By Deepti Chadda and Dipika Prasad
Home to 3.6 Bn people, almost every country in Asia is undergoing a profound socio-economic transformation. A region rich with people, resources and culture is growing increasingly restless in the face of multiple development shortfalls. While traditional methods of alleviating poverty continue to receive impetus, a fresh movement based on an alternative development approach is emerging. Building viable business models with affordable products and services that cater to underserved populations in sectors such as health, education, energy, is finding its place as an instrument to further sustainable and inclusive growth in Asia.
Several trends across Asian countries underline the growing popularity of this new approach, widely known as ‘social enterprise’. In Malaysia a survey of over 6000 young people showed that 75% considered themselves social entrepreneurs aiming for financial and social outcomes. Driven by Information and Communication Technologies (ICTs) and social media, budding social enterprise networks are linking investors, entrepreneurs and policy representatives across countries, such as the Social Enterprise Network Asia (SENA). Schools in Asia now include social enterprise in their curriculum and organize social business plan competitions, like iDiya by the Indian School of Business and the INSEAD Social Entrepreneurship Catalyst.
The growth of these social enterprises is also starting to attract interest from double and triple bottom-line investors (impact investors). According to a report by Avantage Ventures, the potential market size that can be captured through impact investing in Asia is estimated to be between USD52 to USD158 Bnby 2020. The report also concludes that the six key sectors that would benefit most from impact investingin Asia include affordable housing, primary education, rural and elderly healthcare, agri-business, water and sanitation and rural energy.
While social enterprise is still nascent in the region, some countries like India, Thailand, Indonesia and other South East Asian countries have emerged as front-runners in this movement. What’s interesting is that many of these countries face similar challenges of scale and sustainability. Some of the common constraints include access to the right type of funding, attracting and retaining superior talent, weak or non-existent supporting infrastructure, navigating the regulatory environment and building a collaborative approach towards market driven development.
While the policy environments, the financial services structures, the development needs and potential and geographical conditions vary widely across the region, emerging anecdotal evidence shows that some of these challenges have been tackled well in specific geographies.There is both a growing need and an opportunity to build a corridor of communication and learning between social enterprises, investors, policy-makers and other market enablers in India and South East Asia. Sharing best case practices,learnings from failures, finding solutions to common problems, speeding up the flow of funding across countries, and sharing intellectual capital are founding blocks for this Social Enterprise Corridor.
The case for building a social enterprise corridor between India and South East Asia
When it comes to innovation in technology and business models, India is one of the market leaders in the social enterprise space. A robust private sector, and focus on R&D could mean that there is an opportunity for these technologies and models to be replicated across other regions in South East Asia. For e.g. SME Renewables, a social enterprise that promotes renewable energy technologies and market biomass gasification power generation systems in Cambodia, imports its technology for rise husk powered electricity generators from India. It cites cost effectiveness, and time saved on developing indigenous technology as the primary reasons behind its buy-decision.
India has traditionally struggled when it comes to making public-private partnerships work. There are opportunities for it to learn from successful examples of these from countries like Cambodia and Indonesia. For instance, although there are millions of fully subsidized household biogas units installed in India, most are dysfunctional due to lack of maintenance and accountability from civic organizations. On the other hand, a biogas program led by Hivos with blessings from the government of Indonesia has achieved 100% functionality rate and 100% loan repayment rate. Initiated in May 2009, it aims to build a minimum of 8,000 domestic biogas plants in at least six Indonesian provinces by the end of 2012. The program is sustainable because the biodigestors are only partly subsidized, and focuses on facilitating credit in partnership with the government, NGOs, cooperatives, and MFIs. The focus on linking players, building a market and ensuring sustainablility after the grant monies run out is a clear learning for India.
There are opportunities for learning and communication to flow along the India-South East Asia corridor when it comes to policy as well. For e.g., the Thai Government has developed the Thailand Social Enterprise Master Plan 2012 – 14 to be delivered by the Thailand Social Enterprise Organization (TSEO), with the aim of furthering sustainable development.TSEO’s vision is to build a learning environment for social enterprises in Thailand, create capacity building interventions, and develop a path to capital and resources for social entrepreneurs. It is in its early days, and there are opportunities for it to learn from both successes and failures in other countries. Perhaps most importantly, there are opportunities for all countries in the region to learn from failures of policy. For instance, in Indonesia, private sector off-grid solar lighting initiatives have failed as the market was distorted by free distribution of similar products by the government, and lack of a supportive environment for the growth of the local industry.
