Methods of support 2: Grant funding: to support SMSE development, or using SMSEs as a channel to supply social servicesGrant funding can either directly support the operations of an SMSE, or use the SMSE as a channel to reach the poor. The SMSEs we talked to in this survey requested both forms of assistance. Subsidizing loansAs discussed above, many SMSEs want to take out loans, but plan to get these loans from banks. A simple way to help social enterprises 'scale-up', while not distorting the market, would be to partner with a bank to subsidize these loans. There are, however, dangers to this approach. When borrowers get to know that their loans are partially funded by an international funder, they tend to be less committed to repayment, feeling that the international agency will bail out the bank. Often they are right, and so banks tend to be less active in debt collection. To reduce this risk, credit decisions and debt collection should be clearly the responsibility of a local partner bank, and the bank should provide the majority of the loan with a funder only providing 'top-up' grants. Additionally, a funder could place conditions on subsidized loans, inducing a borrower to provide a social service they otherwise would not be willing to provide. For example, opening an outreach centre in a remote area can be a condition for a pharmacy to get a subsidized loan. Offering scholarships could be a condition for schools. As a result, taking the subsidised loan becomes a business decision for the SMSE, not a hand-out., as well as creating more impact. Loan subsidy schemes have much greater impact than grants. They reach more institutions, do not distort the incentive structure of the recipient and can be much easier to implement than a grant. The effort required to maintain one school, for example, could lead to a large number of schools getting lower interest loans and hence improving the education opportunities of many more students. Training and information to SMSEsFew of the entrepreneurs we talked to asked for business development assistance, since they felt they already knew how to run a business. But most asked for technical inputs, such as trends in world market prices for rice, or how to maintain medical machines. This type of advice is easily given, perhaps just by setting up an information board in a local town or supporting information centres for SMSEs. But technical expertise is required. More advanced advice may be required for some enterprises, for example on how to complete a merger, or how to market to rural communities. The most effective 'advisors' will be other enterprises who have been successful (in another region). Advisory programs could ask successful 'graduates' to train others, in return for pay or reduced interest rates. Sharing business information is particularly important in rural areas, given the difficulty of communication. Training can share best practice, or just show how a business model works. For example, SANASA has developed a program of village motivators who travel through rural areas helping to set up new SANASA societies and develop the professionalism of existing societies. Similar programs could motivate mothers to start community schools, or introduce new crops. This motivation can be packaged with credit, as in the orchid growers case study. Advice could also show how to create linkages to increase sales. There are often existing community networks that could be made more effective through a partnership with a private sector enterprise. These networks could, in time, become sales agents for the private enterprise. One example is Ayuvedic medical practitioners. Networks to maintain qualityA concern is often expressed that the quality of provision from private sector enterprises is not as good as in state institutions. Data is mixed on this, with better quality provision from private companies in some sectors (such as education) and worse in others (such as healthcare). Both ethical private companies and consumers will gain if good quality is maintained. Quality inspections of private facilities could be a requirement of grant or investment assistance. In time these quality inspections could become an established brand and help consumers chose which private provider was best, as well as give guidance to the SMSEs on how to develop their product offering. Taken a step further, this quality audit could transform into a set of best practices and approaches, allowing a recognised 'approach', with training and on-going guidance, which could transform a network of independent SMSEs into a network or franchise. Help lendersThere are already specialist lenders to social enterprises. This can be profitable, but additional investment and support may be needed to help develop lenders' institutions. There is a wide range of possible support to an institution, including staff development, process reform, product development, etc. The priority will depend upon the bank's situation and is best identified through the bank's planning process. For example, the SANASA Development Bank has identified IT development as a priority, to reduce costs, increase customer confidence and enable the roll-out of new products. It has started a project to replace its core banking system and will roll a system out to village based societies. Contracting SMSEs to serve the poor - voucher schemes etc.In addition to helping SMSEs to develop, they can be used as a channel to reach the poor, and so implement a funding agency's project objectives. For example, if a funding agency wants to increase the number of immunisation shots delivered to young children, it can either deliver these shots through the existing state infrastructure, set up its own infrastructure or contract the private sector to deliver these shots. Given that private sector providers of most social services are already present in most areas where the poor live, usually in higher concentration than government services, using the private sector will reach the most number of people. Additionally, small private sector companies can be more nimble than public institutions and projects can be set up faster. In sectors where no private sector enterprises are working, it may be more effective in the long-run to help a private sector enterprise enter the market, rather than to set up a separate institution via a project. For example, if an agency wanted to promote a new agricultural innovation, it would be most efficient to work with existing agricultural machinery retailers. There are as many ways to use the private sector to implement a social service as there are potential social services. However, all approaches should follow a set of basic principles. Pricing of services is critical. Funders should provide sufficient financial incentive for a SMSE to conduct the desired business, but not so much so that it over-pays - calculation of the variable cost to provide existing services is the easiest way to judge a good price. Implementation should be designed to ensure services are only provided to target groups, i.e. people who would not have received service before. For example, providing subsidies to educate primary school children will not increase enrolment if these children were already in school. However, the targeting mechanisms should not become a major cost - in an area that has low levels of maternal health care, it could be simpler to just provide (basic) care to all, rather than try to target people who do not have sufficient funds. Richer people will, in any case, want to pay for better care. Finally, many of the 'typical' requirements of projects, such as identifying a target group, or creating a fixed budget, may not be appropriate for these projects and funders may have to change their project preparation procedures. Project ideas
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