UNIT V- Social Entrepreneurship

What is Social Entrepreneurship?

Social entrepreneurship is all about recognizing the social problems and achieving a
social change by employing entrepreneurial principles, processes and operations. It is all
about making a research to completely define a particular social problem and then organizing,
creating and managing a social venture to attain the desired change. The change may or may
not include a thorough elimination of a social problem. It may be a lifetime process focusing
on the improvement of the existing circumstances.

While a general and common business entrepreneurship means taking a lead to open up a
new business or diversifying the existing business, social entrepreneurship mainly focuses on
creating social capital without measuring the performance in profit or return in monetary
terms. The entrepreneurs in this field are associated with non-profit sectors and organizations.
But this does not eliminate the need of making profit. After all entrepreneurs need capital to
carry on with the process and bring a positive change in the society.

Along with social problems, social entrepreneurship also focuses on environmental problems.
Child Rights foundations, plants for treatment of waste products and women empowerment
foundations are few examples of social ventures. Social entrepreneurs can be those
individuals who are associated with non-profit and non-government organizations that
raise funds through community events and activities.

In the modern world, there are several well-known social entrepreneurs who have contributed
a lot towards the society. The founder and manager of Grameen Bank, Muhammad Yunus is
a contemporary social entrepreneur who has been awarded a Nobel Peace Prize for his
venture in the year 2006. The venture has been continuously growing and benefiting a large
section of the society.

Rang De is another brilliant example of a non-profit social enterprise. Established in the year
2008 by Ramakrishna and Smita Ram, it is an online platform from where rural and urban
poor people in India can access micro-credits with an interest rate of as low as 2 percent per
annum. Lenders from all across the country can directly lend money to borrowers, track
investments and receive regular payments online.

The George Foundation is one more nationally recognized social enterprise. The Women’s
Empowerment Program creates awareness among women by providing them education,
vocational training, cooperative farming, business development and savings planning. By
employing the principles of social entrepreneurship, these organizations are addressing the
social problems and bringing a positive change in the society.

There are several other organizations that are considered as a positive changemakers in the
society. Echoing Green, The Canadian Social Entrepreneurship Foundation, Schwab
Foundation for Social Entrepreneurship, The Skoll Foundation, NIKA Water Company,
Newman’s Own and Ashoka: Innovators for the Public are such organization that aim for
bringing social change and continuously improving the existing conditions in the society.

The field of social entrepreneurship is rapidly growing and attracting the attention of
numerous volunteers. It has now become a common term in university campuses. The reason
behind the increasing popularity of this product is that individuals get to do what they have

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been thinking for long. The extraordinary people put their brilliant ideas and bring a change
in society against all odds.

History of Social Entrepreneurship

Social entrepreneurship is a kind of entrepreneurship initiative that aims at taking up a social

problem for bringing about a transformation in the same. The person who takes up the
challenge is called a social entrepreneur and he / she uses principle of entrepreneurship with
the intent of creating social capital and not being essentially profit centered.

The aim of social entrepreneurship is to promote the cause of social and environmental goals
that have an impact in either in the present or the times to come. Such entrepreneurs are
generally a part of or associated in some way with some nonprofit organisations (NGO’s).
Although profit making is also as aspect of this concept but it may not be the sole purpose of
the organisation.

Andrew Mawson worked extensively upon the concept of social entrepreneurship and
extended the same to bring about reform in the community structure. He also laid the
foundation of the Bow center in east London. For this he was conferred upon the peerage of
Lord Mawson and he works for developing partnerships for regeneration work initiated by
him.

Social entrepreneurship is relatively a new term. It came in to notice just a few decades
ago. But its usage can be found throughout the history. In fact, there were several
entrepreneurs who established social enterprises to eliminate social problems or bring
positive change in the society. Vinoba Bhave, the founder of India’s Land Gift Movement,
Robert Owen, the founder of cooperative movement and Florence Nightingale, founder of
first nursing school and developer of modern nursing practices might be included in this
category. They had established such foundations and organizations in 19th century that is
much before the concept of Social Entrepreneurship used in management.

There were entrepreneurs during nineteenth and twentieth centuries who made efforts to
eradicate social evils. Apart from this, there are many societies and organizations that work
for child rights, women empowerment, save environment, save trees, treatment of waste
products, etc. Apart from addressing the social issues, social entrepreneurship also includes
recognition and addressing the environmental problems and financial issues for rural and
urban poor.

