Description
This particular brief elucidation in regard to social entrepreneurship in pakistan unlocking innovation through enterprise incubation.
1 EPG Economic and Strategy Consulting
Priya Shah, Shailabh Shubhisham
December 2012
SOCIAL ENTREPRENEURSHIP
IN PAKISTAN: UNLOCKING
INNOVATION THROUGH
ENTERPRISE INCUBATION
2 EPG Economic and Strategy Consulting
3 EPG Economic and Strategy Consulting
The process to
re-engage
entrepreneurs in
Pakistan should
begin with
harnessing the
skill-sets of the
youth
PREFACE
Pakistan’s population of 177 million is facing a demographic youth bulge. This is fertile
ground for developing human talent. There is a strong need to build managerial capacity,
quality education and skills training.
Under the current circumstances, businesses in urban areas are fraught with contractual
obligations, political disputes and corporate governance issues. Religious tensions in
rural areas are grounds for political activism, stemming from unemployment and low
productivity. Frequent policy changes have contributed to the dampening of ambitions
and entrepreneurial visions for success.
The process to re-engage entrepreneurs in Pakistan should begin with harnessing the
skill-sets of the youth. Inward investment should be targeted at developing human talent
to spearhead the growth of early-stage enterprises in rural and urban areas.
A fifth of global young entrepreneurs see a gap in the market that they think they can fill
and a fifth also feel that their knowledge and skills are best suited to being an
entrepreneur.
Entrepreneurship involves adaptability through overcoming obstacles, consistently
innovating processes, engaging in dialogues and actualising new visions. Mechanisms
to finance these entrepreneurs and provide them with non-financial resources are crucial
in countries like Pakistan.
In 2011, at the Global Entrepreneurship Summit in Istanbul, Turkey, U.S. Vice-President
Joe Biden urged older entrepreneurs to mentor the younger generation by sharing the
wisdom gained by their successes and their failures. Universities and corporations were
requested to collaborate through research and internships to nurture and develop the
entrepreneurial skills of students.
The most valuable resources on the planet are not material but rather individual and
collective creativity. New models of social entrepreneurship are fast gaining headway in
Pakistan. These models both harness the skills of young entrepreneurs and maximise
the available resources (both natural and technical) to create sustainable systems for
change. Crucially, funding for small enterprises should meet the specific needs of the
entrepreneur from seed financing to venture capital to growth equity.
This funding can be driven by the incorporation of business school incubator hubs and
policy frameworks to facilitate social innovation. Social entrepreneurs need mentorship,
implementation guidance, and skills training development. The challenge in Pakistan is
to drive the social entrepreneurs towards projects that generate both financial return and
long-term social impact.
Investment should support the growth of high-potential social enterprises and break the
“glass ceiling” that hinders their development. This glass ceiling could include regulatory
and tax burdens, as well as employee skills gaps and shortage. Examples of non-
financial resources include business development services, financial literacy
programmes, technology advice and mentoring, alongside access to networks and
markets.
The creation of hubs or space-based support allows for a collaborative engagement on
similar models of success. Through value chain analysis, case studies and policy
framework tools, this paper explores how incubator hubs can unlock the innovation
potential of Pakistan’s social entrepreneurs.
4 EPG Economic and Strategy Consulting
CONTENTS
Executive Summary 5
The Business School Incubator Model 7
Public and Private Funding 9
Research and Development 10
Infrastructure and Entrepreneurial Culture 11
Indian Case Study: IIMA 14
A comparative Value Chain Analysis 16
Policy Frameworks 18
Conclusion 22
References 23
About the authors 25
Recent thought leadership 26
About the Economic Policy Group
The Economic Policy Group ("EPG") is an economic and strategy consulting firm based in London. We offer economic and regulatory policy advice, social
investment impact analysis, litigation support and business management expertise to corporations, governments and the third sector around the world. More
information can be found at www.economicpolicygroup.com.
© 2012 EPG Economic and Strategy Consulting. All rights reserved.
5 EPG Economic and Strategy Consulting
Policymakers,
educational heads
and social
entrepreneurs are
paramount to
building a
sustainable and
stable knowledge-
driven economy.
EXECUTIVE SUMMARY
In the context of the accelerating pace of globalisation, the stiffening of competition and
financial instabilities in the West, the focus is shifting from developed markets towards
emerging markets.
The next decade will be the first time since the Industrial Revolution when emerging
economies will add more to global growth than all developed economies combined. In
some sectors, this growth will factor in to more than 80%.
1
Entrepreneurial businesses
will be able to develop new business models which focus on high value-add niche
segments whilst complementing the value chains generated by large corporations.
Interestingly, the educational sector holds great potential in the emerging Asian Markets.
But what sets it apart from the other conventional sectors? Business schools in countries
such as India and Pakistan have huge growth potential in both delivering financial return
on investment and social impact return.
This report will analyse the business education sector in Pakistan and examine how
incubator models can harness the potential to develop enterprises which serve both
commercial and social purposes.
There is a cross-dependency of various factors which can help to foster the combined
growth of business education and social entrepreneurship in Pakistan. Policymakers,
educational heads and social entrepreneurs are paramount to building a sustainable and
stable knowledge-driven economy.
Figure 1: The macroeconomic environment
Source: EPG.
The figure above gives a snapshot of a market structure which fosters growth and
development at all levels of governance. The objective is to incorporate this on a micro
level to the business education sector for which an incubator hub can be analysed in
greater detail.
Pakistan is home to numerous microenterprises in rural and urban areas, which serve as
a pipeline for two players: a) policy-makers, for whom long-term social impact can
address community needs; and b) investors, who will need greater deal flow to finance
these microenterprises.
1
McKinsey & Company (McKinsey), "The Power of Many: Realizing the socioeconomic potential of entrepreneurs in the 21st century",
October 2011.
Macroeconomic Environment
Political Business
A sense of security in
terms of a stable
environment for long
term investment
plans.
Provide a sense of
justice and uphold
law. Enforce
analytical and ethical
jurisprudence .
Social fabric that
stems to provide
equal social
opportunities.
