Philanthro-capitalism
WWW.ECONOMICTIMES.COM
A Capitalist’s Guide
to Social Business
F
the-wool industrialists is working
on similar lines in social businesses. K Anji Reddy has a project to provide villagers with pure drinking
water. Ajay Piramal too has a similar venture, along with a low-cost
healthcare delivery model and a rural BPO. All these are for-profit ventures, though that does not make
profits an imperative. The first priority is to get social returns. After
all, a social business is one in which
investors measure returns in terms
of the company's impact on society
and social goals. And whilst they
are on the task of improving access
to drinking water or to basic healthcare, they expect a small return on
investment or at least hope to recover their invested capital.
But as Google’s Larry Page and
Sergey Brin pointed out, the forprofit model has its advantages in
outcomes, and growing the bottom
Purifying water
in villages
“To provide high quality safe drinking water
and collect user fees from communities, one
needs a team with an entrepreneurial
outlook that is driven by passion, efficiency
and the creation of an economic surplus.”
W
NEW PACKAGING: NCWS is the for-profit
avatar of what began as a charitable initiative
in 2006 within an NGO founded by Anji Reddy
“Social and financial
returns are both
important… We are looking
at the poor person as a
customer and not a
beneficiary.”
ANURADHA BHAVNANI
Regional Director, Shell Foundation
W
KALLAM ANJI REDDY
Chairman, Naandi Foundation
need a team with an entrepreneurial outlook that is driven by
passion, efficiency and the creation of an economic surplus,”
says Dr Reddy. “And given that
this service is safe drinking water, the social business model is
best suited.”
The model will help “create impact on an even larger scale,”
adds Mahindra. It will also help
fund-raising, appeal to talented
managers with business experience in the social sphere, create
incentives to ensure viability of
each water centre and reinforce
the voice of
users as cusThis social
tomers, he exventure
plains.
charges 10-20
Danone.compaise per litre
munities
as a user fee to
came in as an
clean the
investor
in
water of
June 2010 and
contaminants
owns 49% of
such as
NCWS. The
bacteria and
three Naandi
fluoride
life trustees
hold 17% each.
Naandi CEO Manoj Kumar says
the investments are relatively
small since the model is not
about “creating water plants but
servicing them.” But it can help
finally “solve the drinking water
problem in the country,” he says.
NCWS also benefits from
Danone’s expertise in quality assurance, supply chain management and inventory control,
Kumar says. As of late last year,
NCWS had made purified drinking water available to 2.1 million
ORGANISATION
hen Shell Foundation was
flagged off in 2000, it began by
providing short-term, projectbased support to multiple not-for-profit
organisations. However, the UK-registered charity of the Shell group discovered that 80% of its initiatives failed to
achieve scale or sustainability. This was
either because of poor execution or the
lack of market demand for the proffered
products and services.
Shell Foundation duly changed its strategy to focus on co-developing new business models by becoming investors with
strategic partners. Its fortunes have since
turned around—and how. Today, 80% of
the ventures in which it has invested have
achieved scale; and these projects have
been able to leverage $1.2 billion in finance.
“The whole approach is market-based;
we are looking at the poor person as a customer and not a beneficiary,” says
Anuradha Bhavnani, Regional Director
of Shell Foundation, India. Last week, the
Foundation announced its for-profit model of philanthropy in India.
According to Bhavnani, history has
shown that results don’t last with plainvanilla charity, as “there are simply not
enough grants available.” So, the new approach to philanthropy for Shell is solving developmental issues through the creation
of
scalable,
sustainable
enterprise-based solutions. Shell
Foundation India has committed $16 million to the eight enterprises it supports.
“Social and financial returns are both
important,” says Bhavnani. As investors
with business partners Shell hopes to
achieve its twin targets of scalability and
profits, which will ensure sustainability
in the long run. Targeting financial viability means less reliance on aid, growth
benefits more people, and the accompanying innovation means the enterprises
are able to provide customers with more
affordable goods and services.
Shell brings two benefits to its portfolio
of eight investee companies. One is giving money, and the other is handholding
these businesses to implement best practices and scale up. The staff at Shell
Foundation all come from business backgrounds and have extensive business experience. “When necessary, we also tap
into the parent company for advice on legal, tax or HR issues, and ask them for voluntary time,” says Bhavnani.
One of the Foundation’s investments is
in rural electrification company Husk
Power Systems (HPS), to which it has
Cure for Clean Water
hen three well-known
Indian businessmen
and the world’s secondlargest packaged-water producer come together to start a ‘social
enterprise’, you have to sit up
and take notice. The three promoters are: K Anji Reddy, chairman of drug maker Dr Reddy’s;
Anand Mahindra, vice-chairman and MD, Mahindra &
Mahindra; and Rajendra Prasad
Maganti, chairman of infrastructure company Soma
Enterprises. The trio, along with
danone.communities, the social
enterprise incubator of Parisbased Groupe Danone, have invested in Naandi Community
Water Services (NCWS) to supply safe and affordable drinking
water to Indian villages, at a
nominal price.
NCWS plans to run at least 750
community-owned water-purification plants across India by
March 31, 2012. It runs 460 such
facilities currently, the largest installed base of community water
systems in the country.
NCWS is the for-profit avatar of
what began as a charitable initiative in 2006 within Naandi, a
Hyderabad-based NGO, of which
Reddy is founder-chairman and
Mahindra and Maganti are life
trustees. The initiative involved
operating and servicing waterpurification plants in villages, set
up with government funding by
charging consumers a user fee.
In April 2010, this activity was
spun off into a social business.
“This is a serious service…you
Reducing indoor air
pollution, helping poor
rural farmers by promoting
ethical trading, providing
energy access to the poor
and developing sustainable
urban transport solutions.
LIMITED IMPACT: Anuradha
Bhavnani says results don’t last with
plain-vanilla charity, as “there are
simply not enough grants available”
The Shell Way
WHY FOR-PROFIT
Naandi Community
Water Services
PROJECT
WHY FOR-PROFIT
line does not have to be the most important one. A for-profit focus helps
an organisation function like a corporation would—start up companies, finance them, grow them, call
in external experts to advise on and
scale up the venture…and in the
bargain if you make a profit, that’s
a job well done. We take a look at
three such for-profit ventures that
are attempting to make a difference
to people’s lives in India.
PROJECT
ORGANISATION
17
Shell Foundation
A market based approach to philanthropy, with one eye firmly on the bottom line,
can be an effective way for entrepreneurs to meet their social goals. Ahona Ghosh and
Gauri Kamath take a close look at three such models of philanthro-capitalism.
ive years ago, Google placed ‘forprofit philanthropy’ on centrestage
when it created a division to tackle
issues like climate control, poverty
and emerging diseases. The
founders of Google, who kicked off
the philanthropy with $1 billion in
seed money, felt a for-profit motive
would give the charity more flexibility in areas like funding start-ups
and attracting venture capital.
Back home, a clutch of dyed-in-
Special Feature
people. It charges 10-20 paise per
litre—a fraction of what branded, packaged water costs the consumer—as a user fee to clean the
water of contaminants such as
bacteria and fluoride. “This represents our revenue,” says
Kumar. “Our actual business is
making sure the plant works.”
Last week NCWS made its first
urban foray, commissioning a
water plant in three days for a
Hyderabad slum; Kumar says
people draw water by paying a
user fee of Rs 2 for 12 litres.
A purification plant costs under
Rs 10 lakh and is funded by onetime donations from state governments in most cases. In some
cases, individual donors have
bridged the funding gap. NCWS
operates in Punjab, Haryana,
Andhra Pradesh, Karnataka and
Rajasthan.
The decision to spin it off seems
to have stemmed from “a realisation that you can’t do this as
charity and there may be a need
to follow a business model to deliver,” says Vineet Rai, CEO of social VC firm Aavishkaar, which
has funded a water-purification
start-up.
Besides water, Naandi has spun
off an organic coffee-growing
initiative involving tribals in
south India into a company
known as Araku Originals. It is
contemplating using the social
business model in education and
livelihoods. “We have to redefine
the way charities can grow,” says
Kumar. “There is a huge base of
the pyramid to be served.”
The Crossword
committed about $11.5 million since 2008.
HPS today owns and operates 60 smallscale power plants that convert waste biomass into sustainable, non-polluting and
affordable energy, which is lighting up
villages and improving livelihoods.
The business has brought electrification
to 125 rural villages impacting 150,000
households in rural Bihar; the plan is to
reach 2,000 villages by 2014. Shell is helping HPS open a Husk Power University in
Bihar to train and mobilise workforce in
this field and develop new technologies.
The Husk Power University, which will be
developed by 2012, will serve as a training
facility where people will become skilled
in large engine repair and maintenance,
facility management, and continuous
improvement processes.
Another investee company is Envirofit
India, which manufactures improved
cook stoves. These stoves aim to reduce
indoor air pollution and improve the
health of rural people who live in poorly
ventilated homes.
Scaling up this compaIt has
ny, however, was chalinvested $16
lenging. The first chalmillion in 8
lenge was to raise
companies.
awareness among the
Besides
village folk about the
money, it
benefits of cook stoves
handholds
vis-a-vis traditional chulthese
has that can cause varibusinesses to
ous respiratory diseases
implement
and pollution. Second,
best practices Envirofit needed to tie
and scale up
up with microfinance institutions and self-help
groups to secure consumer financing for
poor customers.
The basic model of cook stoves is priced
at Rs 850 and the higher end costs Rs 1,490.
“The bottom-of-the-pyramid consumer
will not be able to afford the product at
these prices,” says Bhavnani. So, Shell is
working with Envirofit to bring prices
down into Rs 500 territory. The
Foundation is also pitching in with technology to improve efficiency levels and
bring manufacturing costs down.
The third challenge was to develop a
distribution network to reach the smallest of villages. A stumbling block,
though, is the weight of the cook stove.
One way to overcome this problem is to
form partnerships. For instance, pilot
programmes are under way with a rural
logistics company called Dharma,
which is mapping out a financially
viable distribution model to scale up in
the country.