These days, the concept of social entrepreneurship has been widely used and that too in
different forms. The establishment of Grameen Bank by Muhammad Yunus, Ashoka: The
Innovators for the Public by Bill Drayton, Youth United by Jyotindra Nath, Rand De by
Ramakrishna and Smita Ram, SKS Microfinance by Vikram Akula and Roozi.com by Nick
Reder, Brent Freeman and Norma La Rosa has popularized the term.

In fact, all big brands and companies are adopting the concept of social
entrepreneurship and trying to address the issues in our society by opening schools in far
flung areas, educating women for family planning, making it possible for farmers and poor
individuals to access low interest credits, establishing plants for waste treatment, planting
trees and going green.

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The concept of Social Entrepreneurship has also been included as a separate branch of
management courses. Even youth is also looking forward to volunteering their services and
brilliant ideas to bring a social change through social entrepreneurship.

Who is a Social Entrepreneur?

Entrepreneurs are people who venture into new areas primarily with intent of making profit
out of the same. Of course there they socially responsible also and have the obligation of
contributing to the wellbeing of the society in which they operate; but this obligation is
secondary. In social entrepreneurship this obligation of contribution to social wellbeing is
primary and in a way profit takes a back seat or is more or less secondary but essential to the
survival!

A social entrepreneur is somebody who takes up a pressing social problem and meets it
with an innovative or path breaking solution. Since profit making is a secondary objective,
therefore they are people who are passionate and determined about what they do. They
possess a very high level of motivation and are visionaries who aim at bringing about a
change in the way things are.

By definition social entrepreneurs are great people recruiters who present their ideas or
solutions in a way that many people, who are either part of the problem or surrounding it,
recognise a need for change and get onboard the change bandwagon. Thus mobilizing the
masses for bringing about change is a hallmark of a social entrepreneur.

Social entrepreneurs operate with an aim of changing the face of society. Be it health,
sanitation, education, they are present everywhere. There are people even who work on
bringing about change in the modern innovations because their impact has been detrimental
to human life. They thus work towards improving systems, creating new solutions, laying
down fair practices.

Some of the very famous people who inspire others to take up social entrepreneurship
are:

 Susan B Anthony: was the Co-Founder of the first women’s temperance movement
and a prominent American civil rights leader for women’s rights in the 19th century.
 Vinobha Bhave: is a prominent figure in Indian modern history and was the founder
and leader of the Land gift movement that helped reallocate land to untouchables.
 Maria Montessori: a pioneer in education. Developed the Montessori approach to
early education in children.
 Florence nightingale: she laid the foundation for the first school of nurses and
worked to improve the hospital conditions.
 Margaret Sanger: She was the founder and Leader of the planned parenthood
federation of America, championed the family planning system around the world.

These are examples of some people who fought for what they believed in and brought about
varying degrees of change in their respective spheres of work.

Social entrepreneurship has witnessed a boom in the past few years with more and more
people getting attracted to it. There is now a healthy competition and world class graduates
are giving up lucrative jobs to work and contribute in meaningful ways towards the society.

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As Bill Drayton would say it aptly ‘Social entrepreneurs are not content just to give a fish or
teach how to fish. They will not rest until they have revolutionized the entire fishing
industry’. Such is the passion and the commitment required to be called a social entrepreneur
that it may not be misappropriate to say that it is more challenging that traditional
entrepreneurship!

Social Enterprises around the World

With an aim to generate income if not wealth, the social enterprises come up with innovative
as well as people-friendly solutions to bring a positive change in the society. What makes
them different from the corporate world is their basic aim; they work for the people who live
below poverty line and offer flexible working environment to people. Although the concept
of social entrepreneurship has been around since 1960s and is promoted by many individuals
but the establishment of The Grameen Bank in Bangladesh was the first instance where the
concept was thoroughly used. Under the leadership of Muhammad Yunus, it tried to address
the issue of people living below poverty line and gradually has evolved as a strong identity.

The Skoll Foundation - North America

Founded by Jeff Skoll, the first president of ebay, the Skoll Foundation supports the social
enterprises and highlights their work by establishing their partnerships with Sundance
Institute and NewsHour with Jim Lehrer. NIKA Water Company is another social enterprise
in America. The company sells bottled water in the country and brings clean water to the
developing world with its profits. It uses its 100 percent profit in the activity.

Grameen Bank - Bangladesh

Social enterprise is not a new concept but it started becoming popular only in 1960s. There
may be different rules and regulations for social enterprises around the world but their basic
concept remains the same. Their ultimate aim is to serve the people of the society who are at
the bottom of the pyramid. In Bangladesh, Muhammad Yunus incorporated the Grameen
Bank, a microfinance organization that makes small loans to people living in rural areas
without requiring collateral. The bank does not believe in charity but in offering help to
people as an initiative to break through the poverty cycle.

