Indian NGOs: Learning to Walk the Line between Social Responsibility and Commercial SuccessPublished: October 31, 2006 in India Knowledge@Wharton
In rain-starved villages in the remote interiors of India where subsistence farming has long been the norm, farmers have been driven to debt and death by the vagaries of the weather. Uncertain monsoons have forced many farmers to choose between migration and abject poverty.
Muniyappa was one such farmer. Maintaining his 1.5 acre banana farm in the rural districts of Bangalore was becoming a struggle, one he was ready to give up for urban life. What changed his mind was a product called KB Drip, an irrigation system that ensured controlled and year-round access to water. The product was developed by IDEI, the New Delhi-based Indian arm of International Development Enterprises, a non-profit in Lakewood, Colorado, that aims to use "market principles" as it works to help rural farm families improve their agricultural productivity.
Sumita Ghose, founder and CEO of Rangsutra, a Gurgaon company that focuses on livelihood issues of rural artisans and farmers, started the company 15 years ago as a non-governmental organization (NGO). But over time, she decided the NGO model didn't work best for Rangsutra and turned it into a business. Says Ghose: "Ownership is a very big motivating factor, and we decided to start a company with artisans and farmers as shareholders."
IDEI and Rangsutra are part of a growing breed of nonprofits and other Indian entities working for the underprivileged that have become business-savvy and embraced modern management methods. India has always been a fertile ground for social issues of all hues. Its rampant poverty, unemployment, disease and illiteracy have drawn voluntary organizations and financial support from philanthropists, charities and religious trusts.
That old order is changing. Social commitment is no longer the preserve of voluntary workers. Conventional business and management metrics are being bundled into a package with unconventional means of finance to provide unique solutions for large social problems. Knowledge@Wharton spoke to NGOs and their financial sponsors who are making the transition from a "charity mode" to a professionally run model in an attempt to grasp the nature and extent of the changes underway. In the emerging NGO landscape, scale is important and so is sustainability. And both depend on an innovative and steady flow of funds.
IDEI produced a Bollywood-style film to promote the $30 KB Drip and convince farmers about the benefits of drip irrigation. It has so far sold innovative irrigation products to more than 85,000 farmers in India. It is one of the many companies backed by Acumen Fund, a global non-profit venture fund based in New York City, and part of the Fund's $1.4 million "water portfolio." Varun Sahni, the Hyderabad-based country manager of Acumen Fund in India, says his fund chose to back IDEI because, "we look [to support] ventures that are going to have lasting social impact."
Life as a corporate entity is proving to be more bountiful for Rangsutra. Its artisan shareholders invest an initial Rs. 1,000 each ($22) and have a say in the company's operations. In its first year (2005-06), Rangsutra managed to break even with revenues of Rs. 26 lakh ($56,500). "We are planning to go over Rs. 1 crore this year ($218,000)," says Sumita. Rangsutra is supported by Aavishkaar Venture Funds, which is described by its CEO Vineet Rai as a regular commercial fund that "wants to invest in businesses that make money with a social commitment."
The lines between for-profit and non-profit ventures are beginning to blur. The focus everywhere, not just in India, is on building sustainable development models. There is also an increasing realization that the traditional models have had a limited impact on the problems they sought to resolve.
A glaring example in India is the education sector. Over the years, there has been sustained government intervention through programs like the Sarva Shiksha Abhiyan (mass literacy movement) that aim to put every child in school. Lots of NGOs have been working in the sector for decades. And even though there are instances of remarkable achievements by individual NGOs, observers say these efforts have yet to translate into a significant nationwide impact.
A survey conducted in 2003 by Pratham, a Mumbai NGO active in the city's slums and backed by Indian private bank ICICI Bank, is revealing. The survey says the percentage of children in the country who can read nothing and those who can read only the alphabet is about 52%; 40% drop out before completing primary school; and 11% of the children do not enter school. "We realize that a single experiment is not going to make a difference," says Usha Rane, director-curriculum at Pratham Resource Centre. "At Pratham, we think like the government. We think mass."
