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Investing in SMART IDEAS

Naeem Zamindar is the country director of Acumen, a nonprofit. He is actively involved in the development of entrepreneurship as the current president of The Indus Entrepreneurs (TiE) in Lahore and is on the advisory council of the IBA School of Entrepreneurship, MIT Enterprise Forum, Plan9 and Nest i/O. He spoke to Technology Review Pakistan.

In Brief

  • Social entrepreneurship is gaining momentum in Pakistan while traditional models of charities, social work and non-governmental organizations (NGOs) are slowly losing their relevance.
  • Acumen collects donations to make long-term debt or equity investments in early-stage enterprises, aimed at providing low-income consumers with access to healthcare, water, housing, alternative energy or agricultural inputs.

What are the social enterprises trying to do which makes them so different from existing social, charity and nonprofit organizations?
A social enterprise employs commercial strategies while working for human and environmental well-being. It differs from a regular commercial organization as its commitment to impact is central to the mission of business and profitability, a necessity for sustainability.

Nonprofit social enterprises do not offer any benefits or returns to their funders. But those that are for-profit are driven by the belief that they will be able to attract funding and capital and ultimately further their capacity to realize their social and environmental goals. Social ventures apply best business practices to ensure accountability around economic viability. For example, to ensure that you create and capture more value than what you consume. In the case of social enterprises, the value can be measured by social impact that consumers are willing to pay or society is willing to fund.

An example is Pharmagen that sells high quality clean water through its outlets at a price point that is affordable for the people at the bottom of the pyramid. Over time, social enterprises have become more efficient and they are now pursuing the government to outsource their clean water initiative, allowing them to scale up massively, creating value for society and further economic viability for Pharmagen.

Another example is our investment in a low-cost school system that is providing high quality education at a very low cost. Therefore, it is able to progress very rapidly and hopefully serve millions of children over the years. If you achieve sustainability, scalability becomes much easier to achieve. Also, they are able to attract capital and, therefore, catalyze their growth.

Traditionally, non-governmental organizations (NGOs) and charities were not driven like enterprises, with relatively low levels of accountability and competitiveness. Enterprises work in a competitive environment, where the most innovative value creators or most cost-effective service providers gain more scale and flourish. In this new environment of innovation and competitive markets, social enterprises are flourishing and the traditional NGOs and charities are evolving or slowly losing relevance.

Tell us something about Acumen and patient capital.
We, at Acumen, collect donations that help us make long-term debt or equity investments in early-stage enterprises, aimed at providing low-income consumers with access to healthcare, water, housing, alternative energy or agricultural inputs. The markets alone can’t solve the issues like poverty while charity is not enough to deal with the challenges faced by over two-thirds of the world’s poor population.

Patient capital is a means to bridge the gap between the efficiency and scale of market-based approaches and the effect of pure philanthropy. The patient capital that is available at Acumen has also a range of management support services, helping the company to scale. Acumen’s objective for investing patient capital is not high returns but rather to provide impetus to enterprises that improve the ability of the poor to live with dignity.

The Acumen invests in innovative models for eliminating poverty from society as well as in the companies that are working for fulfilling the most critical needs of the poor. The products or services of such models and companies should be economically better and create greater social impact through their charitable distribution channels.

How can social enterprises gain success?
Social enterprises, like Acumen, need to adopt a business model that shows the potential for financial sustainability for a certain period like five to seven years and it includes the ability to cover operating expenses with operating revenues. They must also be able to show a clear path to increase the number of end users over the period of our investment and be among the leading service providers in the market. To make this happen, Acumen looks for strong and experienced management teams with skills and will to execute the business plan with a clear and compelling vision. The team should be dedicated to serving low-income people and has unyielding ethics.

How can social enterprises gain success?
Social enterprises, like Acumen, need to adopt a business model that shows the potential for financial sustainability for a certain period like five to seven years and it includes the ability to cover operating expenses with operating revenues. They must also be able to show a clear path to increase the number of end users over the period of our investment and be among the leading service providers in the market. To make this happen, Acumen looks for strong and experienced management teams with skills and will to execute the business plan with a clear and compelling vision. The team should be dedicated to serving low-income people and has unyielding ethics.

What are the key performance indicators (KPIs)?
For us at the Acumen, the KPIs depend on the stage of the company. For early stage companies we are focused on proving out experiments to ensure that we have a viable business case. For that we track customer adoption, social impact and cash flows. The Acumen is helping these early-stage companies with the use of lean data techniques to effectively understand what is going on with their customers. The cash flow is critical because many early stage companies don’t manage their cash flows effectively and run out of money before they reach their next milestone where they would be able to raise more money.

For growth companies, where the business model has been proven, we focus on the KPIs related to rate of scale, cash flows and funding of growth. We are not merely looking at customer scale up but organizational scale up as well. In a competitive environment, where the business case gets proven out, competition always follows and organizational capability becomes the key difference. The other key indicator is the cash flow which indicates how you are managing your operations and scaling sustainably.