Business
environment wherein
investors feel safe
and understand the
risk and returns of
investments.
Legal Social
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In an effort to promote foreign investment, the Government of Pakistan has employed
taxation exemptions in the following sectors: interest income on foreign currency
accounts, capital gains on sales of shares of listed companies, income from manufacture
of solar energy equipment and income from fruit processing. Renewable energy and
agriculture are fast-growing sectors in Pakistan, whilst mobile banking and other
technology-infused consumer industries.
The development community in Pakistan has tried to address the challenge of inefficient
funding to smaller enterprises at the base of the pyramid by creating microfinance
lending instruments and private sector intermediary institutions, including those
supported by the International Finance Corporation.
Microfinance Banks (MFBs), such as the Kashf Foundation, First Microfinance Bank Ltd
and the Orangi Pilot Project are established as separate legal structures administered
and regulated by the State Bank of Pakistan. These institutions have made considerable
strides in Pakistan in improving access to capital from loan sizes of US$10 to more than
US$1,000 for small businesses. Currently, default rates for SME clients of MFBs in
Pakistan are amongst the lowest in the world, highlighting the success of the sector and
the strength of their legal structures.
This paper will examine how both public and private sectors in Pakistan can maximise
the opportunities in the nascent social enterprise sector in Pakistan, by harnessing the
skills of young social entrepreneurs and investing in incubator hubs to further projects
that achieve both financial and social returns.
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THE BUSINESS SCHOOL INCUBATOR MODEL
Investment in higher education programmes should maintain a focus on better alignment
of student skill-sets to the economic fabric of the market.
Pakistan requires a dynamic approach towards education to ensure socio-economic
growth. The roles of the government, the private sector and infrastructure in building
business education hubs are crucial.
Universities should promote knowledge transfer and talent exchange both by creating
R&D incubator hubs as well as strengthening academic potential. The formation of
university clusters could be a powerful launching pad for developing different facets of
innovation strategy.
Figure 2: The Business Incubator Model
Source: EPG.
The figure above presents an overview of the various macro inputs which need to be
taken into consideration from both an investor and a policy perspective. Our approach is
to deliver a comprehensive analysis of each support framework.
A research study claims that “five years after graduation, the average annual income for
entrepreneurship majors and MBAs who concentrated in entrepreneurship was almost
27% higher than for other business majors and students with standard MBAs”.
2
Business schools can best provide platforms for entrepreneurial skills that will help
students identify new business ideas and provide them with a practical approach
including a willingness to take calculated risks, the ability work effectively in a team, the
creative skills to organise resources and the vision to recognise opportunity.
2
S.A.J. Shirazi, "Tapping the Entrepreneurial Spirit", Pakistan Today, 3 August 2011. Accessed 30 December 2011).
Government
Support
Research and
Development
Funding
Infrastructure
Technical (initial
expertise f or business,
sales, marketing etc.)
Organisational
(management inputs plus
relational support f or
human resources
development )
Inf rastructure (providing
initial capital, land,
equipment)
Private investors
Goverment grants and
donations
International publications Research grants
Faculty-Student ratio
(indicator of quality
assurance)
Campus area,
computers, Bloomberg
and Reuters terminals,
Library
Incubation centre f or
business start-ups:
provide initial seed
f unding
Self generating f unds
(regular, executive
courses, vocational etc
courses)
Business
Education
8 EPG Economic and Strategy Consulting
The Association to Advance Collegiate Schools of Business (AACSB) is a global, non-
profit membership organisation of educational institutions, businesses and other entities
devoted to the advancement of management education. Established in 1916, AACSB
International provides its members with a variety of products and services to assist with
the continuous improvement of business programmes in their schools.
3
Below is a tabular representation of the estimated number of global educational
institutions offering business degrees at any level, as of January 2012.
Figure 3: Estimated number of educational institutions offering
Business degrees (January 2012)
Source: AACSB, Page 9, Business School Data Trends and 2012 List of Accredited
Schools, 2012.
There are 99 higher education institutions offering business education in Pakistan.
Although this is still a significant number, a major concern has been the rapid formation
of business schools across Pakistan more for monetary reasons rather than the creation
of socio-economic and quality academic hubs.
There has been a mushrooming of educational institutes, outside universities, in
Pakistan, especially those providing business-related degrees. However, these often
lack the credibility and quality of private sector institutions.
4
Nevertheless, there are institutions which aim to improve the quality of business
education in Pakistan and foster entrepreneurship. In July 2011, Pakistan hosted its
inaugural Junior World Entrepreneurship Forum Conference at the Lahore School of
Economics which was attended by large number of young scholars from UET, LUMS,
UCP, Punjab University, FAST, NUST, IM Sciences and Lahore School of Economics.
3
AACSB website homepage. Accessed 6 October 2012.
4
A.A. Qureshi, "How do perceptions of the importance of Service-Quality Determinants differ across key stakeholder groups in the
Pakistan Higher Education Sector?", MPhil Thesis, March 2012.
0
500
1,000
1,500
2,000
2,500
Number of Institutions
9 EPG Economic and Strategy Consulting
The mission of the
HEC is to facilitate
institutions of
higher education
to serve as
engines of growth.
The MIT Enterprise Forum of Pakistan is a good example of a membership organisation
which promotes the growth of innovative and technologically-oriented enterprises
through specialised executive education programmes. These programmes include
roundtables, discussion panels, investor forums and awards ceremonies which
showcase successful entrepreneurs. The executive education includes developing and
providing linkages for angel investors in Pakistan, discussing exit strategies, investor
incentives and regulatory frameworks to create an enabling environment for social
investment in the country.
PUBLIC AND PRIVATE FUNDING
Funding for incubator hubs in business schools must be aimed toward the objective of
long-term sustainability. The funding support should partially come from the
Government, forming a basis for fixed costs, namely, staff, utilities and rental expenses.
It is also in the interest of the government to build a solid foundation of business schools
for socio-economic development. Private funding also plays a role in determining the
scope of upside, or Return on Investment (ROI), for the investor.
