I was reading my friend Hans Taparia’s (Hans is a founder of Tasty Bite) blog today and he wrote about the power of public-private partnerships in driving innovation. In his most recent post, Hans said,

driven by innovation, social ventures that are successful start attracting attention from constituents to policy institutes to the media.  Increasingly, governments won’t want to be “left out” and with their reach could help social ventures scale disproportionately.

What is stated here is very intriguing. On one hand the very reason why social entrepreneurship has taken such a hold on our minds is specifically to address shortcomings in the public sector. It is often failures on the part of our governments that created opportunities for socially-conscious entrepreneurs. However, even with the rise of multinational corporations and international-NGOs, one must acquiesce that the state still plays a critical, potentially transformative role in our daily lives. What Hans highlights here is one example where governments could operate at their best. Responding to successes in the private sector, governments could facilitate the expansion or replication of a proven concept to levels of scale previously thought unimaginable.

However, there is a possible dark side to this dynamic as well. First, what Hans speaks about could also be seen as an institutional creep, a power grab by players in the space looking to capitalize on the success of others. Governments when entering into the private-public arena are susceptible to massive conflicts of interest, as they become both the innovator and regulator — an ongoing dance between two potential foes. Second, such an approach will always remain reactive, with governments relying on the private sector to discover and iterate new ideas. If possible, we need to devise governments that can proactively facilitate and direct new ideas back into the public sector, similar to the ways the East Asian Tigers directed their own rapid technological developments over the past five decades.

Your daily dose of headlines:

• Health: India continues to have the world’s highest number of polio cases this year, with the disease having crippled more children till April than it did during the same period in 2007. [Source: Times of India]
• Children: In a unique lobbying effort, more than 100 ex-child laborers knocked on the doors of Members of Parliament as a reminder about the government’s promise on education for all.
• PPPs: Several major development projects, worth Rs 7,946 Cr, were approved by the Public Private Partnership Appraisal Committee to build infrastructure in 10 states.
• Agriculture: For the first time, a grain reserve will be set up for emergency situations. The Food Corporation of India will build up a five million ton grain reserve, a move that comes at a time when food shortages and rising prices are a major concern.

Waste management is a significant challenge for India, specifically in urban areas, where the accumulation of trash leads to the prevalence of preventable diseases in poor, underprivileged populations. In order to address this issue, change is required on both a systemic and individual level, as the cause of the problem is rooted not only in lack of sanitation infrastructure / policies, but culturally accepted behavioral norms as well. In other words, not only do individuals not believe in maintaining the integrity of public spaces, but there is no formalized system in place to ensure that waste is collected and disposed of properly. Unfortunately, if there is no sense of personal responsibility, as well as no concept of proper trash disposal (neither the infrastructure to support this notion), how can we even begin to take the next necessary steps towards recycling and reuse?

As part of its “Climate Connections” series, NPR recently featured India’s first waste-recycling company, EcoWise Waste Management, the “leading provider of waste and environmental services” outside the Delhi area. To date, the company has achieved the following:

Headquartered in Noida, the company’s network of operations includes 15 collection operations, 2 transfer stations, 2 waste-to-compost plants and 5 recycling plants. These assets enable Eco Wise to offer a full range of environmental services to nearly 1.5 lac residential, industrial, municipal and commercial customers. We collect and treat 40 tons of waste on a daily basis, which would otherwise be found lying on the roadside or make its way to the landfill site.

1. Our activities diverted more than 2,400,000 tons of waste from ending up in land fill sites just last year
2. With 80 manual rikshaws and 8 trucks running on bio-diesel we operate the cities largest fleet of clean vehicles
3. Eco Wise is the only company in India that has its own waste segregation and treatment site.
4. Our operations have permanently shut down more than 15 road side dumps in Noida.

The question, then, is this – if private actors are able to do (efficiently, cost-effectively, scalably) what government entities are supposed to do, how can the government capitalize on the insight of these entities? We’ve talked about PPPs on this site before, but what potential is there for these types of partnerships in the sanitation sector? (More after the break)
Also, this approach addresses only a tiny percentage of the concern regarding lack of infrastructure/enforceability mechanisms in the context of proper trash disposal/collection. Precisely what will it take to make these kinds of initiatives scalable? Certainly, a private entity cannot provide the sanitation infrastructure for an entire country, but how can different sets of actors work to prop up the role of public entities?

