Social entrepreneurship: profiting from the poor or empowering them?

There are two schools of thought among social entrepreneurship practitioners. The first one treats the poor as consumers, while the second model believes that they can be co-producers, clients and even owners. Simply put, one asks the poor to part with their money, and the other puts money into their pockets. Which one of the two is better suited for India and which model has been adopted more? Do we have to choose one over the other? The answers are not simple. Lets look at the two models and understand them better.

Selling to the poor:
Bottom of the pyramid (BoP) theorists believe that targeting the 4 billion people who live on less than $2.50 per day with products and services can benefit them and also be lucrative for sellers. The late management guru C.K Prahalad was the first advocate of this model. In his book ‘The Fortune at the Bottom of the Pyramid’, he referred to the poor as a market segment that was ripe for tapping. The World Resources Institute estimates the size of the market to be a whopping $5 trillion have lead to MNCs like Hindustan Unilever and Groupe Danone devising extensive strategies to address this market.

But do the poor really need sachets of shampoo, fairness creams and TV sets? Prahalad and Allen L. Hammond in a 2004 article published in Foreign Policy, titled ‘Selling to the Poor’ speak about a young woman working as a sweeper who expressed pride and a sense of empowerment in using Fair and Lovely, ( a skin-lightening cream) because she feels, unlike her parents, she has a choice of using the cream and not let her skin suffer. Aneel Karnani, associate professor of strategy at the University of Michigan’s Ross School of Business, has been the most vocal critic of Prahlad’s model. He is opposed to selling things to the poor that they don’t need and can ill-afford. “Although Fair & Lovely is doing well for Unilever, it probably is not doing much good for its purchasers or for society,” states Karnani is his paper ‘Romanticizing the Poor’. “The ads are racist and sexist, and that they entrench women and darker-skinned people’s disempowerment.”

Karnani’s criticism maybe valid, however there are several products and services, which the poor can buy to improve lives and boost livelihoods. There are numerous examples of enterprises that have adopted bottom-up innovation to service the poor. Micro-lending company Ujjivan provides micro-credit to the urban poor. Healthcare providers like Aravind Eyecare and Asia Heart Foundation are solving the problem of lack of doctors by providing telemedicine solutions using telecom and web-based technologies.Embrace has developed a baby warmer, at a fraction of the cost compared to similar products, which addresses the problem of 4 million babies dying every year due to cold conditions. Husk Power Systems provides electricity to rural areas that are not on the grid, at affordable costs, using the pay-per-use model and aims to impact 10 million lives in the next five years. Sarvajal, part of the Piramal Foundation, provides clean drinking water through its water ATMs at reasonable costs. Lifespring provides low-cost maternity care to women.

The poor as producers, clients and owners:
Karnani’s acerbic rebuttal to Prahalad’s theory can be found in his paper ‘Fortune at the Bottom of the Pyramid: A Mirage’ where he talks of the poor as producers and owners. India is not new to this idea. Amul, the country’s first social enterprise, is the best example of the model. Started in two villages at Anand, Gujarat, in 1946 as a way to eliminate middle-men, Amul helped India go from a milk-importing country to become the world’s largest producer. Currently it’s a $3.2 billion enterprise that benefits more than 15 million milk producers. Agri-businesses like Amul and traditional sectors like crafts, are other obvious industries where the poor can be engaged as entrepreneurs. Fab India, which connects 80,000 artisans to markets, is a great example of employing artisans who are also shareholders in the enterprise, with more than 26 per cent of the company owned by the employees. rangSutra, a manufacturer of apparel, home furnishing and accessories, also employs more than 2,000 artisans, with more than half of them owning a stake in the company. Krishi Naturals, has a triple impact of social, environmental and financial gains. It improves the income of farmers by promoting organic farming by training them in organic farming and facilitating organic certification and marketing. Social enterprises that put more money into the hands of the poor are not just limited to rural and semi-urban areas. Sampurn(e)arth, for example works with 3,500 waste-pickers, mainly in Mumbai to provide decentralized waste management solutions. Companies like Rural Shores and DesiCrew are encouraging educated rural folks to stay put in villages by offering them white-collar jobs servicing the needs of foreign MNCs and large Indian companies.

