Governments have proven to be too inefficient, the non-profits too small and the corporates too greedy to provide basic services. What about for-profit social enterprises?
India is very large and poor, with more than 75 percent of people earning less than $2 a day. We have much to do in terms of providing even basic services to our citizens.
In an ideal world, the government would tax the rich and efficiently offer free basic services to citizens. There would then be no need for philanthropy or for the private sector to provide these services.
However, unfortunately, we are very far from achieving this ideal state. Thus, the first step in the search for alternative approaches is to recognise the limits of the government’s ability to finance and manage basic services for all citizens.
In theory, non-profit private sector offers an alternative for the delivery of these services. Non-profits are immune from the greed associated with the for-profit sector and do not suffer from the mixed motives of the government. However, in practice, non-profits cannot scale as much as the government or for-profit players.
We tend to forget the underlying need for massive scale when evaluating the work of non-profit private models and are quite content to see small pockets of intensive work.
In our view, while philanthropy can usefully augment the resources (financial and human) available to the government and the for-profit private sector, it can never be the mainstay of any sector in a country, particularly one the size of India.
There is an important role for private for-profit models in the social sector. In recent years, we have seen the emergence of several promising private efforts in India in the domains of financial services for low-income households, healthcare, rural drinking water, and skills. While this will likely continue in 2012, the experience of a state government using political force against a thriving microfinance sector in Andhra Pradesh will no doubt haunt social sector entrepreneurs and investors for a while.
Unless there is a commitment to enforce existing regulatory frameworks, we fear there would be no meaningful growth in 2012. In fact, we may cede the progress achieved in recent years.
Regulations aren’t the only problem. There are significant fault lines in the way for-profit private players operate. They would need to be dealt with before their significant presence in the social sector is seen to be acceptable.
(This story appears in the 06 January, 2012 issue of Forbes India. To visit our Archives, click here.)