Finally, this initiative does not seem to address the most fundamental component of this issue – cultural and behavioral norms. Infrastructure building does not mean anything if it is not accompanied by a simultaneous shift in mentality. Fundamentally, this is a very human problem. As long as people continue to see littering as a socially acceptable norm, no amount of intervention on part of private or public actors is likely to do any good. Catalyzing behavioral change in individuals and communities is also the hardest, as it must take place over the long-term, and requires a significant investment of time, resources, and energy. It requires viewing the issue from the complex lens of human behavior.

How can we do all this at once? One possible route is to capitalize on the strengths of pre-existing institutions and organizations. For example, NGOs tend to do better with the human dimension of a problem, with one-on-one community interaction, capacity building, grassroots-level empowerment, and ultimately, behavioral change. Private actors have the capacity to build infrastructure, to incentivize cost-effective processes, and mobilize sources of funding/capital. Government entities have the capacity (potentially) to implement large-scale, long-term initiatives for the public good, and have (ideally) the resources, the influence, and most fundamentally, the mandate to effect large scale change.

If these actors sit together on one table, along with individuals (such as social entrepreneurs), there is potential for change. Of course, this may be idealistic on my part. What do you think?

To read a related post by Shital, or to get more background on the issue of PPPs in the context of waste management, go here.

[Article source submitted courtesy of Sonal Singhal, Indicorps Fellows 2006-2007]

A recent article on www.sramanamitra.com postulates that SKS Microfinance, which offers “several microfinance options to the poor in India for a variety of businesses from agriculture and livestock purchase to basket weaving and photography,” and has to date “provided over $550 million in microcredit,” will most likely follow Compartamos’ model and go public. According to CEO Vikram Akula and CFO S. Dilliraj, plans for growth in the upcoming years include the following:

By the end of 2008, SKS plans to add 770 new branches to its existing 696 branches to increase its members from the present 1.8 million to 4.2 million and the gross disbursement from Rs 1,200 crore to Rs 5,000 crore. Their aim is to reach 5 million families by 2010.

However, for MFIs like SKS Microfinance, the question of going public is taking place against a fractious backdrop, as debates brew furiously between microfinance gurus such as the founder of the Grameen Bank, Muhammad Yunus, and co-founders of Compartamos, Carlos Danel and Carlos Labarthe, who have been vilified by critics as “pawnbrokers” due to a recent public offering of their former NGO.

According to a recent article from the NY Times entitled, “Microfinance’s Success Sets Off a Debate in Mexico,” at the crux of the debate lies the extent to which MFIs should contribute interest income towards profits (rather than cycling profits back into the organization for the benefit of their borrowers), and to what extent accountability to investors, rather than the borrowers themselves, impacts the fundamental premise of microfinance – poverty alleviation:

Microfinance started in the 1970s with a focus on using this breakthrough to help end poverty,” said Sam Daley-Harris, director of the Microcredit Summit Campaign, a nonprofit endeavor that promotes microfinance for families earning less than $1 a day. “Now it is in great danger of being how well the investors and the microfinance institutions are doing and not about ending poverty.” He said the situation posed the danger of “mission drift.”

Even though both sides agree on the need for the sustainable infusion of capital (consider this in the following context – “Deutsche Bank estimates the global demand for microfinance loans at about $250 million, 10 times the amount that has been lent out”), the question comes down to this: at what cost? Critics argue that the model adopted by Compartamos comes at a grossly high cost for its borrowers, skewing the mission of MFIs in favour of the investors rather than the interests of the borrowers themselves, which, in the case of Compartamos, has resulted in disproportionately high interest rates (read more after the break):

After Compartamos became a for-profit company in 2000, costs fell as efficiencies increased, but the bank kept interest rates high. On average, customers pay an annual interest rate of almost 90 percent, which includes 15 percent in government tax. In much of the world, microfinance interest rates range from 25 to 45 percent. But in Mexico, high costs, inefficiency and limited competition keep interest rates much higher.

Profit is not a dirty word in the microfinance world. The question is how much is appropriate. CGAP estimates the average return on assets for self-sufficient organizations to be 5.5 percent. The figure for Compartamos was 19.6 percent in the fourth quarter.

In response, Compartamos and its proponents claim that “microfinance will help more poor people by tapping the boundless pool of investor capital rather than the limited pool of donor money.” Furthermore, according to www.defeatpoverty.com, proponents of the Compartamos model recognize that “microfinance can’t scale – from 100 million clients today to its potential market of 4 billion – without the capital markets, and the formality capital markets require.” In fact:

As part of their defense, they argue that Compartamos’s success has prompted a number of institutions, including traditional banks and retailers, to start offering financial products to the poor. “We don’t only see ourselves as a specialist in microfinance but also as the builder of an industry,” Mr. Danel said.