Echoing Green - USA

Based in New York, Echoing Green is a non-profit organization that operates in social sector
investing. For last twenty years, it has been working in this field encouraging and helping
young entrepreneurs to launch new organizations.

Rang De - India

Rang De is a not profit online organization in India that lends small loans to individuals
planning to start a new or grow their existing business. It is a successful attempt to bring
together the two parts of India one of which is successfully progressing while one is left out
due to shortage of resources. Founded in the year 2006 by Ramakrishna NK and Smita Ram,
Rang De, today is a major online platform in the country.

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Schwab Foundation for Social Entrepreneurship

Founded by Professor Klaus Schwab and his wife, the main purpose of Schwab Foundation
for Social Entrepreneurship is to promote social innovation. The foundation does not give
grants but addresses social problems and provides platforms at the country, global and
regional levels.

Omidyar Network

Established in 2004, the Omidyar Network is a philanthrocapitalist investment firm that

fosters economic advancement. With a network of for-profit companies, the network
encourages participation in the areas of government transparency, microfinance, social media
and property rights. Headquartered in Redwood City, California, it was established by Pierre
Omidyar and his wife Pam.

Advantages of Social Enterprises

Social enterprises tend to operate with a purpose of creating value for the society and also
generate income (if not wealth). As a thumb rule, the solutions they offer are supposed to be
innovative, unique, people and environment friendly; Cost effectiveness is also a huge
consideration. All of these are challenges to the sustainability of social enterprises, but the
ones that are able to scale these are the ones that are able to create a huge impact! They are
the enterprises that are advantageous to the society, people and the environment.

Since social enterprises typically deal with people who live at the bottom of the pyramid,
therefore they are the ones who are benefited to benefit hugely from the former. In other
words social enterprises are beneficial to the poor, generally by providing them with a means
of livelihood.

Since social enterprises do not work typically the way corporate setups or private firms
work, they offer flexible working environment which is as per the liking of many people
groups. This employment may be both short term and long term in nature or it may specially
targeted to a specific workgroup or a geographic community or to people with disabilities.
Self Employed Women’s Association (SEWA), for example, offers various kinds of
assistance to self-employed poor women.

There are advantages of a social enterprise that are entrepreneur specific like:

1. Social entrepreneurs find it easier to raise capital. There are huge incentives and
schemes from the government for the same. Since the investment industry here is
ethical, it is easier to raise capital at below market rates.
2. Marketing and promotion for these organisations is also very easy. Since a social
problem is being tackled with a solution, it is easier to attract attention of the people
and media. The degree of publicity often depends on the degree of uniqueness of the
solution.
3. It is easier to garner support from likeminded individuals since there is a social side to
the enterprise. It is also easier to get people on-board at lower salaries than compared
to other industry.

Similarly there are advantages that are specific to the environment, society and the
people concerned. Some of them are as under:

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 1. Services in whichever section they may be offered are customized better to suit the
needs of the individual or the problem. This is also designed in harmony with all other
systems like the environment, society or the people.
2. Cost effectiveness is another advantage of a social enterprise. The solutions offered
by these organisations in the form of either products or services are reasonable than
compared to the same service provided by a profit making organisation. No wonder
basc amenities like healthcare, education etc have become very affordable to people
world over with the help of these institutions. Micro finance, for example, today
caters not to the poor but to the poorest!

Although lots of organisations have also made corporate social responsibility an integral part
of their business functioning but not many actually mean to create a difference. It is just a
means to achieve more profits; there is an increasing need to watch out for the same and help
and advocate those who really aim to add value.

What is Social Capital?

Social Capital is a concept that aims at emphasizing the importance of social contacts
between groups and within groups. It primarily means that social networks have a value
associated and that they are not always detrimental in nature as previously thought of.

The concept of social capital also stresses that social networks lead to increased productivity
in individuals, teams and organizations. This increased productivity can be both financial and
otherwise. This means that social contacts can lead to increase in confidence, fulfillment by
fostering positive relationships. The essence being that just like any other capital form
(human, physical, financial) social capital is also important and beneficial to the sustenance
of society.

The term social capital has been used in varied forms in various disciplines. World Bank, for
example, uses it to define societal and economic development. Corporate pundits similarly
use it to mean an approach of organisation development. Judson Hanifan championed the use
of social capital. He used it in his discussions of rural school community centers. He
promoted the importance of social intercourse among people for building goodwill and
sympathy among fellow members and to promote cooperation.

