Giving Compass' Take:

• Anshu Bharti reviews challenges faced by social entrepreneurs in securing funding, as well as potential solutions that capitalize on their impact mentality.

• What are the benefits of social entrepreneurs and how can an individual donor become involved in this growing field?

• Learn more about successful social entrepreneurship. 

In recent times, there has been a new breed of social entrepreneurs in India. These are the people who are striving to build and grow enterprises that create opportunities for marginalised communities. As with most startups, the biggest challenge they run into is procuring timely funding.

Consider Agro Industries*, a socially motivated private limited company that works with over 1,000 tribal farmers who have unproductive, fallow lands. Agro is championing change through an innovative buy-back model. They educate farmers, who otherwise work as migrant labourers, to grow and cultivate eucalyptus trees in their previously abandoned fallow lands. The output is then sold to the local paper industry. This enables the farmers to earn a substantial income from their own lands.

Some of the obstacles an enterprise like Agro runs into when attempting to raise funds from different sources include:

1) Sourcing government loans
While the model has garnered interest from government financial institutions, they are not allowed to provide loans without any collateral.

2) Approaching impact investors
On the equity front, impact investors are not interested, as most social enterprises (like Agro) are in their nascent stages.

3) Attracting individual investors
For smaller investors, dynamic social enterprises are high-risk projects.

4) Engaging with philanthropic foundations
Raising philanthropic funds for an economically viable service fee-based model is counter intuitive

Here are some suggestions and recommendations on what can be done to improve this:

1) Schemes that provide guarantees
Access to guarantees enable enterprises to access loans from formal financial institutions by covering the latter’s risk for any default.

2) Awareness amongst philanthropic foundations
Not bound by CSR or reporting laws, foundations have the capability, capacity and flexibility to give grant money to disruptive models.

3) Expanded scope of apex government institutions
They need to rethink the need for collateral or look at alternatives such as a proven track record of the social organization or the business model itself as collateral.

Read the full article about where can social entrepreneurs receive funding by Anshu Bhartia at India Development Review.