The Sharpe Ratio
5
of the investment on business education should be calculated not
only in terms of pure financial gain but also in terms of the social impact returns. In the
long-term, business schools should be able to self-sustain and generate funds from full-
time and executive education programmes as well as initial capital investments to
incubator hubs.
The Higher Education Commission (HEC) is an educational body in Pakistan which was
formed in 2002, committed to providing a platform for socio-economic development.
HEC is dedicated to improving both the quality and quantity of business education
institutions and assist in its development from both macro and micro perspectives.
Dr Javaid R Laghari, the Chairperson of the HEC stated: “The mission of the HEC is to
facilitate institutions of higher education to serve as engines of growth for the socio-
economic development of Pakistan. HEC is faced with three key challenges: (a) quality;
(b) access; and (c) relevance.”
Whilst Government policies should support the creation of incubator hubs, they can aim
to minimise their input in the admission, governance and management of business
schools. Business schools need to have autonomy to grow so that rather than being a
centre of political focus in the long run, they can be more focused on wholesome
educational development and socioeconomic reform.
The Government can initiate support business schools in three areas:
? Technical (information technology, equipment);
? Operational (management, human resources); and
? Infrastructural (freehold land, buildings at a discount).
The Government of Pakistan has shown a commitment towards building social
entrepreneurship hubs in the country through partnerships.
An example of a government-run programme is the Benazir Bhutto Shaheed Youth
Development Programme, initiated by the Government of Sindh, which addresses the
issue of unemployment by developing human talent in the province. The Programme
5
A ratio developed by Nobel laureate William F. Sharpe to measure risk-adjusted performance. The Sharpe Ratio is calculated by
subtracting the risk-free rate from the rate of return for a portfolio and dividing the result by the standard deviation of the portfolio
returns.
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Improved
connectivity and
innovative IT
systems can
cultivate
information
exchange and
knowledge
transfer.
provides opportunities for skill development to approximately 100,000 semi-literate and
educated unemployed youth in Sindh for a period varying between three months to one
year.
The Government of Pakistan has also functioned as a social intermediary, funding the
Women Business Incubation Centre (WBIC), established by the Small and Medium
Enterprise Development Association (SMEDA). This centre provides hands-on support
to women entrepreneurs. Uniquely, the incubator offers training programmes to new
business ventures and supports existing enterprises owned and managed by women,
specifically in early stages when fledgling businesses are most vulnerable.
Women, often seen as careful and meticulous in their approach to business ownership,
are increasingly collaborating in community structures to create larger enterprises. This
cultural movement in Pakistan’s social structure holds much promise for investors
considering long-term investments, which should include raising employment,
diversifying skill-sets and broadening the scope of investment to wider segments of the
population.
RESEARCH AND DEVELOPMENT
Research and Development (R&D) is often one of the main components in the quality
evaluation of business school incubator hubs. Universities with R&D units are an
important facet of the social innovation strategy and the development of successful
entrepreneurial ventures in incubators.
Improved connectivity and innovative IT systems can cultivate information exchange and
knowledge transfer, creating in effect a virtual self-support network across business
schools in Pakistan.
Publication of research papers can also drive government grants for R&D. Support for
the publication of social entrepreneurship papers and articles in global journals can
encourage business school faculty to participate in international business conferences
and present their research findings, winning credibility in the social entrepreneurship
field. For example, the Lahore University of Management Sciences (LUMS), Iqra
University and Karachi and National College of Business Administration & Economics
have been very active in achieving recognition in social impact journals.
A generation of business leaders can be bred who participate in economic and social
policies and assist in creating a stable environment to promote social entrepreneurship.
The Karachi School of Business and Leadership (KSBL) has taken steps to encourage
R&D initiatives. KSBL is one of the highest-ranked business schools in Pakistan, and
was established by Pakistani business leaders who recognised that Karachi, the
business and commercial hub of Pakistan, needed a world-class business school.
By promoting economic and social change, KSBL’s objective is to nurture leaders who
create positive social impact in domestic projects through their knowledge, skills,
expertise and contribute to global best practice. The Dean of KSBL, Robert Wheeler
said, “We’ll cut back on the administrative work that faculty is often required to do in
Pakistan and encourage them to do applied research that could be used in the industry,
government and business.”
6
Furthermore, the Virtual University is an example of a non-profit educational institution
established by the Government of Pakistan which uses media and technology to create
knowledge transfer in Pakistan. Using free-to-air satellite television broadcasts and the
6
Haq's Musings, Riaz Haq blog, "KSBL world class business education in Pakistan", 3 January 2012. Accessed 6 October 2012.
11 EPG Economic and Strategy Consulting
internet, the Virtual University allows students to follow its rigorous programmes in a
virtual format, regardless of the students’ physical locations.
The University also aims to alleviate the lack of capacity in the existing universities while
simultaneously tackling the shortage of qualified professors in the country. The
University opened its virtual doors in 2002 and in a short span of time, it has reached
more than a hundred associated institutions providing infrastructure support to the
students. Pakistani students residing overseas in several other countries of the region
are also enrolled in the University's programmes.
Another example of a successful incubator hub is at the Institute of Business Education
(IBA), established in Karachi in 1955 with initial technical support from the Wharton
School of Finance at the University of Pennsylvania and the University of Southern
California. IBA’s Centre for Entrepreneurial Development (CED) aims to promote
entrepreneurship education at the university-level, a programme that culminates in a
business plan competition in which students pitch their business ideas to a panel of
judges.
Moreover, the IBA CED is not just geared towards students at IBA in Karachi – it targets
a consortium of eight universities across Pakistan – including those in Quetta, Peshawar
and Islamabad. This extension of the programme gives students in lesser known and
smaller universities access to quality entrepreneurship education, skills and
opportunities.
INFRASTRUCTURE AND ENTREPRENEURIAL
CULTURE
Infrastructure development for incubator hubs in business schools can take the form of:
? Phd faculty;
? a higher ratio of faculty to students;
? higher standard of buildings; and
? improved equipment.