The majority opinion within the social development sector is that it is not enough to create isolated models of excellence. As Rane explains, "It is necessary to create a mass movement." Pratham operates out of 14 states. In the 10 years of its existence, it has developed reading and mathematics kits that are being used to teach the basic concepts to unlettered children. Nearly 1.6 lakh children have benefited from the program in the last three years.
Like Pratham, many NGOs are working scale into their operations. Muthu Velayuthan who has been involved with migration and livelihood issues in the villages of Tamil Nadu, Karnataka and Andhra Pradesh, has set up a rural production and retail network under the brand "Aaharam." He says that his work in the villages showed him the tremendous potential that is locked up in the Indian rural framework.
He developed Aaharam as a supply network that organizes small self help groups into a federation and links that to a producers' cooperative. That cooperative in turn processes the agricultural produce into a range of agro products such as spices, pulp and juice. It also retails these in the rural market.
In its first year, Aaharam reached out to 1,000 families and created an inter-state platform of 160 federations. Its current monthly turnover is over Rs. 3 lakh ($6,500), and it is expanding its network of states and federations at great speed. "Our mandate," says Velayuthan is "to promote traditional markets."
Aaharam, like several such organizations, walks the line between social responsibility and commercial success. It applies corporate marketing and business strategies to further the interest of a marginalized population. And in the process, it builds economies of scale into its operations.
Devashri Mukherjee, the Mumbai-based director of venture programs at Ashoka: Innovators for the Public, a global association of social entrepreneurs based in Arlington, Virginia, points to another example: Nidaan, a company run by Arbind Singh in Bihar. Singh focuses on the very poor and marginalized sections of society in one of India's most backward states. He organizes them into co-operatives and links them into a marketing group that not only protects their rights but also guides them to making financially sound decisions with respect to sales and production.
What emerges from these experiences is an innovative chain of scale, professional management and funding support that links these organizations in a web of sustainable growth. Scale increases the bargaining power of groups. A professional management team sharpens focus and enhances efficiency. And finance works in two ways: as a catalyst that helps build the other links in the chain and as a growth pill that creates sustainable models out of small beginnings.
Clicking on the Right Links
Traditionally, fund support has been a key imponderable for NGOs. Since most NGOs were -- and many still are -- primarily dependent on grants and donations, they faced the constant threat of their money resources drying up.
There are two ways in which the sector is getting around this problem. One is through the well documented rise of micro finance institutions (MFIs). Micro credit has had its successes and failures, but MFIs have helped significantly increase awareness and interest in the rural sector. The other development is the emergence of social venture funds such as Aavishkaar and Acumen and the development of organizations that link donors to NGOs such as Give Foundation of San Jose and Kiva of San Francisco -- both are active in India.
Exploring New Organizational Models
On the one hand, these developments have deepened the financial market for the social sector. On the other, they have forced NGOs to break out of the traditional charity models that they were built upon. Says Vinay Somani who has set up Karmayog, a Mumbai-based B2B for NGOs, "Outside funding agencies bring in best practices, force NGOs to become more transparent and lead the entire sector to a system where self sustainability becomes a specified goal."
Finance, along with scale and professional management practices, is creating a network of sustainable organizations. The Aaharam network is illustrative. Velayuthan experimented with other forms of social intervention before he decided on a group-based income generation model that according to him "seemed to be the answer to rural poverty and migration issues."
Velayuthan was not the first to try out this model, but he designed it with commercial and contemporary management practices. He used money from microfinance institutions to set up a company, set specific production and sales targets (for example: the amount of mango pulp to be sold in a month) and ensured that the company scaled up within a given period of time. He also worked to build strong managerial skills among his team by organizing monthly meetings and routine interactions with private industry.
