{"id":1351,"date":"2019-07-09T10:45:50","date_gmt":"2019-07-09T10:45:50","guid":{"rendered":"https:\/\/idronline.org\/2020\/12\/23\/where-do-the-disruptors-go\/"},"modified":"2026-01-14T23:48:50","modified_gmt":"2026-01-14T18:18:50","slug":"where-do-the-disruptors-go","status":"publish","type":"post","link":"https:\/\/idronline.org\/kn-in\/where-do-the-disruptors-go\/","title":{"rendered":"Where do\u00a0the disruptors go?"},"content":{"rendered":"

In recent times, there has been a new breed of social entrepreneurs<\/span> in India. These are the people who are <\/span>striving to build and grow enterprises that <\/span>create<\/span> <\/span>opportunities <\/span>for marginalised communities<\/span>. Working on the intersections of <\/span>profit and <\/span>social impact, these social entrepreneurs are <\/span>setting up organisations<\/span> based on new business models or unconventional <\/span>programmatic approaches.<\/span> <\/span><\/p>

A<\/span>s with <\/span>most <\/span>startups<\/span>, <\/span>the biggest challenge they <\/span>run<\/span> into is procuring<\/span> timely<\/span> funding. <\/span>S<\/span>ince their operating models and\/or programmes are not traditional<\/span> or proven<\/span>, most funders<\/span>–be they philanthropic foundations or impact investors, are<\/span> unwilling to take a bet on them. Even<\/span> funders who want to support new <\/span>ideas<\/span> often <\/span>only actively fund the straight and narrow. The<\/span> <\/span>ecosystem <\/span>simply hasn’t evolved enough <\/span>for <\/span>disruptors<\/span> like these.<\/span> <\/span><\/p>

My time at <\/span>UnLtd<\/span> India<\/span><\/a> <\/span>(<\/span>an incubator<\/span>)<\/span> <\/span>h<\/span>as given me an opportunity to <\/span>watch and guide these social entrepreneurs<\/span> <\/span>as <\/span>they <\/span>go<\/span> along their fundraising journey–starting from <\/span>money given by <\/span>friends and family, and eventually graduating to <\/span>institutional funding. <\/span>I<\/span> ha<\/span>ve found that <\/span>a majority of them <\/span>neither fit <\/span>the <\/span>for-profit lending or investing archetype, nor <\/span>do they have a place in <\/span>the no<\/span>n<\/span>profit donor world.<\/span> <\/span><\/p>

\"What<\/a><\/div>

\n

\"forest-trees_Pixabay\"

Even funders who want to support new ideas often only actively fund the straight and narrow. | Picture Courtesy: Pixabay<\/p><\/div>\n<\/p>

Related article: Funding the atypical <\/strong><\/a><\/p>

Obstacles in raising funds for <\/span>innovative <\/span>social <\/span>enterprises<\/span> <\/span><\/h3>

For smaller investors, <\/span>dynamic social enterprises are<\/span> high-risk project<\/span>s.<\/span><\/p><\/blockquote>

The<\/span>re is<\/span>,<\/span> <\/span>however, <\/span>a four-year gestation period for eucalyptus trees to grow to their full potential. To keep the farmers engaged during this period, <\/span>Agro<\/span> has introduced farmers to inter-cropping which provides them <\/span>with <\/span>immediate income via cash crops, and sustainable food<\/span> for themselves<\/span>.<\/span> <\/span>This engagement model was proven successful when the first set of trees were cut in 2018 and another <\/span>1,0<\/span>00 farmers are now interested in participating in this model.<\/span> <\/span><\/p>

Agro<\/span> Industries may have designed a<\/span>n ecologically-sound <\/span>solution<\/span> that <\/span>provides sustainable <\/span>livelihood<\/span> opportunities and empowers<\/span> <\/span>farmers<\/span>, but the <\/span>lack of <\/span>adequate <\/span>initial investment<\/span>s<\/span> during the conversion of fallow land to productive land,<\/span> training, and sourcing raw materials<\/span>,<\/span> <\/span>remains<\/span> <\/span>a constant challenge<\/span> for them<\/span>.<\/span> <\/span><\/p>

S<\/span>ome of the obstacles an enterprise like <\/span>A<\/span>gr<\/span>o<\/span> runs into when attempting to raise funds from different sources<\/span> include:<\/span><\/p>

\"donate<\/a><\/div>
1) Sourcing government loans<\/div>

While <\/span>the model has <\/span>garnered <\/span>interest from <\/span>government <\/span>financial <\/span>institutions<\/span>, the<\/span>y <\/span>are not allowed <\/span>to provide loans without any collateral. A<\/span>nd<\/span>, in the case of <\/span>Ag<\/span>r<\/span>o<\/span> Industries, <\/span>neither the trees nor the land belongs <\/span>them, resulting in<\/span> no assets to pledge<\/span>. As a result,<\/span> <\/span>no loans can be procured. <\/span> <\/span><\/p>

2) Approaching impact investors<\/div>

On the equity front, impact investors are not interested, as <\/span>most social enterprises (like <\/span>Ag<\/span>r<\/span>o)<\/span> are in their<\/span> nascent stages, and <\/span>often built on a<\/span> service model, not a product-based <\/span>one<\/span>. <\/span>Also, equity comes at a much higher cost (besides potential mission drift) than is warranted for this need.<\/span> <\/span><\/p>