The incubator hubs should be aimed at forming viable and scalable business models
aimed at social innovation. By strengthening the incubator hubs, one can promote
entrepreneurial opportunities to students, enhance their skill-sets through consistent
mentorship programmes, and provide them with access to capital. A big challenge in
Pakistan is the lack of entrepreneurial culture. University graduates spend large amounts
of time searching for employment in a job market where private sector opportunities are
poor.
The Youth Engagement Services Network in Pakistan is an example of an organisation
which plays a leading role in developing entrepreneurship so that Pakistan’s youth
becomes the ultimate beneficiary of the economic development process. Their mandate
is to strengthen youth-led SMEs in order to spread social innovation models locally by
building strong links with public, private and educational institutions. Other change-
maker networks in Pakistan include Social Innovation Hub, Ashoka Pakistan and
Pakistan Sustainability Network.
Importantly, business plan development is a strong component of the incubator hub. At
the rural level, the WBIC offers business development services including training
programmes to women entrepreneurs. The effort is focused on encouraging new
business start-ups and the provision of support to existing enterprises by nurturing the
growth of businesses owned and managed by women to an extent that these become
sustainable; more specifically, in early stage, when they are most vulnerable.
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Entrepreneurship
consistently
bridges the gap
between the
private sector,
human capital,
intellectualism and
government
At the urban level, youth organisations such as the Pasha Social Innovation Fund
provide entrepreneurs with business plan mentoring for cost-effective technology
implementation to social ventures. Similarly, training entrepreneurs in succession
management is crucial to ensuring the longevity of their enterprises, encouraging
replicability and providing scalability to other regions of the country. When a business
plan training programme has been put into place, an inter-generational knowledge
transfer will transpire and the culture of innovation will evolve.
In addition, building quantifiable and measurable targets adapted to rural and urban
environments in Pakistan as well as assessing investment readiness of the target
enterprises will be useful to fostering entrepreneurship. A large portion of early-stage
enterprises in Pakistan do not have the in-built skill sets to administer complex financial
products.
Due to this reason, and because the risk of default is lower in the growth stage, fewer
investors invest at the early stage. This means that the distribution of capital is skewed
towards the growth stage, while early-stage enterprises find it difficult to raise capital.
The pipeline, or deal flow for funding, structured across a range of risk and return
scenarios, needs to be better formed, and there needs to be more support for early-
stage enterprises. This goes hand-in-hand with the need for greater ?nancial literacy;
financial options across all stages of the organisational lifecycle; legal contractual
mechanisms to protect against mission drift and take-over and incentives to diversify
funding and the income base.
In this regard, combining the guarantee of loan capital with comprehensive mentoring
systems could drive a self-sustaining ecosystem of enterprises. Concerned parties need
to establish the appropriate metric system to transcend the conventional players – the
investor, the investee and the fund – and to examine the broader range of intermediaries
in the market.
The challenge for the investor is to identify the entrepreneur at an “inflection point”,
where the injection of loan capital would catalyse rapid growth in the enterprise and
influence both policy and grassroots development. The idea is not simply to grow one
organisation but to grow the sector industries at large, as success is often built through
collaboration. Entrepreneurship consistently bridges the gap between the private sector,
human capital, intellectualism and government, allowing for sustainable and scalable
growth across multiple sectors.
Investors also need to assess social impact and gauge whether entrepreneurial ventures
are actually effecting change in the communities and building unique and innovative
business models. The formation of an ecosystem will help to achieve this long-term
investment objective and further clarify the goals of the individual entrepreneurs in order
engage the right players that are needed for these early-stage enterprises to succeed.
Developing entrepreneurs could also take the form of initiating a “Fellows” system
comprising of Pakistan’s most inspirational social entrepreneurs who are eager to make
a long-term social impact. The Fellows System can create mentorship networks around
the incubator hubs, build a narrative around social entrepreneurship and help to
generate qualitative data for investors to account for ROI taking into account the “triple
bottom line” (TBL).
7
By sharing a passion for their projects, Fellows can help raise awareness of social
entrepreneurship through media interviews, speaking engagements and online
platforms, as well as engaging with both policymakers and private sector investors.
7
TBL accounting expands the traditional reporting framework to take into account social and environmental performance in
addition to financial performance."
13 EPG Economic and Strategy Consulting
An example of a Fellow for Pakistan is Dr. Asher Hasan, Founder and CEO of Naya
Jeevan, a non-profit organisation dedicated to regenerating the prospects of low-income
families by providing them with affordable access to quality healthcare infrastructure.
Naya Jeevan offers its insurance programme in Pakistan at subsidised rates under an
innovative health insurance model, underwritten by Allianz-EFU, IGI Insurance, and
AsiaCare. Hasan is a 2009 member of the Clinton Global Initiative, a TED Fellow and a
Draper Richards Social Entrepreneur Fellow for 2009-2011.
Roshaneh Zafar is another example of a Fellow who established Pakistan’s first
interconnected conglomerate of microfinance-based companies, the Kashf Foundation
and the Kashf Microfinance Bank. The Kashf Bank has so far attracted 15,000
depositors, a quarter of whom are women. Zafar aspires to increase this number to one
million by 2015 and aims for two-thirds of the recipients to be women.
8
In addition to the
bank, Zafar is diversifying the brand into an insurance company, a financial education
company and a business incubator to support the needs of micro-borrowers and help
them scale and expand their businesses.
8
Embassy of the United States, Press release, "Roshaneh Zafar: Pakistani Miracle Worker", 2010. Accessed 6 October 2012.
Case Study
Invest2Innovate (I2I) is an example of a social intermediary which provides tailored
services to early-stage enterprises both to grow their businesses and connect them to
capital.
Pakistan is the pilot market where the intermediary plans to support the growth of a self-
sustaining ecosystem of microenterprises, fostering entrepreneurship using top-down and
bottom-up approaches.
I2I is keen to mentor entrepreneurs through its incubator function and Accelerator
programme, and aims to create an enabling environment for technological innovation by
cultivating local, regional, and global partnerships necessary to grow the social innovation
space.
I2I caters to a diverse range of early stage enterprises, some of which include MilkOp, a for-
profit enterprise that offers support to dairy farmers; a non-profit enterprise that delivers
affordable clean energy solutions to empower the rural poor; and Hosh Media, a social
enterprise that aims to transform Pakistan’s media industry by empowering and engaging
Pakistan’s youth in quality journalism online.