Later on Jane Jacobs, Pierre Bourdeiu and James S. Coleman contributed from time to time in
the development of the concept. Robert D. Putnam worked extensively later and it was his
work that extended the idea of social capital to research and policy making discussions.

Barriers to Creation of Social Capital

There can be a multitude of reasons that can act as barriers to social capital creation or
development. These factors vary across geographies and cultures. For example in developing
or third world countries social networks remain nucleated around family and identity. There
is little or no social capital creation across families and castes. This is on account of the
mistrust between two families or strata that is detrimental to the very idea of social capital.

There is a strong body of evidence that goes to suggest that social capital leads societies and
individuals to prosperity economically and allows the development to be stable. World Bank
believes that social capital when utilized properly can enhance the efficacy and sustainability
of projects. This they believe can be achieved through a collaboration of communities’ efforts

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and its ability to work together. It also promotes greater transparency in the overall system,
fosters a better bonding and increases the overall accountability.

Application of Social Capital

The concept of social capital has gained significant ground as a means of enhancing overall
quality and effectiveness specially those that involve large scale community action. Many
organizations have designed practical constructs to make the idea feasible. World Bank, for
example, developed Social Capital Implementation framework (SCIF). This was designed to
access how social capital could be made use of in operations.

For social capital to be practically feasible it can be broken down into 5 elements both at
practical and operational level. They are

1. Groups and Networks

2. Trust and Solidarity
3. Collective action and Cooperation
4. Social Cohesion and Inclusion
5. Information and Communication

These elements are important to the development of social capital and provide guidelines in
the area at various levels of operation. By effectively breaking down into these 5 layers, each
one can be administered separately and incorporated into operations.

Negative Effects of Social Capital

Although social capital has been defined in several different ways by different experts,
however, most commonly it can be called as the outcome of social relations. It not only
comprises of financial benefit but also includes expectative benefits that are derived from the
cooperation between various groups and individuals.

The major difference between the financial capital and social capital is that the latter fosters
positive relationships and thus enhances the fulfillment and the confidence. Even after having
so many benefits, social capital can also produce some unwanted results. Yes, it is surprising
but true that when we analyze the other side of social capital, we may find that it can put
burdens on the society.

Let us discuss how social capital can be detrimental to the society and can bring about the
negative consequences.

Social capital producing negative outcomes is generally called as negative social capital.
The potential downsides include restrictions on individual freedom, excess claims on group
members and exclusion of outsiders. Additionally, instead of focusing on creating the bond
between the two worlds - rich and poor, it emphasizes on bridging the gap between them. The
result is that it is deepening the gap between the two. It also puts a barrier in social mobility.

Individuals working in social enterprises need to abide by certain rules and regulations and
are supposed to do only what is expected. Their personal development and new ideas in most
cases are not welcome. In such a scenario, it gives a sense as if it were creating unwanted
results. Though every feature of social capital produces desired results but along with this, it
also produces a liability too.

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Social capital is all about bridging the gap between the rich and the poor. Yes, it definitely
improves the economic conditions of the poor but also increases the gap between the two.
The individuals who are benefitted by social capital almost lose their mobility. There is a
slight change in their condition but they are stuck in the same employment all through their
life. Apart from this, outsiders are totally excluded. It means that benefits of social capital can
be availed by only a particular section of the society. Robert D. Putnam, the author of
‘Bowling Alone’ links social capital to the decline in American political participation.
According to him, the political institution and democracy are overpowered by the social
groups and this lead to the adverse outcomes. In normal circumstances, it isolates certain
communities from rest of the world but social capital group which is extremely strong can
become the reason for the isolation of a particular ethnic group from the society.

Later works of Robert D. Putnam also emphasize on the fact that the rise of social capital
can also result in increased racial diversity in communities. The negative effect of social
capital can also be seen in society. Earlier, women did not vote at the similar levels as that of
men but the difference between them is almost diminishing. Social capital is available to all
types of communities regardless of their nature and slowly it is becoming a way for women to
participate in local politics. Now the scenario is that they are more engaged in politics and
have an informal way to operate. What is negative is not their participation in politics but it is
their way that is keeping this activity off the radar. They are not focused on national or
international politics.

Apart from this, there are several other negative effects of social capital in the field of
internet, civil society and educational achievements.