Moreover, prominent experts in the field such as Iskenderian of the Kashf Foundation, a well-established MFI in Pakistan, observe:

Microfinance NGOs – many of which have been part of microfinance since its beginning – have distinct social missions. To fulfill those missions, these organizations must have more capital; without access to the capital markets, they simply won’t be able to raise that money. Secondly, these NGOs want to offer new products – such as savings – but they need more money to develop these sophisticated products.

Finally, in response to critics’ claims that Compartamos charges exorbitant interest rates, and pockets a significant portion of the profits, the organization argues that higher-than-necessary interest rates are a function of lack of competition in the microcredit market, and as this disequilibrium balances out with the emergence of more MFIs, rates will automatically come down significantly.

In light of these concerns, however, NextBillion makes an excellent point:

All of us who are involved in commercial transformation—that is, moving microfinance operations from not-for-profit to for-profit institutional forms—need to think more clearly and realistically about the consequences of the resulting changes in governance incentives.

Another key question to take into consideration in the context of the commercialization wave are what specific parameters should be institutionalized in order to ensure that the borrowers’ interests remain paramount, and are not superceded in the interest of profits. The priority, in the end, regardless of the actors involved – NGOs, global financial institutions, for-profit organizations, or traditional donors – should be poverty alleviation. Profits provide an incentive for collaboration with the private sector, and enable MFIs to operate more efficiently, offer a wider range of financial services, and impact a more significant portion of the target population, but the primary goal of enabling both the financial and social empowerment of the poor should never be subsumed by the drive for profits.

Can the two – poverty alleviation and profit – co-exist? Certainly. But just as is the case with the infusion of capital into development projects through public private partnerships (PPPs), the human component must always be kept at the forefront of all collaborative initiatives. I agree with Yunus that profits are necessary to drive sustainable growth, but predatory rates of lending are absolutely unacceptable, especially given the philosophical foundation of microfinance.

Here at ThinkChange India, we are certain that this trend will continue, potentially with SKS Microfinance, but as emphasized in a previous article on the role of global financial institutions, the approach must be tempered according to the primary objective of microfinance: service to the poor.

Meena Gupta, a secretary at the Ministry of Environment and Forests, claims that the Indian government will soon add amendments to municipal solid waste management regulations, and highlighted the private sector’s role in exploring new projects. Merinews, a citizen journalism news portal, quoted Ms. Gupta as saying:

sustainable waste management could materialise only if service delivery was linked to private sector participation. “It is imperative that the private sector comes forward and enables the public sector stakeholders to devise appropriate frameworks that result in a win-win for both sides,” she said, adding that the private sector could also play an important role in building the capacities of municipal bodies. The municipalities, on their part, need to provide guidance for the selection of appropriate technologies.

Solid waste management, along with recycling, presents plenty of opportunities for partnerships. For example, EXNORA is an NGO in Chennai that focuses on the environment through their SoWAM program, which works in muncipalities throughout Tamil Nadu. An India Together article also provides a good background into the various policies in place, as well as the benefits and drawbacks of private sector participation.

Risks of private sector involvement may include a lack of transparency, a commercial failure that would then lead to disturbance of public services, or low cooperation between stakeholders. A World Bank presentation offers different options for contracting mechanisms and other processes to offset these potential risks, and Vinay previously discussed a primer on PPPs.

The opportunity is there, but is it best for the private sector to get involved in offering what can be considered an essential public good? And do the benefits really outweigh the risks?

Some headlines to start your evening off right:

• The government of Himachal Pradesh announced at a three-day international conference this weekend that they are drafting a master plan for the development of backpack tourism in the state through strategic public private partnerships (PPPs).  The government ensured that the plan will “optimise the use of natural resources while ensuring ecological safeguards.”
• In more off-the-beaten track news, West Bengal currently tops the animal cruelty list in India.  In the past three years alone, reports iGovernment, approximately 40,000 animals have faced cruelty in the state of West Bengal. 
• Prime Minister Manmohan Singh convened a meeting of the Cabinet Committee on Prices today in order to address the issue of soaring prices.  The import duty on soybean oil is expected to be cut in order to encourage imports.  India is also expected to stop the import of wheat for this year.
• The Confederation of Indian Industry (CII), in collaboration with the corporate sector of Tamil Nadu, has launched long-term rehabilitation mechanisms for Tsunami victims in the state.  Services include healthcare centers, medical camps for eyes and dental health, clean water supply. 
• The Government of India has allocated Rs. 600 crore for green energy research, design, and development (RD&D).   New schemes include awareness campaigns, incentive-based programs, and development of solar cities and renewable energy technologies for the Eleventh Five Year Plan period. 
• Currently, the National Rural Employment Guarantee Act (NREGA) is operational in 330 districts in the country.  As of April 1st, the scheme will expand to 604 districts of the country.  Rural Development minister Raghuvansh Prasad Singh has also requested that zero balance accounts be created for NREGA workers for the purposes of transparency and efficiency in the deposit process.