3) Attracting individual investors<\/div>

For smaller investors, <\/span>dynamic social enterprises are<\/span> high-risk project<\/span>s.<\/span> <\/span> <\/span><\/p>

4) Engaging with philanthropic foundations<\/div>

Five or ten years ago, perhaps <\/span>Agro<\/span> Industries would have structured <\/span>its social<\/span> businesses as <\/span>a <\/span>nonprofit<\/span>. <\/span>However, raising philanthropic funds for a<\/span>n <\/span>economically viable service <\/span>fee-based model is counter intuitive even though<\/span> foundations and philanthropists <\/span>today <\/span>want their nonprofit partners to be <\/span>sustainable<\/span>. <\/span> <\/span><\/p>

If a nonprofit exceeds 25 percent of its annual budget, its tax exemption status is at risk. This stipulation restricts the ability of nonprofits to be truly self-sustaining.<\/p><\/blockquote>

In addition, in India, <\/span>it is not possible for organisations<\/span> <\/span>registered as nonprofits to be sustainable in the true sense of the word<\/span>.<\/span> <\/span>S<\/span>ustainability<\/span> <\/span>entails an<\/span> organisation having <\/span>self-generated revenues that are not grant<\/span> or <\/span>donation dependent. <\/span><\/p>

However, t<\/span>he law stipulates that if a no<\/span>n<\/span>profit–<\/span>be it a Section 8<\/a> company, a trust, or a society<\/span>—<\/span>has a product or service-based income that exceeds 25 percent of its total annual budget, its tax exemption status is at risk. Th<\/span>is stipulation <\/span>restrict<\/span>s <\/span>the ability of nonprofits<\/span> to be<\/span> truly<\/span> self-sustaining<\/span>.<\/span> <\/span><\/p>

Related article: To DIB or not to DIB <\/strong><\/a><\/p>

And so, I pose the question once again—where do the disrupters go?<\/span> <\/span><\/h3>

Between the <\/span>regulatory framework<\/span><\/a> <\/span>and funders who want sustainability, organisations <\/span>who want to <\/span>be innovative<\/span> <\/span>in their business models<\/span> are left hanging, as <\/span>these new innovative models struggle to compete in a funding market that is traditional, restrictive and governed by rules that serve the conformists. <\/span> <\/span><\/p>

Here are s<\/span>ome suggestions and recommendations<\/span> on what can be done to improve this<\/span>:<\/span> <\/span><\/p>

1) Schemes that provide guarantees<\/div>

We need more schemes that provide guarantee cover to entrepreneurs<\/span>. Access to guarantees enable enterprises to access loans from formal financial institutions by covering the latter’s risk for any default. <\/span>While there are only a few of them<\/span>, <\/span>models like that of the guarantee provided by <\/span>Rabobank Foundation<\/span><\/a> with high success rates in <\/span>agri<\/span>–<\/span>loans to Farmer Producer Organisations can be studied for best practices and replicated.<\/span><\/p>

2) Awareness amongst philanthropic foundations<\/div>

Not bound by CSR or reporting laws, <\/span>f<\/span>oundations have the capability, capacity and flexibility to give g<\/span>rant money to disruptive models. <\/span>We are beginning to see some foundations fund innovative financing like <\/span>Development Impact Bonds<\/span><\/a> (DIBs) on the nonprofit side; there are similar opportunities to explore new forms of financing on the social enterprise side as well.<\/span> <\/span><\/p>

3) Expanded scope of apex government institutions<\/div>

Government institutions that support social entrepreneurs need to understand and accept disruptive models. They need to rethink the need for collateral or look at alternatives such as a proven track record of the social organisation or the <\/span>business <\/span>model itself <\/span>as collateral<\/span>.<\/span> <\/span>Disruptive models <\/span>may <\/span>meet the requirements so<\/span>ught<\/span> by such institutions<\/span>, <\/span>but <\/span>usually <\/span>fall short of fitting the defined model types.<\/span> <\/span><\/p>

Looking ahead<\/span> <\/span><\/h3>

In summary, what is really needed is a concerted effort by all stakeholders to create an ecosystem that supports disruptors and untested social enterprise ideas. Some of this can only come about if the incubators, enterprises<\/span>,<\/span> institutional funders, <\/span>and <\/span>banks<\/span> <\/span>work together to discuss business models, risks<\/span>,<\/span> and funding models that are appropriate for different life cycles of <\/span>an <\/span>enterprise. <\/span> <\/span><\/p>

 <\/span>*The name of this enterprise has been changed<\/span><\/i>.<\/span><\/i><\/p>\n

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Consider <\/span>Agro<\/span> Industries<\/span>*<\/span>, a socially motivated private limited company that works with over <\/span>1,0<\/span>00 tribal farmers who have unproductive, fallow lands<\/a>. <\/span>Agro<\/span> is championing change through an innovative buy-back model. <\/span>They<\/span> educat<\/span>e<\/span> <\/span>farmers<\/span>,<\/span> <\/span>who otherwise work as migra<\/span>n<\/span>t labourers<\/span>,<\/span> to grow and cultivate eucalyptus<\/span> trees<\/span> in their previously abandoned fallow lands<\/span>. <\/span>The output is then sold to the local paper industry<\/span>.<\/span> <\/span>This enables the farmers to earn <\/span>a <\/span>substantial<\/span> <\/span>income <\/span>from their own lands<\/span>.<\/span> <\/span><\/p>