Aaharam's goal is to address food, nutrition and income security of producers from resource-poor areas. It largely works with rural women, taps into their expertise to make a wide range of agro products, and helps them market these through a company within a specific district or zone. "We wanted to stop migration [out of rural areas], and the only way to do that was to create reliable income sources during lean agricultural months," says Velayuthan, whose initial funding came from MFIs. "We looked at five broad areas where this expertise could be used, and classified these as neem, tamarind, medicinal plants, traditional crafts and charcoal."
Velayuthan says he faced his biggest hurdle in setting up the company; next came the first milestone of breaking even. Aaharam charges its members a fee. This serves as working capital for the company. It also seeks out marketing and retail tie-ups that would bring in funds for expansion and business development. It already has a tie-up with the Mumbai-based Parle group for the sale of mango pulp and has recently entered into a contract with Bharat Petroleum for producing fuel pellets from agro-waste.
Aaharam is only one of the instances of the work being done in the rural sector. Says Vineet Rai of Aavishkaar, "The entire rural space has come alive in the past few years. There is a huge pipeline and we can't respond to all of them." When he started out in 2002, things were very different. "There were not many projects that we could invest in at the time. We used to get about two applications a month then. We are now getting an application a day."
Forming Networking Platforms and Communities
Rangsutra is a company that Aavishkaar supports. It has, within a year of being set up, established a small export market and a link with urban retailers such as FABIndia for the linen and hand embroidered clothes it makes. Says Sumita Ghose, "It is a difficult process, but we have learned to get out of the NGO mindset. Managing cash flows was a unique experience, but it has helped us focus and think our strategies through."
Another example is LabourNet. Run by Solomon J. P., it started out as an organization that looked after the rights of construction workers. It has evolved into a complete database of construction workers in and around Bangalore that links industry and laborers and facilitates training programs targeted at the construction workers. "We charge a fee from the company and the workers. We also offer our services to companies that want to train the workers, and that becomes a steady revenue stream." LabourNet helps the workers get medical and other workplace benefits and works with the companies to enhance productivity.
The network has tremendous community contact, which opens other doors. LabourNet has won contracts with Bosch to market the latter's tools to construction workers; with microfinance companies; and with a waterproofing company that wants construction workers to use its products. Says Solomon, "Workers get these products cheap because they are buying in bulk; the water-proofing company benefits as it gets bulk orders, and we get the funds to run our network."
The Individual Makes Way for the Organization
Most of these organizations are also developing professional management teams to run their daily operations. That is vastly different from the earlier NGO model of centralized decision making that was usually dependent on a charismatic founder or a committed charity organization. This is partly due to the nature of the projects being planned and the increased volume of funds flowing into the sector. Says Varun Sahni of Acumen, "We don't invest in an individual. We look for an organization." Acumen representatives are part of the beneficiary organization's management board and participate in the decision-making.
Professional participation is welcomed by people from within and outside the social sector. Says Karmayog's Somani, whose portal aims to connect NGOs with those who want to fund, help or seek their help, "We want to ensure that the NGO sector has access to trained and educated professionals." For instance, Karmayog has been working on civic issues in the city of Mumbai and has effectively used systematic networking between lawyers, academics and engineers to initiate dialogue between citizens and the local municipal corporation.
Several donor agencies are also driving NGOs to inject professional management approaches. Says Venkat Krishnan of GiveIndia, part of Give Foundation, "For us, the driving force is empowering both NGOs and donors. By allowing NGOs to state what they want support for, we are allowing them to focus on their missions and strategies the way they wish to. And by allowing donors to choose which projects they want to donate to, we are ensuring that there is an automatic 'market pressure' to encourage efficiency and effectiveness."
The Flip Side of Getting Business-like
While these are sound and logical arguments, there is of course a flip side. Professional management, scale and sustainability may well be the way to go for the social sector, but not all socially relevant projects lend themselves to a market-oriented rigor.
India does not have a social security network like many developed countries. It often falls upon the voluntary sector to look after the marginalized sections of society such as abused children and women, the poor, the mentally challenged and other underprivileged sections of society. Funds are hard to come by for these projects as they do not fit the new mold. The challenge going forward is for this segment of the social sector to redefine the rules.