Though the regulatory mechanisms are disparate, uncertain and ambiguous when it comes to flow of financial capital across the region, there is certainly merit in building robust deal flow pipelines across the region. Investors like Unitus Seed Fund, Aureos Capital, LGT Venture Philanthropy have a portfolio of investee companies in the regionHowever, given the nascence of the social enterprise space, the cost of aggregating, and building capacities of these businesses to create a pipeline for investors is almost prohibitively high, and there has been very little pan-region activity to create one. Philo Alto, Founder Asia Value Advisors says, “In my experience as a recent jury for the GSVC-SEA competition, the winners tend to be those who have been coached by business practitioners who are able to provide a real life sanity check on valuation, funding requirements, and expectations of potential investors that enable the social entrepreneurs to reframe or adjust their plans and organizational culture over a period of time as they scale their firm. I would say that the cost of search for viable social ventures remains elusive from the perspective of would be impact investors.”
The exchange of intellectual capital and talent is another building block for the corridor to be successful. There are opportunities for technical assistance and market building facilities/projects to be created, staffed by experts from across the region who can support idea and early stage ventures. For e.g. from a recent field visit to Cambodia, our team at Intellecap found that most social enterprises were founded and managed by expatriates, while the locals tended to focus on NGOs and non-profit models. There was a clear need for local home-grown experts in the field, but no learning environment or platform existed.
Some ways in which the Corridor can be built
Asia’s geographical and cultural diversity creates a need for platforms that can connect investors and entrepreneurs from across countries, playing the role of intermediaries. As aggregators, these platforms reduce transaction costs for investors in identifying and conducting due diligence, and improving the chances of enterprises to access funding by helping them build capacity and scale. Philo of Asia Value Advisors says, “Most social enterprises need mentorship support and advice to help them achieve the scale needed for future funders that are more commercially oriented, in addition to scaling their social impact. By engaging with intermediaries whose role it is to share with the SEs as to how they can be ‘impact investment ready’ in the coming years, social enterpriseswill be able to adapt their business models accordingly, with enough lead time and speak the same language as the more commercially oriented impact investors.” Initiatives like Sankalp Forum and Change Fusion are playing a pioneering role in building such platforms.
Creating capital markets for social good and channelling capital efficiently towards social ventures, is a significant part of building this Corridor. With access to funding identified as one of the top challenges faced by social entrepreneurs in India and South East Asia, organizations that aggregate funding sources and create enterprise-friendly processes to access this funding will be instrumental in scaling social enterprise in the region. Impact Investment Asia (IIX) is home to Asia’s first public and private platforms for social enterprises to raise capital efficiently. The Asian Venture Philanthropy Network (AVPN) aims to develop the venture philanthropy movement to meet specific enterprise requirements in Asia.
Both India and South East Asia need to appreciate each other’s local realities as well. Forging friendships and strong working relationships is critical to building any successful cooperation. Immersion programs, which provide an opportunity for both sides to interact and learn from each other, serve this purpose. AIESEC and Potencia Ventures run an immersion program for young people to learn about social enterprise through international internships and interaction with the impact investment domainacross countries. Student exchange programs through academic institutions like business schools are also a potential opportunity to build immersion programs that will found the basis of an India – SE Asia Social Enterprise Corridor.
Bridging Information Asymmetry is another critical building block and the Ayllu Initiative is a step in this direction – it aggregates processes and shares data so that funders, entrepreneurs and other sector actors in social enterprise can make informed decisions. Access to such information will make it easier to share learning, build areas of cooperation and establish a strong social enterprise corridor between India and South East Asia.
Authors’ Note:This article was written with inputs from Rashi Agarwal, Srikanth Pulavarthy, and Bharat Bongu from the Intellecap Business Consulting team, and from Philo Alto of Asia Value Advisors. The authors would like to express their thanks to all of them for sharing invaluable first-hand accounts of working in the field. The authors work on the Sankalp Forum at Intellecap, and were inspired to write this article based on their observations from extending Sankalp’s platform to 5 countries in the South East Asian region. This is also a subject that will be discussed in a special side-session at Sankalp’s upcoming Annual Summit on April 12 and 13. To find out more about how you can participate, click here.