In my continuing blog series on the foundation’s 10 lessons learned in impact investing, based on our experience in India over the last decade, I focus on the role of customer protection in establishing sustainable social enterprises.
A social enterprise customer
If we are to make progress against deeply entrenched societal issues, the long-term view is the only one we can afford to take. In a recent survey conducted by the Michael & Susan Dell Foundation on the evolving philanthropic landscape, more than 50 percent of the respondents identified a long-term view as the single most important trait that will define effective social entrepreneurs of the future. As we all know, long-term business success cannot be sustained on shortcuts, especially those that risk customer protection and transparency, as customers (or beneficiaries) are the raison d’etre of any business. In a social venture, often, the entrepreneurs are not from the communities they are trying to serve. In such a scenario, it becomes essential to deep dive and invest in understanding these customers, to serve them and protect them well.
The power of simple and transparent communication
While social enterprises try their best to understand and address customer needs, there are chances that they might miss nuances around what the customers value most, and how the customers interpret an organization’s products and value proposition. For instance, in the case of microfinance institutions delivering small loans for INR 10,000-15,000 (USD $ 150 – 250), loan officers often stress on the fact that the EMIs (Equivalent Monthly Instalments) offered by them are significantly lower than that of the competition, to gain new customers. They conveniently omit to mention details like the loan includes an added instalment upfront and at the end of the loan, or that the processing fee is collected separately, or that the EMI to be paid by the customer starts twenty-five days before that of competition, etc. All these factors lead to extreme customer confusion and dissonance at times.
The foundation made investments in seven microfinance institutions between 2006 – 07, to catalyze the urban microfinance space. Each of these institutions, namely, Ujjivan, Janalakshmi, Swadhaar, Sonata, Arohan, Svasti and Samhita, had simple and clear terms and conditions regarding loan disbursals, which were well articulated to the customers, before finalizing the agreements with them. Loan officers were continuously trained and assessed on communicating in a language the customers understood, whether it was regarding the EMIs, interest, processing fee or duration of the loans. These institutions also adopted internal codes of conduct and incentive systems that prevented coercive collection practices or frauds, and put in place grievance redressal mechanisms that could be easily accessed by clients. All these steps helped in creating an organizational culture that promoted client-centricity and protection.
When the microfinance crisis hit the entire industry in 2010, these institutions could tide the crisis better than the others, largely due to the above-mentioned initiatives. Some of them were amongst the first to receive loans from banks, when the banks cautiously re-opened their wallets after the crisis. The investors in these social enterprises continued to demonstrate their faith, by staying invested in them throughout the rough period. Most importantly, the customers were hugely confident of these institutions, and continued to support them with timely loan repayments through the crisis.
Educating the customer—how social enterprises can get it right
In addition to microfinance, we also saw the importance of customer protection in our skills training portfolio. Here, our investees clearly expressed their track record in placements and salary levels, and set expectations based on data. In fact, they seldom promised jobs for everyone, which was often a more popular marketing line for companies in this space.
Similarly, it was also important that training companies clearly communicated the results, curriculum and validity of certificates given to graduating candidates. With this view, our investee, LabourNet, seeded the concept of “Recognition of Prior Learning” and awarded certificates to candidates (based on their assessments), to indicate their level of skill and expertise that workers had already developed in the informal sector. This certification allowed candidates to showcase their level of skill to future employers, and it gradually gained acceptance within the industry. Today, Labournet is amongst the leading skill training companies in India, even though it works in one of the most difficult areas, that of training informal construction workers. Simple, transparent communication with the trainees and their employers backed by demonstrable impact has been a key success factor for the organization.
If we are to make progress against deeply entrenched societal issues, the long-term view is the only one we can afford to take.
Taking a long-term view is essential
Thoughtful customer protection must consider industry specifics and relevant distribution channels, with simple and transparent communication being the top priority. Only this can put a social enterprise on a sustainable course where it demonstrates value and ensures customer security.
In my next post in this series, I will explore the battle between real demand and customer needs.
Other blogs in this series: