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.