How Anand Mahindra is helping social enterprises scale up with philanthropic capital

Shiny-red coffee cherries in open-mouth jute bags, placed like talismans on mud platforms of homesteads, lend a splash of colour to the otherwise dull grey-brown hues of Misurigondiguda hamlet in the tribal belt of Andhra’s ArakuValley. Most of the villagers are indoors, but as the laboured drone of a vehicle gets louder, they spill out and break into an excited Adivasi dialect, even as a red truck comes into view.
Joe, a member on the board of the Small and Marginal Tribal Farmers’ Mutually Aided Cooperative Society, also a village resident, quickly helps pull out a weighing machine from the truck. With a register in hand, he supervises the weighing of the cherries with muted cheer and a dash of authority.

Bodaya has brought in 70 kg of cherries. A smile slips past Appalamma’s lips as she realises she has already crossed 300 kg for the season. Another farmer in the throng, Govind Dalapathy, recounts how his coffee bushes are now yielding an increase of 100 kg a season.

“It’s the bio-dynamic way of farming,” he says, also expounding how Naandi Foundation has covered 91 villages under the new farming initiative. The red-truck service is for a select 17 villages with an exceptional record in quality enhancement and yield.

It was in 2008 that Naandi chaperoned the creation of the tribal co-operative in Araku with a mere 1,000 farmers. A captive 400-tonne coffee processing unit came up a year later. Today, the co-operative serves 10,500 farmers covering 15,000 coffee acres.

Scaling up has been religion at Naandi, one of the fastest growing non-governmental organisations of the past decade. Its founder-chairman K Anji Reddy of Dr Reddy’s Labs died in 2013. Anand Mahindra, chairman & MD of the $16.7 billion Mahindra Group, an ardent Naandi supporter, immediately took on responsibilities as its chair.

This association is slowly showing the world how philanthropic capital can fire social enterprises.

“I am making a pitch for a new avatar of philanthropy,” says Mahindra. It manifests in the form of a new genre of for-profit social businesses he is catalysing. For now, they betray shades of the ‘no-loss, no- dividend’ social businesses propagated by Nobel laureate Muhammad Yunus, but are actually set in a slightly different mould.



Mahindra has even attracted some of Yunus’ partners in social business like the €21 billion French foods giant GroupeDanone and also heavyweight family foundations like the Michael & Susan Dell Foundation (M&SDF). Franck Riboud of Danone and Mahindra share a deep passion for recalibrating businesses in the social context. Riboud has always maintained that poverty cannot be solved by charity; it’s not sustainable. Shared value is what fascinates Mahindra.

Mahindra points to Mahindra Rural Housing Finance with bottomline growth of 50%, especially in a weak environment for financial services. “Providing low-cost housing loans to the unbanked is turning out to be the fastest growing profitable opportunity we have today in the entire Mahindra Group,” he explains.

It was therefore only a matter of time for the shared value and sustainability thinking to permeate into his philanthropic work. Writing out cheques for social projects is limiting and shortterm. Scale and sustainability has to be the cornerstone for work in the social sphere too. And if there is a blurring of lines between business strategy and philanthropy, so be it.

Mahindra’s co-investors in equity also don’t mind the shades of grey. “We didn’t come in expecting returns; but if you ask me whether these social businesses should be in a position to pay dividends; the answer is yes,” says DebasishMitter, India director, M&SDF. Plain vanilla grants don’t entice anymore.

Mahindra therefore is firmly on the road to activism and experimentation. Ajay Piramal, Adi Godrej et al are also doing the same in their own ways.

Mahindra has extended personal philanthropic monies to three social enterprises — incorporated as private limited companies — as equity capital. It’s largely about spinning various activities of Naandi into for-profit verticals; Naandi Community Water Services (NCWS), Naandi Education Support and Training (NEST) and Araku Originals. He won’t take any dividends from the companies.

The fourth: Mahindra Namaste, is slightly different as the Group’s initial corporate social responsibility work in skills training (the Pride schools) has been morphed into a social enterprise with equity infusion from Mahindra Partners, the private equity division of the Group. Though infused with commercial capital, it remains a business with a soul.
Manoj Kumar, Naandi CEO, sets the leitmotif: three of the social businesses revolve around the charging of user fees. Those at the bottom of the pyramid, the underprivileged, are its customers barring Araku Originals, the marketing arm of the tribal co-operative, which is selling premium coffee to several boutique roasters in the West.