In a report entitled, “India’s Malnourished Children: A Call for Reform and Action,” the World Bank warned that malnutrition is a problem with “dire consequences for morbidity, mortality, productivity and economic growth.”  According to a recent Reuters article, this is especially true in India, where millions of babies are born “underweight and then underfed during the crucial early stages of development,” thereby resulting in stunted physical and mental growth.  Moreover, malnourished children ”end up less productive workers, too, costing India about 3 percent of national income.” 

In an attempt to ameliorate this crisis, the National Rural Health Mission (NRHM) has established several “nutrition centers,” or special clinics for malnourished children.  Currently, there are 60 such clinics in Madhya Pradesh, with hopes of expanding to other parts of the country as well:  

The scheme is intended to plug gaps in an older program that failed to reach children in the most critical first two years of life, educate mothers about nutrition and reign in corruption which meant free food handouts went missing. 

However, UNICEF staff members warn that the scheme has its shortcomings:

More after the jump.

Limited beds at the nutrition clinics are far from an end in themselves. They are a last resort, taking in only the most dangerously undernourished children. Two weeks later, they are discharged, most still malnourished, but no longer quite so at risk of dying.

Considering problems associated with cost, scalibility, human resources, and training/skills required of staff, would ready-to-use-therapeutic foods (RUTF) be a more viable, less resource-intensive, and efficient means of addressing the malnutrition crisis?  What benefit could vitamin and mineral fortifed food products engineered by companies such as Grameen Danone have in India’s case? 

What do you think?  What role can RUTF play?  Should the Indian government consider partnering up with the private sector in order to address this problem?  What role do you think community health organizations can play in this process (specifically those that  train field-level health workers - see SEWA Rural)?   What kind of partnership do you envision would be most effective, particularly from the lens of social entrepreneurship?

From ProPoor.org:

Operationalising Public Private Partnerships for Disaster Management
Towards Resilient and Sustainability Goals

16 – 17 April 2008, Pragati Maidan
New Delhi, India

We are pleased to invite you to attend the Conference on Operationalising Public Private Partnerships for Disaster Management being held under the Auspices of National Disaster Management Authority of India (NDMA), Government of India. This will be held at Pragati Maidan, New Delhi, India on April 16 and April 17 2008 for which the focus is on the following four themes :

· Corporate Resilience and Preparedness for Disaster Management
· Business Continuity for Disaster Management
· Risk Transfer through Techno Financial Strategies
· Operationalising Public Private Partnership for Disaster Management

A more complete description is available here.  The attendance fee is INR 3200 or USD 85.  For further details on the conference, please contact Rosaline / Homen / Kirti at: 91 11 65422890 / 46047990, or e-mail conference@responsenet.org

From PFM Blog here is some excerpts on their primer on PPPs.

Though by no means a holistic definition, the primer briefly outlines public-private partnerships as being “arrangements in which the private sector supplies infrastructure assets and services traditionally provided by governments. Some authors add that the presence of external financing as a necessary condition; others focus specifically on design-build-finance-operate arrangements.”

The recent and sudden rise of public-private partnerships in the US is deceptive, as this approach to major infrastructure and capital intensive projects have existed for the last two decades in other areas of the world — with the financing primarily coming from Europe.

Developing countries, in particular, try to develop PPPs to address economic infrastructure bottlenecks. However, the trend is universal: a recent study of PPPs in Europe found that between 1990 and 2005, more than a thousand partnerships had been signed in the European Union alone, representing an investment of almost 200 billion euros.

The primer continues to summarize a framework over how to oversee PPPs to ensure that public assets are not recklessly placed under the supervision of private actors.

1. PPPs should be limited to projects delivering greater Value for Money (VFM) than other forms of procurement.
2. the contractibility of the quality of service,
3. the transfer of a significant share of risks to the private sector,
4. the presence of competition or incentive-based regulations,
5. a sound institutional and legal framework,
6. a sufficient level of technical expertise in the government, and, last but not least,
7. the proper disclosure of PPP commitments, along with government guarantees, in government financial statements (and in debt-sustainability-analyses)

For the entire article, go here.