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INDIAN CASE STUDY: IIMA
Entrepreneurial ventures lend momentum to business schools and the creation of
incubator hubs. In this report, the Indian Institute of Management, Ahmedabad (IIMA) is
used as a proxy model for Pakistan.
A key assumption for the proxy model is that within 10 to15 years, Pakistani Business
Schools can achieve the same growth trajectory as the current crop of Indian Business
Schools. The development of an economy is influenced by the growth and success of
entrepreneurs, and we present below a comparative graph showing the export intensity
for India and for Pakistan.
Figure 4: India and Pakistan export intensity (1980-2010)
Source: World Bank.
In the figure above, one can note that India excelled in export intensity (measured as
export dollars per capita). By contrast, Pakistani businesses struggled with infrastructure
deficit, security concerns, poor governance and regulation and lack of entrepreneurial
growth.
Pranay Gupta, CEO of Centre of Innovation and Entrepreneurship at the Indian Institute
of Management, Ahmedabad (IIMA), offered recommendations to students keen to
pursue entrepreneurial activities and start social ventures.
? A primary concern for many students is the opportunity cost of turning down
business school offers to launch riskier entrepreneurial ventures.
IIMA proposed that entrepreneurial students can apply for company placement
programmes 2 years after setting up their business venture. This increases student
confidence to invest in new business ventures. Statistically, IIMA has seen 20 to 30
-
50
100
150
200
250
300
350
400
1970 1980 1990 2000 2010
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p
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15 EPG Economic and Strategy Consulting
students launch their own start-ups; only 2-3 students have returned to apply for
company placements. The batch size is approximately 300, therefore around 10% of the
batch size takes the entrepreneurship route and only 10% of those who take the
entrepreneurship route return to complete business school.
? Many students have concerns that launching an entrepreneurial venture would
impair the payback of study loans (typical study loans are of the range of
INR1.5m).
IIMA, with the help of its alumni pool, created an entrepreneurship fund which allocates
an initial salary to entrepreneurs so that they are able to pay off their loans. IIMA has
also requested banks to push back the loan payoff date by one year. The typical seed
funding provided by IIMA is of the order of INR2.5m (approximately US$50,000). The
funding for entrepreneurial ventures is provided by the Indian government with a clause
to repay the funds in a particular time frame if the venture starts making profit.
Interestingly, there is no obligation to pay back seed funds if the business venture does
not have any operating profit and closes down.
However, there is a strict set of rules and regulations as to whom and how the funds are
allocated. A panel assessment of the business plan is initiated to determine its feasibility
and success. IIMA professors and industry experts make the final decision on whether
the business plan can qualify for seed funding from the Institute.
Figure 5: Benefits of an entrepreneurial system in business schools
Source: EPG.
Figure 5 shows that the ROI of business school incubator hubs is not only financial but
also social, entrepreneurial and political, and form an integral part of Corporate Social
Responsibility (CSR) activities. The arrows pointing outwards show the benefits or
outputs generated from the establishment of incubator hubs in business schools. By
contrast, in Figure 2, the arrows pointing inwards show the inputs that are needed to
successfully establish a business school incubator hub. There are some extra
parameters for organic growth which can be tailored as per policy and investor needs.
Business
Education
Financial
Social and
Reputational
Entrepreneurial
Political
Monetary gains in terms
of f ees f rom students and
executive courses
Increased grants f or
R&D, and travel activities
Donations f rom alumni,
f unding f rom investors
Entrepreneurship helps
gain momentum f or
business schools
Providing jobs to
unemployed youth as
part of a bigger picture of
CSR
CSR through innovative
courses related to carbon
and waste reduction, and
raising money f or
charities
Helps indirectly create a
stable political system by
providing understanding
of domestic and
international policies
Setting up of new
ventures relevant to local
and international
business
Social ventures related to
education, healthcare
lend a strong support f or
the CSR activities
16 EPG Economic and Strategy Consulting
A COMPARATIVE VALUE CHAIN ANALYSIS
A value chain analysis is a strategic representation of the various primary activities that
help generate an output. For the establishment of world-class business school incubator
hubs, there are various factors which would constitute as inputs. These inputs are then
compared across different business schools and a comparative assessment is made
about the strengths and weaknesses of each incubator hub.
Value chain analysis is important in allowing both public and private investors to
evaluate the quality of the outputs. Below is a short comparative analysis on Pakistani
business schools which ranks them as per a collective ranking in terms of:
? faculty;
? students;
? HECs; and
? and research activities.
The comparative analysis below for the US, Europe and Pakistan guides business
schools to adopt a comparative framework. Each category is divided into internal and
external subclass and weights assigned. A weight of 0 denotes the lowest ranking while
5 denotes the highest ranking.
Figure 6: Value Chain Analysis of US, European and Pakistani
Business Schools
0
1
2
3
4
5
6
Faculty
Development
Program
Students
Development
Program
Faculty
Renumeration and
Awards
Faculty Education
and Exposure
International
Faculty
Development
Program
International
Students
Development
Program
Industry Linkages Research
Environement
S
c
a
l
e
(
1
i
s
B
a
d
,
5
i
s
E
x
c
e
l
l
e
n
t
)
Oxford Cambridge LSE INSEAD IESE
17 EPG Economic and Strategy Consulting
Source: N.A. Kolachi and A.Z. Wajidi, "Business Education in Pakistan: Identifying
weaknesses and suggesting improvements", East West Journal of Economics and
Business, Vol. XI - 2008, No 1 and No 2, 2008. Lines smoothed for ease of reading.
As indicated above, Pakistani business schools can improve in areas of R&D, faculty
development and building a global brand.
It is worth noting that the above value chain analysis does not take into account all the
input factors in our model in Figure 2 due to lack of sufficient and liquid data.
