New business models in India
MUMBAI: Traditionally, a not-for-profit entity or non-government organization (NGO) got grants for various socially relevant projects and implemented them. But, with grants drying up and an increasing tribe of social impact venture capitalists willing to invest in a for-profit corporate set up, a large number of NGOs are adopting the hybrid model. This also helps them to scale up the value chain and hire the right talent.
Corporate and tax laws necessitate setting up of two distinct legal structures. Typically, the not-for-profit arm carries out its activities as a trust or society, whereas a private company is set up for carrying out business or profit-based activities.
"Transitions towards hybrid models are more visible when poor families are willing to pay a small fee for services - say agri inputs on phone for farmers or vocational skill training; or when there is a market for goods produced by people at the bottom of the pyramid, " says Parvathi Menon, MD, Innovation Alchemy Consulting, which nurtures entities undergoing such transformation."Opening a for-profit entity alongside a non-profit may often force the latter to look beyond the fast-drying government funding and philanthropic grants towards earned revenue opportunities, " adds Aparajita Agrawal, Director, Sankalp - a social enterprise forum.
Some NGOs envisage a hybrid model right from inception, as was the case with Under the Mango Tree (UTMT). It provides bee keeping training to tribal farmers and procures and sells honey and allied produce in cities.
Interestingly, at UTMT, the for-profit entity was set up first. "My past experience helped me realize that NGOs tend to search for market access after income generation activities have taken off - and this approach is often unsuccessful. Thus, I created the for-profit arm first to test whether there was a market for good quality single-origin organic honey. Now, honey collected from farmers trained by our not-for-profit entity just flows into our distribution network, " explains, Vijaya Pastala, CEO, UTMT.
Largely, the for-profit entity is created at a later stage. In this context, Vishnu Swaminathan, India Director of Ashoka, an international network of social entrepreneurs, says: "In such instances, founders of NGOs do find the transition a bit difficult. Most important is the need to have a different mindset. Only then can the economic and social benefits of a hybrid model be reaped."
Kannan Lakshminaryan, an IIT alumnus, has set up Fractal Foundation as a trust and Microspin as a private company. The former introduces new technologies among target users. For instance, the micro-spinning technology was spread to rural pockets through this trust. Microspin provides comprehensive technology-aided solutions for widespread adoption of the means of converting raw cotton into yarn and then on to fabrics on a small scale.
"Fractal aims to provide limited financial assistance and infrastructure at an early stage. If an idea fails, it can be written off without regret. But, when the 'business case' can be articulated cogently enough to attract needed funding on acceptable terms - that's when I incorporate it as a company, " explains Lakshminarayan. Another company engaged in vocational skills training has also been set up.