A perspective from India

For those of you who are regular readers of the SEED blog, you may remember a post from a few months ago when SEED was in Mexico as part of our work in exploring the needs of the green SME space in different geographical locales.  This past month, it was India’s turn, as SEED hosted an event around investment in the low-carbon, green SME sector.  Whilst it’s fair to say that every region and country has its own challenges, it remains surprising how similar the discussion is and how clearly certain interventions are necessary in order to make the green SME space both more resilient and scalable.

Low-carbon social enterprises face inefficiencies due to lack of coordination & infrastructure

The India event, held in Mumbai, brought together over 40 members of government and civil society, investors, funders, experts and entrepreneurs to discuss the current state of the low-carbon social enterprise space in Mumbai throughout a series of conversations on the current market conditions, the roles of intermediaries and investors and the ecosystem needs of the sector.  What became clear early on is that there is an evident interest in this sector by the government, entrepreneurs and funders but that there is little in terms of coordination or critical platforms that would allow the sector to become more efficient. 

The different nature of the sub-sectors within the green space means that enterprises working in this space are often isolated and find it difficult to play off their peers or leverage the success of one sub-sector into making it easier for the next sub-sector to access funding or gain government support.  Some of this is due to the fact that the sector remains relatively new, so that much of the underlying infrastructure is still in the early phase; whilst the green sector also faces the challenge of being seen as “risky” by investors who have built up significant experience in other social sectors but are still finding it difficult to evaluate the companies that come before them. 

Despite these challenges, the green sector continues to be a draw to social enterprises within India and the question then emerges, what can be done to support these companies?

Mismatched financing needs a better fit

No one will be surprised to hear that financing comes up again and again as the top need by start-up social enterprises, and India was no different.  But what emerged throughout our daylong conversation was that financing was often not the silver bullet that entrepreneurs hoped it would be and that in too many cases the financing on offer wasn’t in a form most useful to the enterprise.  With many impacts, funds focused on much later stage “SME’s,” the access to funding for small green social enterprises is particularly difficult to access.  This is further complicated by the fact that many start-up businesses struggle to attract trained talent, pulling together business plans and clearly articulating the need that they’re trying to address. 

A lively discussion ensued as to how best to address this problem through the use of various incubators, accelerators and other forms of intermediaries – which were almost universally seen as a critical part of the sector — yet ensure that enterprises don’t end up spending all their time in a never-ending series of awards, programmes and workshops.  Clearly, some sort of coordination is required to ensure that there is a clear path for companies and support throughout the stages of their growth without duplicating work. 

The issue of finance was also discussed in terms of what sort of finance was best suited to the small SME space.  The general consensus was that debt financing was likely to be more helpful but that at the moment, due the risk profile of the sector, the market was more likely to provide equity.  How this mismatch between supply and demand gets addressed will likely have a huge impact on whether the sector manages to scale up at the speed needed to address today’s time-critical environmental issues. 

The green SME sector is an ecosystem that requires true cooperation

Both the problems listed above with regards to addressing the needs of the individual enterprises as well as the needs of the sector as a whole lead to some rather clear conclusions. 

First, it is imperative that we start looking at the green SME sector as an ecosystem that needs to be built, rather than as individual independent entities.  By doing so, we can start addressing the critical issues — training, government regulations, financial knowledge, basic network infrastructure — that are holding everyone back.  These roadblocks aren’t going to be easy or quick to solve but will take a sustained effort by a number of players who will bring with them a variety of skills and resources over time. 

Which leads to the second point that emerged from the day’s discussion — all of us working in the green SME space need to be better at collaborating.  In a desire to find ways to support the space, we run the risk of duplicating efforts and wasting precious resources.  Whilst it would be unreasonable to expect that we develop a global platform for working in this area, the idea of regional or national working groups could drive efficiencies in the system, amplify the voices of the green entrepreneurs and help mitigate the perceived risks in the system. 

The question for all of us is — if we accept the rapidly tightening deadline to deal with the world’s environmental problems, and we believe that entrepreneurship is a critical tool in meeting both the environmental and social problems we’re facing, are we willing to put egos aside and start truly coordinating our work, putting impact ahead of brands?  It’s a question all of us working in the social enterprise space need to be asking ourselves.