0
1
2
3
4
5
6
Faculty
Development
Program
Students
Development
Program
Faculty
Renumeration and
Awards
Faculty Education
and Exposure
International
Faculty
Development
Program
International
Students
Development
Program
Industry Linkages Research
Environement
S
c
a
l
e
(
1
i
s
B
a
d
,
5
i
s
E
x
c
e
l
l
e
n
t
)
Harvard MIT CUNY Stanford Yale
0
1
2
3
4
5
6
Faculty
Development
Program
Students
Development
Program
Faculty
Renumeration and
Awards
Faculty Education
and Exposure
International
Faculty
Development
Program
International
Students
Development
Program
Industry Linkages Research
Environement
S
c
a
l
e
(
1
i
s
B
a
d
,
5
i
s
E
x
c
e
l
l
e
n
t
)
LUMS IBA SZABIST Bahria NUST
18 EPG Economic and Strategy Consulting
Pakistan would be
empowered to
make a leap
forward in
transparency and
corporate
governance
measures
Nevertheless it shows the comparative strengths and weaknesses of business schools
across these regions. A more comprehensive model can take into account a greater
number of factors to rank the business schools from a financial and social return
perspective as well as address major areas of improvement.
POLICY FRAMEWORKS
In order to garner the support of policymakers in Pakistan for business school
incubators, a government department would need to spearhead and cultivate social
entrepreneurship by building stakeholder dialogue and innovation labs.
An open and productive dialogue can be facilitated between investors, governments,
social intermediaries and entrepreneurs in order to:
? provide investment for incubator hubs;
? stimulate policies to build social enterprises; and
? create an enabling environment for social entrepreneurs.
The UK serves as a good example of how an established unit within the Government
can be dedicated to cultivate a movement of social innovation. As part of the Cabinet
Office, the Office of the Third Sector (OTS) leads the Government supporting a thriving
third sector, comprised of voluntary and community groups, social enterprises, charities
and cooperatives. The OTS enables the third sector to campaign for change, deliver
public services, promote social enterprise and strengthen communities.
The UK has been successful in uniting many networks in the third sector into one
cohesive coalition, which sits outside the government. The Social Enterprise Coalition is
a national body of social enterprises representing different national and regional support
networks. By engaging with the various networks of enterprises and entrepreneurs, there
is a united voice for policymakers, investors and state institutions to create an enabling
environment for social entrepreneurs.
In a similar way, a Social Innovation Coalition could be established in Pakistan to
centralise and mobilise action on SME investment. Several sectorial bodies responsible
for enterprise development could focus exclusively on social innovation strategy,
investment and research.
This coalition would be vital in spreading awareness around the allocation of public and
private funds for enterprise development. Crucially, the right stakeholders would
determine the success of the coalition. The coalition would report to the public on how
and where capital (loan and equity) is being deployed and to what effect.
Pakistan would be empowered to make a leap forward in transparency and corporate
governance measures and would become an attractive ground for investors interested in
the space. Figure 9 below gives an indication of the necessary components within the
Social Innovation Coalition which would need to be established.
Legal structures for the Social Innovation Coalition would dictate its formation outside
the Government of Pakistan. Not only will the administration of the coalition entity be
costly if it were established with the Government but the corporate governance of the
structure will be subject to several government adjustments which would unnecessarily
slow down the process.
The Government should act as an enabling agent, but not be directly involved in
influencing the decisions made within the coalition. The structure of the Social Innovation
Coalition should be that of a hybrid model: it should combine the intent to maximise
shareholder value in enterprises as well as create social impact.
19 EPG Economic and Strategy Consulting
Whilst the revenue stream would stem from membership fees to the Stakeholder
Dialogue secretariat unit, deal commission and reinvestment returns, the social impact
would be generated from the value-add metric systems that measure the benefits to
communities.
Good corporate governance should feature heavily into the formation of this coalition to
oversee commercial activity, manage multi-organisation partnerships and encourage
membership of under-represented groups. Licensed brokerage services should be
introduced into the model via the financial intermediaries in the Social Investment Fund.
Nominated leaders of the Coalition should be responsible for connecting with
policymakers to influence regulations, promote accountability to its members and align
best practice with clear objectives.
Figure 9: Social Innovation Coalition
Source: EPG.
Stakeholder Dialogue
A number of stakeholders should be involved, including the Government of Pakistan; the
private sector, the Board of Investment, the Federal Board of Revenue, Community
Development Organisations, Foundations, Associations, Heads of Mission, Chambers of
Commerce, Legal units, private sector, SMEs, media, grassroots enterprises, Chambers
of Commerce, entrepreneurs and venture capitalists.
The high level of specialised business associations and chambers around the country
can be leveraged through Public Private Partnerships to strengthen stakeholder
dialogue. The unit would be maintained as a secretariat, building knowledge transfer
around social entrepreneurship through seminars and workshops. The outcome of these
discussions can become regulatory reform (on the policy level) or investment decisions
(on the private sector and investment level).
Social
Innovation
Coalition
Stakeholder
Dialogue
Social
Investment
Fund
Cross-border
entre-
preneurialism
Innovation
Lab
20 EPG Economic and Strategy Consulting
Social Investment Fund
The report, “Frontier Market: Pakistan” (2012), explores the innovation of a Social
Investment Fund, which uses an enhanced venture capital model to direct hybrid
investments with financial and social return into Pakistan’s early-stage enterprises. The
SIF is responsible for investment allocation, sector due diligence and risk diversification
and can be established within the Social Innovation Coalition.
Initially, the SIF would assimilate the capital deployment from active investor circles.
Subsequently, the financial intermediary group would structure debt and equity products
to broker transactions with mid-cap enterprises and SMEs. As an organised platform for
investors, the SIF interfaces between the commercial and social investment sectors to
facilitate a sustainable cycle of top-down and bottom-up capital growth across market
sectors in Pakistan.
The Social Innovation Coalition can play a role in harnessing in-country private sector
funds, traditionally labelled CSR, into project initiatives managed by entrepreneurs.
These funds, rather than being channelled into grants which fund “philanthropic
endeavours”, can actually be invested and re-invested into sustainable projects across
multiple sectors. With active resources, increased commercial activities can be
continually monitored and improved through the coalition.