India needs 50:50.
According to Intellecap’s report on India’s social enterprise landscape nearly 75 per cent of all social enterprises sell to the poor with only 25 per cent involving the poor is production. This comes as no surprise because entrepreneurs and impact investors have favored the low-hanging fruit of selling to the poor. But for social enterprises to fulfill their full potential and assist India make a dent in tackling its many development problems, the number of companies increasing the size of the poor man’s wallet needs to surge to at least 50 per cent.

However, creating opportunities for the poor is a more complex undertaking than selling shampoo or yogurt to them. They are tougher to set up due to missing market linkages, lack of supply chains, inadequate infrastructure and absence of banking services. Massive investments will be needed, and the only players with that kind of appetite are the government and the private sector. Solar power is an example, where government subsidies and international aid, has given the industry a boost. Along with grants, there’s a need for providing a combination of debt and equity. Small businesses will also require business building assistance and other support services to build and scale.

Clearly, the time to act is now.

4 thoughts on “Social entrepreneurship: profiting from the poor or empowering them?

  1. Hi Nelson, I like this discussion on ‘poor’ as consumers or producers. It is unfortunate however that many social enterprises also still treat the ‘poor’ as ‘beneficiaries’. And till so far as this is not settled, the social enteprise sector will continue to struggle in the transition from philanthropy to social enterprise. I have written a book on this topic “Philanthropy Sucks!” that is available through most online stores. It is (high) time!

  2. I think we should not overstate the potential of social enterprises in solving the development problems of the country. Dividing social enterprises into two categories, “the one that asks the poor to part with their money, and the other puts money into their pockets”, is rather simplistic and not simple. It is important to understand that those social enterprises that ‘ask poor to part with their money’ operate in a critical needs sector and the products and services they sell such as health, education have a direct bearing on the lives of the poor. Social enterprises definitely do not sell fairness creams and shampoos! So comparing social enterprises to corporate entities that sell cosmetics is like comparing apples and oranges.

    Hence, judging the impact of social enterprises only on the criteria whether they involve the poor as co-producers is misleading. The very Intellecap report that was quoted also states that, “51% of social enterprises seek to generate employment opportunities in underserved areas, 22% strive to improve natural resources used by the poor and 36% seek to improve the livelihoods of low-income producers.”

    In my opinion, social enterprises and impact investors with limited resources cannot solve the development problems of this country, which the Government with its immense resources is struggling to do so. They are not an alternative to government or philanthropic organizations; rather they provide an opportunity for the poor to reduce their vulnerabilities.

  3. Hi Payal,

    Thanks for taking the time to read the post and giving us your valuable feedback. Let me try and answer your concerns as succinctly as possible:
    1) I think we should not overstate the potential of social enterprises in solving the development problems of the country.
    Please read our post on ‘India needs business as unusual to solve its massive development problems https://chilasa.org/2013/06/27/india-needs-business-as-unusual-to-solve-its-massive-development-problems/
    We have stated that social enterprises as one of the possible solutions to India’s development problems.

    2) Dividing the poor as producers and consumers is simplistic but not simple:
    Agreed, but we have to draw a line here and take a stand on increasing the size of the wallet for the poor. Sure, its not simple, but this is where government investment, grants and social innovation can lay the foundation for social enterprises to come make a difference. We shall try and address the issue about how the poor can engaged as producers, clients and owners in a latter post. Watch out for that.

    3) Hence, judging the impact of social enterprises only on the criteria whether they involve the poor as co-producers is misleading. The very Intellecap report that was quoted also states that, “51% of social enterprises seek to generate employment opportunities in underserved areas, 22% strive to improve natural resources used by the poor and 36% seek to improve the livelihoods of low-income producers.”
    Fair enough, but the core business model of the 75 per cent in the report sell to the poor, they maybe creating opportunities for the poor, but that secondary. We are constrained by the number of words that we can cram into a post. I was also wanting to point out that criticism of Prahalad is sometimes unwarranted because he did speak about creating income opportunities and increasing employment for the poor, and not just sell to them. But again, was constrained, by sticking to our argument and the fact that the post is long already.

    4) In my opinion, social enterprises and impact investors with limited resources cannot solve the development problems of this country, which the Government with its immense resources is struggling to do so. They are not an alternative to government or philanthropic organizations; rather they provide an opportunity for the poor to reduce their vulnerabilities.
    Absoutely, by no means can they be a substitute to government.

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