Impact of Social Networking Sites on Social Capital

Online social networking sites (SNS) are basically the gatherings of individuals who share
similar interests. Online communities like Facebook, Twitter, MySpace, LinkedIn and
Live Journal bring together like-minded people and establish contact between them by
providing information about each individual. It is evident that exponential growth of
internet users has resulted in increased interactions among individuals on social networking
sites.

The basic aim of individuals registered on these communities is to create personal or

professional relationships that can prove to be relevant in some or other way. Apart from
these websites, there are several other websites including messaging sites such as IM, chat
and address book, social bookmarking sites such as Digg and Delicious and content sharing
sites such as Flickr and You Tube also bring like-minded people together.

While creating an online community is much easier, maintaining client interest for long is
very difficult. In this regard, Facebook is considered as the most successful social networking
site. Created in the year 2004, it had more than 21 million registered members by the year
2007 and till date, it continues to be the most popular social networking site with around 500
million registered users. It helps people share information about them and generate a
connection with other individuals. Although social capital can be defined in various different
manners but the basic remains the same. It is usually referred as the resources built up
through connections or relationships among people.

The major impact of social networking sites on social capital can be concluded in a way
that they have made it easier for people to gather information about each other and

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establishing a relevant relationship among them. However, it has certain side effects also.
Individuals registered on Facebook share so much personal information about them that they
may have privacy problems. They can be traced easily. These resources can be used as
information against personal relationships or social relationships.

Social capital is generally associated with a variety of positive social outcomes. As people
share information about, it creates awareness among them about financial markets, public
health, religion, latest technology, diseases, social disorders and many other issues.
Additionally, it increases the probability of collective actions against social evils or any other
cause. Although social capital can be used negatively but generally it is seen as having a
positive impact on society. Along with being a gathering of like-minded people, these social
networking sites allow them to share their interests and establish and maintain their
relationships with people.

Social capital can be divided in to bonding and bridging. The former is usually refers to the
strong ties with family and close friends whereas the latter represents the loose connections
between individuals. If seen as creating a bond between two individuals, it has greater
positive effects on social capital while loose connections cannot result into long term
connections. Bonding always reflects strong ties and bridging always refers to week ties.

Recent researches have shown that internet based links or relationships are important
to individuals as they make each other aware of the advancements in the field of
technology, politics and finance and current social disorders. This means even week ties
play an important role. But it may not end for a much longer period of time.

What is Social Business?

Social business is a business that is aimed at addressing a social cause. The investment made
by the investors is entirely with a vision of contributing to the social welfare and not profit
entirely. The investor may however get back his money after a certain time and cover all the
operational costs of the organisation.

Although social business may be carried out in any area but sectors like healthcare, housing,
nutrition, education, financial services to the poor and the down trodden remain the priority.
Unlike profit making organisations, success in the field of social business is governed by the
amount of impact it is able to create or the positive change it has been able to bring in the
existing scheme of things.

As mentioned earlier, profit takes a back seat, but organisations into social business are
not necessarily disallowed to make profits. Sustainability after all, of both the organisation
and the investor, is important and profit makes it possible. There is essentially, but, a cap on
the amount of profits the organisation can make and the profits are to be utilised in the
business again. Generally, social businesses cannot make profits in excess of the actual
investment.

In fact in Social Business, the line between profitability and social contribution is very
difficult to maintain and it often so happens that social businesses become profit making
organisations after a few years of operation. It therefore calls for renunciation of the
corporate ways of thinking, because what may start as a mole may end up becoming a
mountain, 5 – 6 years down the line.

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The term social business is often confused with social enterprise. Both are similar in
many ways, yet distinct in others. In fact social business may be called as a component of
social enterprise or one of the ways by which a social enterprise expresses itself. Moreover a
social enterprise may receive funds from people, through grants or from the government, a
social business cannot.

The concept of Social business was given by Muhammad Yunus, who essentially presented
as an alternate model to capitalism. It was meant to overcome the shortcomings and failures
of capitalism that focuses only on profit making and ignores or fails to address other sides of
business. He created a new system where profit making and social businesses exist
simultaneously. Also, the social businesses are not prevented from making profits. They are
however not allowed to take dividends and reinvest the money earned as profit in the
business to scale operations and give maximum benefit to maximum people.

As opposed to devising means to alleviate poor or a trickle down economic system to

alleviate the poor, the concept of social business emphasises an action based system where
the poor participates in his / her growth. Prof. Muhammad Yunus used this to create Grameen
Bank and disburse money to poor in the form of micro – credit without the condition of
giving a property or asset as mortgage. This created opportunity for the poor and allowed for
his participation in the free market thereby relieving him of the handicap of relying on the
government for grants.

