emerging markets, structured finance at S&P's said. Investors have found it a daunting task to zero in on credible investments, therefore getting rated helps. Typical investors are pension funds and insurers who have a long term view of the sector, unlike hedge funds who find MFI instruments too illiquid and inconsistent with their short term goals.( Dow Jones, 2010)

The objective of this index to show companies which are using CSR initiatives to become more and more sustainable for the future. This index maps the industries which help in deciding for the investors the business which are looking at the future. They look into the CSR budget of the companies which forms the weight of the index. They also try to quantify the ethical responsibilities shown by the set of companies over the period. The companies selected in the index are benchmarks for social responsibilities. Some of the companies which have performed well to make it to the index are Dell Inc, Johnson & Johnson, Whole foods, Gap Inc, General electric, Chevron, Coca Cola, Computer Associates, and McDonalds. There are other such index also which measure corporate social responsible business. This indices are: ( Dow Jones, 2010)

Dow Jones Sustainability Index

FTSE KLD Social 400 Index


FTSE4 GOOD index Series

Charity Funds

Charity funds are surplus funds that are invested in some investments which can be utilised in the future by the charity. There are many regulations that are control this fund because charity is very sensitive. The size of the investment as percentage of total charity fund needs to be justified so that whatever investments are made are managed properly and are justified. The reason for the same is the sensitive background that is associated with it. This charity funds have two decisions to decide. One of them is to make investments or to utilise this funds for the social business ventures that this organisation can look into.

Government Program

The PSUs are undertaking the micro financing activity through three delivery channels:

â-  Provide funds to micro-finance institutions for onward lending to Self Help Groups (SHGs).

â-  Provide SHGs with credit facility for onward lending to their members

The bank also extends finance up to Rs 50,000 directly for the village and micro-enterprises, particularly in rural areas. The activities financed are dairy farming, weaving, cottage industries, sewing/ embroidery work, rural transportation etc.

In addition to financial services, companies that manufacture mobile phones, household goods (such as televisions, refrigerators, water purifiers and stoves), consumer products (soaps, shampoos and detergents) and farm equipment (including tractors!), have made an aggressive foray to service the rural areas. Some companies, such as Godrej, have even created innovative products such as a refrigerator without a compressor, and are selling it at a price point that has been arrived at after taking market feedback from potential customers. With the number of people under the MFIs' umbrella increasing exponentially, these companies are using MFIs as a channel to distribute their products. (B2B Trust, 2008)

In the play of economies of scale, returns are huge for the relatively small amounts that venture capitalists invest. Even at the height of the crisis, SKS Microfinance, one of the largest MFIs in India sealed a $75 million deal in November 2008 with Sandstone, a US hedge fund. Now as a part of its borrowing plan for next fiscal, SKS will be the first nonbanking financial company (NBFC) in India to issue commercial paper to raise short-term funds.

New Social Businesses using the same channels

Rural Employment: With new products entering the rural market, it has led to a high demand for rural sales agents for these products, with many companies appointing rural housewives to market products within a community for a sales commission. This has automatically led to a higher income generation for many rural families, and has also helped empower women to a large extent by providing them with an opportunity to earn income and have a sense of purpose.

Creation of Micro-Entrepreneurs: In addition to rural employment being created, MFIs are also encouraging the rural and urban poor to start an income-generating business, which is spawning a new breed of micro-entrepreneurs who earlier had no access to capital. For example, MFIs are lending money to rural entrepreneurs to buy a tractor, and rent it out to farmers on a pay-per-use basis.

Education: With the rural and urban poor having access to fairly regular income, a number of them who realize the value of providing education to their children, are now willing and able to spend on it. Although the fees gained through an individual student are very less, the potential numbers are very attractive from a business point of view, especially with technology-led education gaining popularity in villages.

Insurance: The benefit being that the cost of distribution comes down substantially which will further give comprehensive benefit to the customers as well as the insurers. Though at present both life insurance companies and non-life insurance companies are having the health insurance products, there lies a basic difference in that. While the non-life companies fully reimburse the cost incurred in case of the disease being covered by them, a life insurance company can only pay a lump sum amount in that case. Again, unlike life insurance companies. The non-life insurance companies can cover for a short period, may be one year or so, only. In spite of it, Life Insurance Company can pay the lump sum amount until the maturity period of the policy which is quite long. Another grey area being that premium receipts will comprise two components for life as well as non-life insurance companies separately. The question arises what will be the mode of payment of the premium to both the companies in the case of a combo product. One thing is clear that the life insurance company will act as a lead in this case, but even then the question of sharing.

This also has a very powerful social impact as access to education provides people with knowledge of happening outside their daily lives, and this opens up new scenarios and ambitions within them.

Microfinance is an area which is arguably most dependent on technology in order to be effective in terms of provision of services to the target audience, and in a cost effective and operational efficient manner. It is also an area where sustainability and outreach are both extremely important, i.e. if either of these qualities is compromised, it would have a negative effect on all initiatives and as a result, on the economy.

Standardisation challenges in technology also exist, for e.g. bearing KYC rules and regulations in mind, should mobile phones should be used as a primary identifier or whether it should be smart cards that can be read by a smart card reader and cross-checked through biometric authentication. In addition, whichever technology is used, it has to be transparent to the end-customers, so that it builds a high level of confidence within them and encourages them to switch over from the local money-lender to an MFI. (World bank, 2010)

While the sustainability v/s outreach challenges still exists when it comes to reaching out to people in remote areas, or to people with low economic and social status, technology is continuously evolving, and is today available to circumvent and/or address these challenges and enable MFIs to further their positive impact on society. (World bank, 2010)

Insightful glimpses of Rural India

Rural India is the real bull's eye of the Indian growth story.