In addition, further research could involve expanding the universe of the social
investment space to address the creation of sophisticated capital market instruments to
meet a variety of return-on-capital requirements whilst also maximising social returns.
Quasi-equity or mezzanine finance offers this possibility through hybrid debt and equity
instruments such as convertible bonds, shareholder loans, preferred shared and
unincorporated joint ventures. The securitisation of loans (successfully implemented in
microfinance organisations) could be another example of varied investment products to
be utilised for the SME market.
Further research could also explore the creation of a central loan loss reserve and a
social investment index or a public metric system. As a result, institutional investors may
be able to buy structured products that function like ?xed-income instruments and that
combine sub and above-market rate returns with high social and environmental impact.
Case Study
Apna Aarsh Pakistan (AAP) is an example of a hybrid social intermediary with a non-
profit arm that coordinates the various agricultural and ecological projects along
environmentally sustainable principles.
AAP also comprises of a consulting arm which works with CSR divisions within the private
sector and a research arm named the Centre for Sustainable Development, which conducts
macro policy studies on Pakistan’s political risk profiles in various regions of project operation.
AAP believes in giving a Hand-Up, not a hand-out to marginalised SMEs with respect to
environmentally sustainable principles.
AAP envisages its function as that of a facilitator; therefore their mandate, rather than to “re-
invent the wheel”, is to create beneficial linkages with relevant stakeholders. AAP prioritises
the current and future sustainability of communities and demonstrates a commitment to the
creation of a self-sustaining system of microenterprises across multiple sectors in Pakistan.
21 EPG Economic and Strategy Consulting
As new
technologies
evolve into the
market, the
returns from the
sale of these
technologies could
be reinvested.
An important area for future research will building a range of instruments to give the
market close to full informational transparency. This would necessitate sector-specific
performance data sets and the refining of existing metrics to include social impact
frameworks. These research initiatives would be strong facilitators in building an
enabling environment for investment into Pakistan’s social investment space.
Cross-border Entrepreneurialism
Investors and other stakeholders should also examine cross-border entrepreneurialism,
whereby social innovation models, implemented in other emerging economies, could be
replicated in Pakistan. Models should be considered in markets where either cultural or
geographical norms are similar to Pakistan in order to engender a similar success rate
and infuse a sense of inspiration amongst entrepreneurs.
The Bright Green Foundation is a strong example of a renewable energy model which
could be implemented in Pakistan. The organisation pioneers the “no ownership model”
to train 100,000 rural grassroots women to set up their own renewable energy
businesses by 2015 in Bangladesh. The Foundation provides linkages to financial
institutions at low interest rates, access to solar panels and other accessories at cost
effective prices and facilitates the setup of solar panel factories.
Husk Power Systems is an early stage enterprise in India which has provided power to
thousands of rural Indians using proprietary technology, generating electricity in a cost-
effective manner using a biomass gasifier. The enterprise has installed 60 mini-power
plants that power approximately 25,000 households in more than 250 villages and
impact lives of approximately 150,000 people in rural India. Husk Power Systems has
invested in education and training to develop human capital in order to manage power
plants and create a sustainable ecosystem of microenterprises.
Innovation Lab
A research unit should be established where existing academic research can be
combined with technological advances, which could then be gauged to test their
adaptability to SME models.
Innovations in the field of mobile communications could be applied to create cloud
systems for farmers to understand the weather forecasts. Similarly, mobile technology
could be utilised in the health sector for patients to have a portable platform and
communication with their doctors.
In addition, electronic advances in capital machinery could be utilised in micro-hydro
systems, solar products, textile mills and irrigation systems. As new technologies evolve
into the market, the returns from the sale of these technologies could be reinvested back
into the Social Investment Fund.
The Pakistan Council for Renewable Energy Technologies (PCRET) is an example of a
government unit committed to the research, development and provision of energy
services to Pakistan’s remote areas. Recently, PCRET showed a commitment to
technological innovation in the SME sector by partnering with SME Leasing Limited.
PCRET will assist in the technical aspects of the projects, whereas SME Leasing Limited
will cater to the financial needs of the feasible projects. SME Leasing Limited, a
subsidiary of SME Bank Limited, specialises in providing financial solutions to SMEs in
Pakistan.
The Pakistan Innovation Board (PIB) is another example of a government unit which has
provided input into the National Innovation Strategy Framework and has championed
reforms in the area of innovation. The Board is chaired by Dr. Sohail Naqvi, Executive
22 EPG Economic and Strategy Consulting
Director of the Higher Education Commission and consists of prominent members of the
public sector, academia and the private sector.
The PIB was created in conjunction with The Competitiveness Support Fund (CSF), a
joint initiative of the Ministry of Finance, in the Government of Pakistan, and USAID,
established to position Pakistan on a more global competitive footing. The CSF is also
providing technical assistance and co-financing for initiatives related to
entrepreneurship, business incubators and private-sector led initiatives with research
institutes and universities that contribute to creating a knowledge-driven economy. The
First Innovation Workshop took place in Karachi in March 2010, and the discussion
provided crucial input for the draft innovation strategy.
CONCLUSION
Both the establishment of incubator hubs in business schools and new policy
frameworks to facilitate social innovation can leverage Pakistan’s home-grown capacity
in the global economy. Public and private investors can play an instrumental role in
shaping the ecosystem of self-sustaining enterprises and unlocking the full potential of
Pakistan’s social entrepreneurs.
The investment in human talent, as well as in institutions, will spearhead a dynamic
movement, where entrepreneurs will be the driving force of this change.
Raising both investor confidence and entrepreneurial confidence is critical to this
process. By changing mind-sets through education, mentorship and training
programmes, a strong enabling environment can be fostered to propel the
intergenerational wealth and knowledge transfer in Pakistan.
Crucially, careful due diligence of operating entrepreneurs and an understanding of the
social fabric within both urban and rural settings will be pivotal to the success of socio-
economic development in Pakistan. Following this, the educated class can take
advantage of the opportunities arising from business incubator hub models, and those at
the Base of the Pyramid can receive the necessary benefits of financial inclusion.