Finally there are two types of social businesses. The first type is the one that purely exists for
tackling a social problem. The second type is the one that is owned by the poor and can make
profits. The profits can then be distributed between the poor (those who run the business).

Principles of Social Business

The idea of social business was given by Prof. Muhammad Yunus of Bangladesh. It was
unique because unlike other concepts or businesses that were serving the society for
namesake, social business was based on certain principles. These principles are seven in
number and are called the principles of social business.

Like any other principle, the seven principles of social business define the purpose of a
social business and its modus operandi. They outline the priority sectors for any
organisation or individual that aims to venture into the field and also define the how the
financials would be managed.

1. The first principle of social business defines the purpose of existence for any social
business. It states that the business objective for a social business will be to overcome
poverty or deal with some problem like education, nutrition, healthcare, environment
and enabling technology access for the downtrodden and not just profit or
shareholders wealth maximization.
2. The second principle talks about the financial and economic sustainability. This is
both from the perspective of the organisation and those who it aims to serve. Any
social business is disallowed to take funds from outside like grants or NGO. Those
who run the business are supposed to invest.
3. The third principle governs the return on investment. Investors in a social business are
disallowed to take money beyond their investment. No dividend is given on the
investment.

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 4. Amount earned over and above the investment is supposed to be reinvested back in
for scaling the business and for improvement. Expansion here is aimed at reaching out
to more number of people or to improvise the quality of services.
5. Social businesses are supposed to be responsible to the wellbeing of the environment.
They are to play a major role in betterment of the environment either directly or
indirectly. Indirectly means through their operations they will ensure that they do no
harm to the environment.
6. Those working with the business as its employees will get a fair compensation, which
is in accordance with the industry benchmark. In addition the workforce will get
better working conditions.
7. Since social business is not with the objective of profit maximization. Therefore only
those who have a passion for contributing to the society and the environment will run
a social business. This means that business will run in an environment of joy and not
stress.

These seven principles were given by Prof. Muhammad Yunus in collaboration with
Hans Reitz who is also the co-founder of the Grameen creative Lab. These principles are
very simple in nature and easy to follow. They are important because they draw a distinction
between social business and other businesses carried out in the name of contributing to social
welfare.

The seven principles of social business are followed world over by organisations that either
promote or run social businesses. Ashoka, the Omidyar network, NIKA water company in
U.S, Grameen Bank in Bangladesh are examples of such organisations.

What is Social Innovation?

Social innovation is a very wide term that includes ideas, ways and means, strategies
and even organizations that works out innovative solutions to meet the demands of the
public, especially those who live at the bottom of the pyramid. It may include innovative
fields in a wide variety of setups like education, healthcare, community development etc.

The micro credit scheme started by Mohammad Yunus in Bangladesh is a very good example
of social innovation. Distance learning methodology similarly is a social innovation that
enables people in far-fetched areas to have access to quality education. The concept can still
more be extended to open source techniques used in software development.

Development of the concept of Social Innovation

The idea of social innovation is not a recent one, though it may have been discussed more
often recently. Benjamin Franklin, for example, made references of it in his writings as small
modifications that may be brought about in the social structure to solve everyday problems.

Later on certain French workers made mention of the same in their writings. In the recent
literature the term social innovation is frequently found in the writings of some management
gurus like notably in those of Peter Drucker and Micheal Young. Some other noted
sociologists like Karl Marx and Max Weber also worked extensively on social innovation for
bringing about social change.

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Of late Joseph Schumpeter incorporated it into his concept of creative destruction. He also
extended his concept to defining entrepreneurship as a way of creating new product or service
by combining the existing elements.

Social Innovation at the Bottom of the Pyramid

Organizations are globally being attracted to the idea of creating and marketing products and
services for those at the bottom of the pyramid. As C.K Prahlad rightly notified us about the
fortune at the bottom of the Pyramid, increasingly marketers are driven to the idea of tapping
this potential hitherto undiscovered.

Nearly four billion people around the world make a living on about two U.S dollars a day and
this is magnanimous not only in terms of a business opportunity but also in terms of a
reciprocal relationship. Firms cater to the needs of these people and they in turn offer a huge
profit opportunity that is dependent on the scalability of the same.

The operation may however not be as simple as it appears on paper. There are barriers not in
production but in distribution because low income household markets are price sensitive and
highly segmented.

Global FMCG giant P & G, for example, developed PUR (a water purification system)
in partnership with US government which was meant for low income consumers. The
product was meant to serve a social need which was to provide clean and hygienic water at
places where the drinking water was unsafe. The product failed to serve well and after three
years of launch, it was found out that the product was a failure!