Again, the one aspect that separates the Naandi-Mahindra model of social business from proliferating for-profit social enterprises, backed by impact investors, is the very active involvement of Mahindra himself.

Mahindra brings credibility, heft, expertise and networks. Emmanuel Faber, Danone CEO, attends board meetings and is totally engaged in the work of NCWS in which danone.communities, a social business network, has also invested.

“A company that is large can make a better, lasting change by aligning entrepreneurship with philanthropy,” explains Mahindra.

Aarti Wig, India head of Yunus Social Business-Global Initiative, a social accelerator, tends to agree. “More than the money, the non-financial aspects of the partnership are critical,” she says.

For starters, the CEOs of the four companies are swashbuckling managers drawn from global high-finance and the corporate world.

Take Araku Originals. A global branding and promotion exercise, beyond the ken of any small social enterprise, is gaining traction. Its speciality coffee now fetches over $5 for a pound overseas. As the value dynamics change, an organisational restructuring is also on. “The farmers’ co-operative will soon hold equity in the marketing company,” reveals Anupama Sreeramaneni, head of Araku Originals.

The Danone connection has also netted farmers in Araku over Rs 14 crore for a massive tree plantation drive from the Paris-based Livelihoods Fund. The Fund extends carbon credits to corporations through projects in developing countries. Over six million trees have been planted over 14,000 tribal acres already, including 1.5 million mango trees which are beginning to bear fruits.

The incomes of tribal households which hover around Rs 15,000 per coffee season are set to increase manifold. Manoj is now emboldened to talk of a billion-trees programme.

“We are also exploring the possibility of working with famers in Punjab and Danone on fodder grass,” says David Hogg, Naandi’s chief sustainability officer. Hogg is also keen to take organic farming to scale and is therefore crafting machinery and tools to take the drudgery out of it by drawing on expertise vested in Mahindra’s farms verticals.

Anoop Ratnaker Rao, CEO of NCWS, is battling viability challenges every day. Most decisions are now data- and outcome-driven and his people from NGO backgrounds now seek a ‘business case’ for anything they do. “In water, margins are so thin that unless elements of innovation are constant, in reducing costs and increasing efficiencies, the enterprise is certain to die,” says Rao. The company distributes treated water in a price band starting 10 paise a litre but even that is often questioned by rural consumers in states like Punjab, accustomed to freebies.

Raj Iyer and his colleague Manish Jha at Mahindra Namaste are not happy with the lowhanging fruit; of skills training and placing youngsters through a 90-day programme. They are now negotiating with universities, business schools and institutions for on-campus or extended term training. A five-day format spread over 180 hours of a four-semester MBA programme is being tried out. It takes the enterprise to the next level.

“Associating with a brand like Mahindra was alluring,” says Sanjay Fredrick K, director of the Hyderabad-based Carlton Business School. “It will also help me with student recruitment in the next academic year.”

NEST, which provides after-school tuitions to underprivileged children, holds much promise. “It’s already showing a 30% improvement in learning outcomes,” says Saurabh Chauhan, CEO. “We want our centres to be a pit- stop for all learning needs in the future.” Mahindra has put in Rs 4 core in NEST; M&SDF topped it with another Rs 8 crore.

“The fact that Anand’s seed equity in NEST attracted a multiplier of equity from M&SDF only means the model has arrived,” says Manoj. He would like more philanthropists to join in. All of this is very well. What if these enterprises lose their social soul along the way? Mahindra says the memorandum or articles of association of the companies won’t allow this. Chauhan reveals that NESTs shareholder agreements, for instance, makes it clear that the company will not work in communities where the average monthly household income exceeds Rs 15,000.

Another niggly worry. Can philanthropic monies alone or profit ploughbacks drive a social enterprise in perpetuity?

Mahindra is aware that eventually commercial monies will have to come in as scale and other challenges heighten, and therefore, is open to mainstream impact investors channelling capital in these entities. Here it differs from the Yunus model.

“For those who bring in capital, we should be willing to service the capital the way they want it serviced,” he says. However, his personal commitment to no-dividends would remain.

Mahindra is certain that with time, more and more entrepreneurs and also intrapreneurs within companies will see merit in solving community issues as a business opportunity. Large companies or business leaders as anchors can only accelerate the process.