Social entrepreneurship in developing countries

Inclusive Economy26 May 2014Ashok Khosla

The Broker had the pleasure to speak with Ashok Khosla, former director of the United Nations Environment Programme and winner of the 2002 Sasakawa Environment Prize, during the Springtij 2013 sustainability congress in Amsterdam. Our project editor Anja Cheriakova asked him some questions about the opportunities and challenges of social entrepreneurs in developing countries, in particular.

What are the opportunities and challenges for social entrepreneurs to build their business models to cater for low income consumers?

Social enterprises are an innovation of the past couple of decades to deal with large scale issues that arise from the need to deliver public goods of great value but which cannot generate sufficient profits to satisfy ordinary business persons. This is not easy in a world that lives and measures its worth virtually by money alone. Any business needs front-end capital, which is only available if it has a business plan that promises acceptable returns to the investors who provide that capital. The opportunity for social entrepreneurs is that they can in principle attack big problems and create solutions that are truly scalable. The challenge they face is raising the capital needed to get started and expand.

What are your five most important lessons learned about social entrepreneurship in developing countries, that you would have for starting or growing entrepreneurs?

Innovation, which is a costly part of any new business, is difficult to pay for. In the case of my social enterprise, Development Alternatives in India, we had to create a whole complex of organisations some of which were supported by public and philanthropic funds to produce new technologies and products which could then be sold at reasonable prices since the R&D costs had already been taken care of. Secondly, recruiting and mobilizing people to work in an underpaid environment since the financial “profits” from a social enterprise can never be very high. Thirdly, since developing country social enterprises often have to create their own infrastructure and business linkages, and the support systems that large businesses take for granted are not available to social enterprises, the barriers to entry are very high. Fourthly, social enterprises don’t fit into the well-understood institutional terrain that governments and the private sector can easily deal with. And fifth, there are virtually no financing sources available to help social enterprises with their capital or credit requirements

You mention ‘building and strengthening institutional systems’ as key to development, what do you mean here and how can social enterprises play a role?

By institutional systems, I mean the policies, organisations, hard and soft infrastructure (roads, postal services, banks, etc), rules and regulations that enable an economy to function efficiently and deliver relevant goods and services to the public. I would include particularly the institutions responsible for the generation and exchange of knowledge and the markets where physical transactions can take place. In emerging economies such institutional systems are often weak and the social enterprise incurs extra costs in making up for their absence or non-performance.