4276
A
year ago, Ajay Piramal cut the
deal of his life when he sold his
domestic formulations portfolio to Abbott Labs of the US for $3.7
billion. These days, the chairman of
the Piramal group is busy with an unlikely bunch of businesses—social
ventures with a profit motive. “Forprofit ventures are more effective in
getting more customers and delivering high-quality service at minimum
costs,” says Piramal.
The purpose of generating profits is
simple: to scale up the venture and
make it self-sustaining. “We cannot
keep funding losses as we have a finite amount of money,” says Piramal.
The Piramal Foundation, Piramal’s
main vehicle for charity, has spun off
three social ventures since 2008.
Piramal Water was carved out from a
charitable drinking water initiative
called Sarvajal. The second venture
is e-Swasthya, a low-cost healthcare
company based on telemedicine. The
Foundation’s third business venture
is a rural business process outsourcing (BPO) unit, providing livelihood
options to rural Rajasthani women.
All three companies are now wholly
owned by Piramal Enterprises—the
Foundation cannot own equity stakes
because of its non-profit nature—
thereby giving the promoters a sense
of
ownership. Says Noshir
Dadrawala, CEO of Center for
Advancement of Philanthropy in
India: “Unlike giving a one-time
grant to an outside charity, being a
stakeholder in an enterprise ensures
the money will be utilised properly.”
Another effect of a for-profit model
is that allied entrepreneurs — in this
case, franchisees who run the waterpurification centres — become a part
of the business development process
and feel a sense of ownership. For in-
stance, each water-filtration machine
costs Rs 2 lakh. The franchisee has to
bear part of the cost and come up
with Rs 40,000. After deducting all
costs, franchisees are left with a
monthly income of between Rs 7,500
and Rs 9000. The urge to break even is
strong among them as they can then
reinvest to scale up.
Each franchisee services 150 families per day and generates 2,500 to
3,000 litres of purified water per day.
This gives them revenues of Rs 19,000
to Rs 20,000 per month. The customer
pays Rs 30 paise per litre of filtered
water. “We serve 100,000 people per
day across our 125
centres,”
says
One effect of a
Anand Shah, CEO
for-profit
of Piramal Water.
model is that
The target it to
allied
spread to 500 vilentrepreneurs
lages next year
become a part
and serve 500,000
of the business
people per day. In
development
the next five years
process and feel
Shah wants to
a sense of
reach out to 10 milownership
lion to 20 million
people per day.
That might sound ambitious because Piramal Water’s 30 paise per
litre is expensive for the poorest of
the poor. Piramal does not take any
government subsidy to set up the infrastructure but funds it jointly with
the franchisee. “I don’t have a solution to this consumer financing problem, but that is my next big project,”
says Shah.
Piramal’s healthcare initiative, eSwasthya, has reached 50,000 patients
in Rajasthan’s Churu district. Today,
Churu has around 50 eSwasthya centres run by a swasthya sahika (female
helper), a local villager who is trained
rigorously for a week.
The mobile technology-driven
telemedicine format works like this:
the swasthya sahika records a patient’s symptoms and sends the data
to a central call centre, which generates an automated diagnosis. This is
verified by the doctor at the call centre and communicated to the sahika
in the village. A health worker prescribes and supplies the medicines.
The average cost of a prescription is
around Rs 50. Piramal Foundation
provides a supply of basic medicines
to the health worker, who sells it to patients at market price.
At present, the eSwasthya centres
are based out of Rajasthan (where the
Piramal family hails from). We are
evaluating opening centres in other
states,” says Kavikrut, CEO, Piramal
eSwasthya. “By 2014, we want to be in
100,000 villages,” adds Kavikrut.
Another venture seeded in
Rajasthan, in Bagar district, is the
two-and-a-half-year-old Source for
Change (SFC), a rural BPO. “Initially,
the idea was to employ college girls—
rich Marwari girls with BA degrees,
but not enough confidence to take up
jobs,” says CEO Biplab Saha. Today,
the BPO has employees from varied
backgrounds, with 60% of women
from underprivileged backgrounds.
The Piramal Foundation funded the
BPO’s infrastructure, which cost
about Rs 3 crore. However, SFC ran
into some difficulty a while back
when it wanted to expand to accommodate its new recruits. “We had to
convince the Foundation to spend
money to scale up. It is still a challenge,” says Saha. The Foundation’s
resistance stems from the fact that
they want their charitable rupees to
have a visible impact. That makes the
case for self-sustaining, for-profit philanthropy even stronger.
NITIN SONAWANE
The Onus of Ownership
SPIN OFFS: The Piramal
Foundation, Ajay Piramal’s main
vehicle for charity, has spun off
three social ventures since 2008
PROJECT
Pure drinking water; low-cost
healthcare; rural BPO
ORGANISATION
Piramal Enterprises
WHY FOR-PROFIT
“For-profit ventures give a
greater push in getting more
customers and delivering
high-quality service at
minimum costs.”
AJAY PIRAMAL,
Chairman, Piramal group
Dilbert
by S Adams