It clearly appears that cost is not the only factor that acts a barrier to the success of a social
innovation. There are yet other examples where outreach (ease of access), distribution
channels were ignored and social innovations failed their purpose. The need is of building
sustainable models that are operationally well laid out and successful in delivering the goods.
Remember cost is not the only factor!

Social Entrepreneurship at its best – Microfinance and the Revolution in

the Third World

How Small Entrepreneurs face lack of access to capital

In recent years, prominent among the revolutions in personal finance and savings has been
the rise of microfinance or microcredit as it is also known as. To understand how this works,
picture yourself as a small businessperson (you can be a farmer with a marginal landholding,
a woman with a home based business or a group of small businesspeople) who is in need of
finance but in amounts that are considered negligible by mainstream banks and financial
institutions. What happens is that because of the lack of small credit avenues, you would be
forced to borrow from the local moneylender at exorbitant rates of interest which would leave
you poorer than richer at the end of the day. Further, considering that most small
businesspeople do not have collateral such as titles to their meager property and other forms
of assets, even those institutions that are in a position to offer them credit would think twice
because neither the borrower has a credit history nor is any asset pledged as collateral.

Microfinance and Microcredit to the Rescue

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This is where microfinance and microcredit institutions enter the picture as these agencies
often with governmental backing in implicit and explicit forms make it a point to lend the
small amounts that such entrepreneurs need. Indeed, as the success of this trend shows, more
often than not, all that is lacking for the aforementioned segment is access to small capital
which was hitherto denied to them. Not anymore as most Third World countries now have
established microcredit institutions for the express purpose of lending to the poor and the
marginalized and make it a point to lend only to them. The microcredit revolution has been
pioneered by the Nobel Laureate and Bangladeshi entrepreneur, Mohammed Yunus who with
his Grameen Bank ensured that those at the “Bottom of the Pyramid” have access to credit in
a manner that is easy, without red tape, and on terms that are congenial and favorable to the
borrowers.

The Microfinance Revolution in the Third World

Traditionally, governments were unable to find resources especially in the Third World
which they could channelize to the small entrepreneurs as well as had to face resistance from
established banks and financial institutions who pointed to the abysmal record of repayment.
Microcredit has found a way around the criticism that small entrepreneurs default on their
loans by ensuring that groups of such small entrepreneurs receive loans wherein each of them
stand guarantee for the others. In this way, the microcredit agencies ensure that they are
making loans to a pool of borrowers instead of individuals alone. Moreover, microcredit
agencies also make it a point to lend for shorter durations as well as encourage repayment by
educating and enlightening the borrowers of the advantages of credit repayment and further
access to funding.

Some Notable Failures and Lessons for the Future

Having said that, it is not the case that microcredit has been an unqualified success all over
the Third World. For instance, in the state of Andhra Pradesh in India, there has been a spate
of failures of reputed microcredit agencies wherein because of mismanagement, fraud, and
over stretching their limits to force the borrowers to repay, these agencies ran afoul of the
regulators leading to a full blown crisis in this sector. The lessons from this debacle are that
just like the Central Banks and the Regulators monitor traditional and mainstream banks and
financial institutions, they must also regulate the microcredit agencies. Moreover, the
government must also ensure that both the credit disbursement and repayment adhere to strict
norms wherein the tendency to become over greedy either by the agencies or the borrowers is
contained and instead, a balanced approach is adopted.

Suggestions to Improve the System

Despite these failures, microcredit has indeed ushered in a revolution among the poor and the
underprivileged in many Third World countries. Some of the suggestions that experts have
made to improve this further include broadening the base of borrowers by including artisans,
and even medium scale enterprises as well as cooperatives so that following the principle of
group lending, there can be an attempt to foster greater discipline as well as tighter procedural
norms in the process. Apart from that, the other suggestions include enhancing the skills of
the small entrepreneurs so that they do not become stuck in the same skill based work for
which they have taken the loans and risk stagnation. In other words, the aim is to ensure that
the process becomes scalable, repeatable, and improves with each iteration.

