ODA for Capacity Building in

the Social Enterprise- and the SME-Sector

in India

Dr. Martin Vogelsang

9th December 2015

Introduction

Official Development Assistance (ODA) coming into

the country should be disbursed more strongly

towards capacity building (training, education) and

supporting the incubation of viable social enterprises

and inclusive businesses catering to the “Base-of-

the-Pyramid”.

2

3

Total Finance

Introduction

Investing into this area of the Indian economy would

not only help alleviate poverty and at least partly

solve some of the grave environmental problems the

country is facing. Such an initiative could also help

India’s corporate sector become more engaged in

creating and scaling innovative solutions in the areas

of technology or financial services. This again could

open up new markets for them.

4

A Step-by-Step Approach

Investors complain about the lack of a pipeline of viable

investment targets because there is not enough early-

stage seed funding. Here is what needs to be done:

• Allocate more public funds for launching de-central

incubators.

• Boosting start-up and mature social enterprises by

mobilizing public and private sector investment. 5

A Step-by-Step Approach

• Make infrastructure projects at the “Base-of-the-

Pyramid” attractive for the private sector.

• Linking start-up and mature social enterprises with

product and service providers to create synergies

developing business models and products.

6

How to make this development sustainable

• Creating long term policies, modern and efficient

tax administration and sufficient amounts of

infrastructure investment.

• Domestic Resource Mobilization (DRM) - the process

in which countries transparently raise and spend their

own funds to provide for their people - by mobilizing

more public and private resources to finance invest-

ments on projects in agriculture and agribusiness.

. 7

How to make this development sustainable

It will be key to coordinate all resources mobilized

from the public and the private sector to invest into

this kind of social-enterprise/inclusive business

incubation programme.

8

The Current Situation…

There is a mismatch between the two sides of the

social enterprise spectrum – funders/investors on one

side and social enterprises on the other. Government

and other players need to fill the “missing middle”

between very early stage social enterprise models

and more mature models. Here ODA could play an

essential role.

9

10

A range of foreign and domestic players have

deployed capital in the impact market

Type of Investors Estimated Number Examples

Fund Managers >50 Aavishkaar, Acumen Fund, Elevar, Khosla Impact,

LGTVP

Development Finance Institutions(DFI) 10-12 ADB, CDC, DEG, NABARD, FMO, KFW

Foundations, HNWIs & Family Offices 10-12 Michael & Susan Dell Foundation, Omidyar Network

4983.4

417.620.1

Impact Capital by Investors ($ Mn)

DFIs

Funds/FundManagers

Foundations

3344

1294

6.6

Debt

Equity/Quasi-equity

Guarantee

DFI

96.2

299.4

Non DFI

Impact Capital by Instrument ($ Mn)

Source: GIIN Report

Social

consulting

platforms

Free lancers/

Subject matter

experts

Volunteers/Fellows

Consulting

Firms

11

Internal support

(human capital)Advisory support (human

and intellectual capital)

Employees

Development

institutions

Large family

foundations

High net worth

individuals

Microfinance

institutions

Social enterprise

incubators

Impact

investors

CSR

Capital support (finance

and intellectual capital)

Social Enterprises

For

profitHybrid

Non

profit

Mission Driven

Existing support mechanism

- Intensely market driven

Market driven

Direct engagements with social enterprises…

Individuals and Organizations

- Mission driven

12

…resulting in deficit of capital for organizations operating in

sectors that have not already been de-risked…

11%50%*78%

Source: Indian Impact Investing Story, India’s Social Enterprise Landscape, Intellecap; Financial Management Capabilities Survey, Upaya social Ventures

60%*70%*

Financial

Inclusion

Top 15 Social

EnterprisesMicrofinance

Sector

Investments flowing to only one sector

hoping for “investment homerun”

Mission driven organizations struggling

to become investment ready

Fund Crunch Investible

organizations*Percentage of total impact investment in 2014

Financial, intellectual and human capital support appears to be thinnest where it is

much needed to promote innovation and improve deal flow

13

Market-driven top down approach is broken and has failed

to create value for mission driven organizations

….Conceptualized our upside down investment model

How such an Incubator works:

… Incubators need to work closely „on the ground“ in

order to get a more in-depth understanding of the

needs and the aspirations of the people that they

serve. Such a programme can only be understood in

combination with long-term organizational

development and change.

14

15

How such an Incubator works…

Mission driven

individuals

Incubator Initial funding for

organization

Building last mile

sensitive organization

On track to

create lasting impact

• Aligning the team on clear set of

strategic and operational goals

• Capacity building for customer

acquisition and business

development

• Applying new tools and practices to

the organization’s highest priority

• Financial planning and budgeting

• Project planning

• Generate dialogue among

stakeholders to channelize impact

capital

• Market research to educate funders

• Strategic advisory and

implementation support for portfolio

organizations

• Digital strategy

Mission to actionable plan Rigorous on ground implementation

Human capital development Intellectual capital development Financial capital development

16

An Incubation Platform creating symbiotic partnerships between the

ones bringing change and the ones with resources to bring change

Impact Investors

HNWI

Social Enterprises

NGOsNon

profit

For

profit

Donor

organizations

Beneficiaries

BOPUrban

poor

• Maximum impact creation

• Evaluation reports

• Performance of SEs

• Impact evaluation

• Feedback from beneficiaries

• Strategic focus areas

• Feedback

• Progress and impact statistics

• Areas of improvement

Fund flow

Foundations

Participants

Where and how to investHow to create maximum

impact

How to improve living

standard

• Select most effective

organizations

• Develop grant making process

• Capacity building

• Implement strategies

• Gain market intelligence

• Acquire funds

• Knowledge transfer between

SEs and beneficiaries

Incubation

PlatformValue flow

Standardized processesInvestment management solutions

and Asset management

Expert advice and

mentoring

Monitoring and

evaluation supportData analysis Audit and

governance

The Effect:

Here is a practical example of the needs that such an

ODA-funded incubator could fullfill: VIKAS/SAVE is

developing and installing solar pumps for salt-workers

thereby creating large social and environmental impact.

17

The Effect:

Due to a lack of capital to invest into technology and

service development VIKAS/SAVE is one of the many

social enterprises that could profit immensely through a

social business incubator funded through ODA:

https://www.youtube.com/watch?v=tp6wSrojH78&featur

e=player_embedded

18