KfW and DEG promote social entrepreneurs in Asia

Strong economic growth, a significant reduction in poverty, rapidly improving economic indicators – over the past ten years, the track records of many developing countries and emerging markets in Asia have been truly impressive.

But not everyone has been able to reap the full benefits of these achievements. Even now, more than half the population subsists on an income of less than USD 2.5 a day. Insecure employment, a lack of basic necessities and poor access to education are just a few of the reasons why very many people are still living in unsatisfactory conditions and a long way from being able to develop their full potential.

Social entrepreneurship is a promising means of addressing these issues. As a private-sector initiative, it does not simply call for creativity on the part of the individual and taps into new sources of capital. Opportunities are also created for innovative business models especially when, by broadening the range of affordable products and services for the poor and disadvantaged, they satisfy unfulfilled demand. Social enterprises also create jobs, chiefly among low-income sections of the population and in structurally underdeveloped areas.

A cross-border extension is in the planning

This has motivated KfW Development Bank, on behalf of the Federal Ministry for Economic Cooperation and Development (BMZ), to invest USD 10 million of BMZ funds as a cornerstone investor in the Aavishkaar Frontier Fund, which was set up to promote social entrepreneurship in Asia. The project builds on positive experience with the Aavishkaar II Fund, which was established in 2011 to promote Indian social entrepreneurs and in which KfW also invested USD 18.2 million from Federal Government and its own funds. The successful concept is now to be extended beyond India's borders, initially to Bangladesh, Indonesia, Pakistan and Sri Lanka. The DEG is boosting the Fund's capital by another USD 10 million from its own funds.

There is no shortage of good business ideas. The projects promoted by Aavishkaar include the local sourcing of supplies for rural clinics, the provision of innovative teaching materials for children from poor families, and the international marketing of traditional clothing made in accordance with ecologically and socially sustainable standards. A company called Ulink Bioenergy, which Aavishkaar has been supporting since 2013, can be proud of its success thus far. Thanks to the latest mobile phone and Internet technology, smallholders in remote areas, who previously had to rely on marginal traditional supply sources, are now able to order high-quality seed and reasonably priced, modern consumables by making a free return call or with just a click of the mouse. The goods are delivered immediately and directly to the smallholder. The farmers benefit in many ways from the optimised supply chain: productivity increases, the quality of their own products improves, there is less pressure on the environment and they use fewer consumables.

The Aavishkaar Frontier Fund is investing its own funds in selected, socially responsible companies in their start-up through to their growth stages, while also offering consulting services. The current fund volume is USD 45 million and the target volume is up to USD 90 million. With their commitment as cornerstone investors, KfW and DEG are strengthening the capital basis of the fund and thus mobilising further investors.

"Socially responsible entrepreneurs help disadvantaged people and are successful financially at the same time. They thus create sustainable jobs and economic growth. The promotion of this fund is therefore in line with the BMZ's new Asia strategy, which aims to establish a social and ecological market economy," explains Dr Norbert Kloppenburg, member of the Executive Board of KfW.

The presentation of the new BMZ Asia Strategy on 17 June in Berlin was a welcome opportunity for Vineet Rai, who established the Fund, and Mr. Fuchtel, Parliamentary State Secretary at BMZ, to introduce the Aavishkaar Frontier Fund to a wider public.