What is the scope of social enterprises in Pakistan and their future?
Pakistan is a country that is challenged but innovative companies are finding the solutions to our problems. Therefore, Pakistan has a tremendous potential for social entrepreneurship. The challenge for Pakistan is a rapidly growing and young (average age of 21) population, with the government’s inability to fully provide basic services of affordable housing, nutritious food, education, healthcare and eventually employment. The social enterprises have to find innovative and disruptive solutions to solve our problems. This young population is dynamic, entrepreneurial and passionate about improving their lives and society, this being a huge advantage for Pakistan.

Which sector do Pakistan’s social entrepreneurs need to concentrate on?
The Acumen is currently focusing on the three most promising sectors for social entrepreneurship in Pakistan; energy, agriculture and education.

Energy: Pakistan is facing a huge energy deficit. According to the most recent estimates, nearly 55 million people in Pakistan are without access to grid electricity. On top of that, there is a sizable population which is nominally connected to the grid but faces prolonged power outages. Communities in the unelectrified and under-electrified areas have to rely on expensive, unreliable and harmful sources of energy, such as kerosene and wood. Small-scale alternative energy solutions, such as solar lanterns, solar home systems, solar tube wells, and fuel-efficient products, such as improved cook-stoves, present a viable alternative to traditional energy sources. There is an immense scope for social enterprises in the energy sector to deliver these critical goods and services
to the energy-starved population in a financially sustainable way.

Agriculture: A vast majority of the rural population of Pakistan is dependent on agriculture for livelihood. Smallholder farmers face issues such as lack of direct access to market, access to finance and high quality inputs, wasteful methods of irrigation and most importantly lack of information and education that can improve their productivity, thus enhancing their income. Social enterprises can play the role of aggregators, connecting smallholder farmers to the marketplace thereby making them a more important part of the value chain. Agriculture technology can quadruple the incomes of farmers by increasing their productivity and crop choices. Moreover, social enterprises can introduce innovative products to improve farm productivity such as higher quality inputs and more efficient irrigation solutions. Finally, social enterprises can play a role by providing smallholder farmers access to finance.

Education: Even though primary and secondary education is free in most government-run schools, the quality of education and learning outcomes are extremely poor. Social entrepreneurs can contribute to creating access and improving learning outcomes for children of low-income families by setting up low-cost high-quality private schools and leveraging technology to provide blended learning solutions to low-cost private and government schools. The same is true of workforce development, where a young population needs to be skilled and marketed to create livelihood opportunities. Education is an area which has an opportunity for disruptive change where everyone can be brought into the knowledge economy at a very low cost.

What do social enterprises, for example Standard of Excellence in Education and Development (SEED) and the Acumen, look for to invest in a particular idea? What’s the process?
The Acumen is the only major impact investment fund fully operational in Pakistan. We invest in both “pioneer” stage (unproven model, undergoing proof of concept) as well as an “early growth” stage (proof of concept completed, ready for scale-up) social enterprises. The investment amount ranges from $250,000 to $750,000 for pioneer companies and up to $3 million for growth companies. The investment decision is based on achievements to date, an assessment of the ability of the entrepreneur to execute and an assessment of the financial viability, scalability and potential social impact of the model. The investment process starts with the submission of a business plan by the entrepreneur. The plan goes through various phases of due diligence and approvals by the portfolio leadership team and investment committee of Acumen before final disbursement.

What are the achievements of the social entrepreneurs and startups so far?
Social entrepreneurship is a relatively young sector in Pakistan; however, we have seen some tremendous success stories in the country as well as globally. The Acumen has invested in 11 ventures in Pakistan from the companies that provide low-cost housing, microfinance, drip irrigation, artificial insemination of cattle, tech enabled healthcare, mini-hydro-community-grid companies, clean water, low-cost schools and pay as you go solar energy.

Success for innovative social enterprises should be seen both in terms of the direct impact they deliver to their customers and stakeholders and the catalytic impact they have in providing a template of a model for replication by other enterprises in the sector. For example, in our portfolio, the NRSP Microfinance Bank Limited has been a huge success in terms of the number of lives it has directly impacted (through loans to smallholder farmers), while the Aga Khan Rural Support Program has been instrumental in catalyzing the sector of power generation by microhydro plants (recently, the Khyber Pakhtunkhwa government has replicated the Aga Khan Rural Support Program’s model by pledging to set up more than 250 micro-hydro plants in the province). The Ansaar Management Company (AMC), our investee in the housing sector, has been able to generate interest from major international players in the lowcost housing sector in Pakistan.

Globally, we have invested in over 88 companies such as d.light, M-Kopa and Ziqitza. d.light has pioneered and scaled up solar energy lanterns and impacted over 50 million households and created a whole new industry around solar lanterns. M-Kopa is a pay-as-you-go-solar home solution provider that has made it accessible for off-grid consumers to get lighting, cooling and television services on a monthly charge that the poor can afford as a service that is charged against your mobile payment account. Ziqitza is an ambulance service that provides emergency services to two million people annually through a unique operating model.

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    Sure. Push PR pieces down our throat in garb of interviews. He made Wateen a success. Why is there no question about that?

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