Rural India accounts for 70% of population, 56% of income, 64% of expenditure and 33% of India's savings. Also, it accounts for 60% of FMCG sales, 50% of TV set sales, and 40% of two-wheeler sales.

Despite urbanization, 65% of India's population would continue to live in villages. Proper roads now connect 80% of Rural India, which accounts for 90% of the rural population and 95% of rural wealth. Tele-density has improved from 5% to 21% in five years and is expected to go up to 50% by 2012. Almost all villages now have electricity; 60% of rural households (70% of rural wealth) have electricity. At present, 70% of the rural population is literate; by 2020, there would be ~100% literacy. There are ~87 million Kisan Credit Cards in rural India, which is larger than all the debit and credit cards of Urban India. (Credit Suisse, 2010)

At present, 45% in Rural India earn more than US$1/day - the figure is expected to go up to 58% in 2020. In Rural India, the seemingly low income of US$2-3/day is actually high, as there is no rent (most people own houses, however modest) and education, health, etc is provided almost free by the Indian government. Thus, even on lowly income levels, purchasing power in Rural India is high.

Key drivers of rural resurgence and their impact

8 good monsoons in last 10 years.

Significant increase in minimum support price of grain (100% increase in 10 years; input costs have increased only by 50%).

Through NREGS (National Rural Employment Guarantee Scheme), 44 million people have been given employment; the program has also given regularity to rural income.

Multiplicity, i.e. multiple earnings streams for rural people has added to the income. In terms of share of wallet, food constituted 58% of the consumption basket in 2000, which is down to 43% now and would go down to 33% by 2020, the same as Urban India today. This suggests meaningful increase in discretionary spend.

A historical perspective of India's present

The two most remarkable things about India are: (1) It is an unnatural nation, and (2) It is an unlikely democracy. It is an "unnatural nation" because everywhere else in the world, the three key nation-building factors were: (1) Common language, (2) Common religion, and (3) Common enemy. None of the three hold true for India.

India is an unlikely democracy, because again nowhere in the world did democracy start with universal adult suffrage. In contrast, voting rights were granted in phases in UK and 90 years after its independence, US engaged in its bloodiest civil war.

India has been plagued with a series of problems ever since Independence. There were other enormous challenges: 8 million refugees had to be resettled and 500 princely states were to be integrated. This mammoth feat was accomplished because India had a set of extraordinary leaders in Nehru, Patel and Ambedkar. The major events that shaped India in subsequent decades include major conflicts around linguistic states (1950s), Mizoram insurgency (1960s), Emergency (1970s), insurgency in Punjab (1980s), religious riots and caste riots (1990s). (World bank, 2010)

Given this backdrop, India currently faces three central challenges (1) Discontent at the borders, namely J&K, Nagaland and Manipur, (2) Discontent in the heart of the country - one-third of India covering states of Orissa, Bihar, Jharkhand, Madhya Pradesh, Chhattisgarh, Andhra Pradesh and Maharashtra are facing Maoist insurgency. While Maoists deserve no sympathy it is undeniable that the tribals in India are most discriminated against and gained the least from economic prosperity (even less than the dalits). While economic liberalization has a benign face (e.g. IT and service sector growth) it has a brutal face (where tribals are plagued with displacement, dispossession and discontent), and (3) abuse of natural environment, encompassing depletion of water table, rise in air pollution, choked rivers, etc.

The framework to address these challenges has three pillars (1) State, (2) Private sector and (3) Civil society. In the years immediately after independence, the State did a remarkable job. The private sector was in fact non-existent. However, in more recent years, the private sector and civil society have done a reasonable job, whereas the State has slipped into corruption and nepotism, including conversion of political parties into family firms. The State has to perform once again for any meaningful resolution of the central challenges facing modern India. (Credit Suisse, 2010)

Hindustan Unilever-Project Shakti, Self Help Groups

HUL will defend market share in categories like soaps, laundry, hair and skin care. HUL leads the market (2.5-3x its nearest competitor) in core categories and will invest strategically (on new launches like Brooke Bond and Sehatmand and pricing strategies) and tactically through promotions to maintain the relative advantage. Skin, tea volumes under pressure; soaps, detergents to grow slowly Skin care volumes under pressure, partly due to high inflation. Tea volumes declined Due to high levels of penetration, traditional categories like soaps and detergents are likely to post growth in mid-single digits (4-5%). But the opportunity lies in uptrading consumers. Consumers are upgrading in the toilet soap category, from which HUL will benefit. HUL is investing in categories of the future HUL is investing in emerging segments like fabric conditioner, body wash, noodles and cooking aids, deodorant and water. HUL aims to corner 30-40% share in each of the categories though new players are likely to enter the segments. (Credit Suisse, 2010)

The new product segments are margin accretive. HUL expects 30-40bp gross margin expansion each year as the share of new segments increases. Pure IT posted sales of Rs3b in the previous year and is growing at 40-45%. HUL extended the basic product to Rs1,000 Pure IT compact and premium offering in Marvella. The future looks bright as cartridge sales are also picking up. (World bank, 2010)

HUL has launched a corporate social responsible mission named Shakti Mission. This mission is a social business model built on the grounds of Corporate Social Responsibility. This model has actually helped HUL to take their goods to the bottom of the pyramid. This is a huge distribution network built on the whelms of CSR. (World bank, 2010)