Self Help Groups (SHGs) as Success Stories

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Another aspect of microcredit is that once the borrowers achieve scale, they are in a position
to access funding from traditional sources as well as setting an example for other borrowers
and potential borrowers who would emulate them in terms of fiscal discipline and repayment.
Moreover, by encouraging the formation of Self Help Groups or SHGs wherein each member
of the group is given a seed capital and the group as a whole receives funding, these SHGs
are then encouraged to rotate the seed capital among themselves as well as fund future
growth from their revenues and accruals from past activities. As the name implies, these
groups are catalyzed by the government or the microcredit agencies to help themselves and
help the whole system in the process. Some of these groups can be found across India and
other parts of Asia wherein with the seed capital and the initial funding, they have been
largely able to stand on their feet and set an example for other groups to follow.

The Role of Technology in Social Entrepreneurship

Social entrepreneurs are those who use innovative approaches to social problems such as
poverty, lack of access to healthcare in the rural areas, difficulties in bridging the gap
between employability and unemployed youth, and problems such as lack of access to credit
for women. In these and other cases, technology plays a prominent role as not only is
technology inherently innovative but increasingly, it has become cost effective to deploy
technology to solve social problems.

Examples of How Technology Powers Social Innovation

For instance, in many Third World countries, farmers need real-time updates on weather
patterns as well as sowing schedules so that they can plan their harvest accordingly. Further,
fisherpersons in coastal areas need to be intimated of approaching storms and hence, mobile
based apps that can do this job are preferred. Apart from this, there are other examples such
as having IT (Information Technology) enabled kiosks in rural areas in India wherein those
people and the teenagers and the youth in particular can pick up valuable IT skills which
would enhance their employability in future. Moreover, through the use of mobile apps,
microcredit institutions and the people they finance can keep in touch with each other leading
to better credit utilization as well as repayment.

The Mobile Revolution

The instances quoted above are just a fraction of how technology can help alleviate social
problems. It is for these reasons that in recent years, social entrepreneurs have been stressing
on using technology as part of their efforts at social innovation. Indeed, the fact that the
mobile revolution has empowered the poor and the underprivileged more than others has
been acknowledged by the UN (United Nations) which recently stated that there are more
number of mobiles in the world than toilets or in other words, there are more chances of a
person owning a mobile than he or she having access to toilets and sanitation. This means
that technology can indeed enable, empower, and encompass the masses in their quest for a
decent income and a healthy life.

Bringing Together all the Stakeholders

To continue the points made above, it has been common in many countries for drivers,
handypersons, traders, and small businesspersons to use technology to connect with their
customers as well as the other end of the spectrum which are their suppliers, owners, and
middlepersons. In this way, technology allows the coming together of all stakeholders in the

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value chain so that everyone ultimately benefits. Though there have been concerns in recent
months about technology also leading to safety and security concerns because of the
anonymity and the potential for misuse, it needs to be mentioned that technology per se is
value neutral meaning that it can be used both for good and bad purposes and it is up to the
regulators and the users to monitor and regulate.

Synergies and Economies of Scale

Considering the enabling and empowering role that technology plays, many nonprofits are
focusing exclusively in building and creating an ecosystem for innovators, funders, thought
leaders, influencers, and the regulators on one hand and the beneficiaries, the intermediaries,
the users, and the owners to come together in a giant electronic and digital umbrella where
social innovation can take place and value created for all and society in general. The power of
technology in these cases is such that it creates synergies wherein the sum of the value
created at each link in the value chain is greater than the parts. Further, technology allows
social entrepreneurs to enable and empower the underprivileged to rapidly scale up thereby
leveraging the benefits of the efficiencies provided by economies of scale. The twin aspects
of synergy and economies of scale mean that innovation and innovative solutions can reach
more people and create value that individually would take time and more resources.

Email as an Example

For instance, before the advent of email, if you had to contact hundred people for a
promotional campaign, you had to send hundred letters which even when they are typed or
printed need to take into account the costs of sending them. However, with technology, all
you need to do is customize the headers and the names of the persons and then with a single
click of the mouse, all the people can be reached effortlessly and efficiently. In addition, you
can reach anyone anywhere in the world anytime as well as everyone and everywhere and
every time. This is just a basic example of how technology enables synergies and actualizes
economies of scale.

Society Benefits

Now consider if such use of technology comes to the aid of an underprivileged person setting
up his or her own venture. Using mobile and internet technologies, not only can he or she
aspire to reach a global audience thereby cashing in on the scale aspect but also offer a
solution that is potentially cheaper and creates more value on a per unit of cost basis. Indeed,
the example of entrepreneurs such as the Nobel Laureate and Bangladeshi social
entrepreneur, Mohammed Yunus who empowered rural women in his country to finance their
small businesses by extending them microcredit who in turn formed groups and reached scale
and leading to innovation creating value point to how a combination of technology and social
innovation can feed into each other and ultimately benefit society.

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