The need to create a knowledge economy around the social innovation movement in
Pakistan could not be timelier than it is today. A quiet optimism prevails both within
internal policy circles as well as within the international community on Pakistan’s ability
to catalyse widespread and enduring change in its economy.
END
23 EPG Economic and Strategy Consulting
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24 EPG Economic and Strategy Consulting
Koh, A. Karamchandani and R. Katz, April 2011.
20. N.A. Kolachi and A.Z. Wajidi, "Business Education in Pakistan: Identifying
weaknesses and suggesting improvements", East West Journal of Economics and
Business, Vol. XI - 2008, No 1 and No 2, 2008. Lines smoothed for ease of reading.
21. P. Auerswald, E. Bayrasli and S. Shroff, "Creating a Place for the Future: Towards
a New Development Approach for the Islamic Republic of Pakistan", December
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22. P. Auerswald, E. Bayrasli and S. Shroff, "Creating a Place for the Future: Towards
a New Development Approach for the Islamic Republic of Pakistan", December
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23. R. Zavatta, "Financing Technology Entrepreneurs in Developing Countries:
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Group BV, Meta Group SRL, June 2008.
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25 EPG Economic and Strategy Consulting
ABOUT THE AUTHORS
Priya Shah
Priya works in the social impact sector, focusing on thought leadership and partnership-
building in Asia. She has worked on impact investing projects in Cambodia and India,
and is a Knowledge Chair on the Acumen Fund Chapter in London. She interviewed
over 30 thought leaders and CEOs for a report on social investment in Pakistan, and is
currently researching frugal innovation models in Indian healthcare.
Shailabh Shubhisham
Shailabh holds a Masters in Finance from London Business School, UK and a Masters
in Mathematics and Computing from Indian Institute of Technology, Delhi, India.
Shailabh has previously worked with Royal Bank of Scotland, Singapore and Lehman
Brothers Japan, Tokyo on the pricing and risk management of fixed income derivatives
covering the European and the Asian markets.
For more information, please contact: [email protected] and
[email protected].
Economic Policy Group (EPG)
EPG is an economic and strategy consulting firm based in London. We offer economic
and regulatory policy advice, social investment impact analysis, litigation support and
business management expertise to corporations, governments and the third sector
around the world.
With proven skills in a range of complex projects across an array of sectors, we offer
deep policy advice in a range of ‘real-world’ problems to offer long-lasting solutions to
our clients, that are tailored to their particular issue, in order to help them make better
business and policy decisions.
This publication contains general information only, and none of EPG Economic and
Strategy Consulting or its related entities ("EPG Network") is, by means of publication,
rendering professional advice or services. Before making any decision or taking any
action that may affect your finances or your businesses, you should consult a qualified
professional adviser. No entity in the EPG Network shall be responsible for any loss
whatsoever sustained by any person who relies on this publication.
26 EPG Economic and Strategy Consulting
RECENT THOUGHT LEADERSHIP
All available from the EPG websitehttp://www.economicpolicygroup.com/.
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components of the discount rate used in these calculations, using the economics of
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they are having. The application of SROI is a relatively young discipline, often not well
understood by the third sector. There is considerable variability in how SROI is applied,
which makes no two SROI ratios necessarily comparable. This article looks at some of
the technical challenges and misconceptions in working with SROI, based on our
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judgements.
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This article reviews the rationale for paying interest and briefly outlines the different
approaches to calculating it.
© 2012 EPG Economic and Strategy Consulting
27 EPG Economic and Strategy Consulting
CONTACT US TO FIND OUT MORE:
WEBSITE: www.economicpolicygroup.com
doc_940244118.pdf
This particular brief elucidation in regard to social entrepreneurship in pakistan unlocking innovation through enterprise incubation.
1 EPG Economic and Strategy Consulting
Priya Shah, Shailabh Shubhisham
December 2012
SOCIAL ENTREPRENEURSHIP
IN PAKISTAN: UNLOCKING
INNOVATION THROUGH
ENTERPRISE INCUBATION
2 EPG Economic and Strategy Consulting
3 EPG Economic and Strategy Consulting
The process to
re-engage
entrepreneurs in
Pakistan should
begin with
harnessing the
skill-sets of the
youth
PREFACE
Pakistan’s population of 177 million is facing a demographic youth bulge. This is fertile
ground for developing human talent. There is a strong need to build managerial capacity,
quality education and skills training.
Under the current circumstances, businesses in urban areas are fraught with contractual
obligations, political disputes and corporate governance issues. Religious tensions in
rural areas are grounds for political activism, stemming from unemployment and low
productivity. Frequent policy changes have contributed to the dampening of ambitions
and entrepreneurial visions for success.
The process to re-engage entrepreneurs in Pakistan should begin with harnessing the
skill-sets of the youth. Inward investment should be targeted at developing human talent
to spearhead the growth of early-stage enterprises in rural and urban areas.
A fifth of global young entrepreneurs see a gap in the market that they think they can fill
and a fifth also feel that their knowledge and skills are best suited to being an
entrepreneur.
Entrepreneurship involves adaptability through overcoming obstacles, consistently
innovating processes, engaging in dialogues and actualising new visions. Mechanisms
to finance these entrepreneurs and provide them with non-financial resources are crucial
in countries like Pakistan.
In 2011, at the Global Entrepreneurship Summit in Istanbul, Turkey, U.S. Vice-President
Joe Biden urged older entrepreneurs to mentor the younger generation by sharing the
wisdom gained by their successes and their failures. Universities and corporations were
requested to collaborate through research and internships to nurture and develop the
entrepreneurial skills of students.
The most valuable resources on the planet are not material but rather individual and
collective creativity. New models of social entrepreneurship are fast gaining headway in
Pakistan. These models both harness the skills of young entrepreneurs and maximise
the available resources (both natural and technical) to create sustainable systems for
change. Crucially, funding for small enterprises should meet the specific needs of the
entrepreneur from seed financing to venture capital to growth equity.
This funding can be driven by the incorporation of business school incubator hubs and
policy frameworks to facilitate social innovation. Social entrepreneurs need mentorship,
implementation guidance, and skills training development. The challenge in Pakistan is
to drive the social entrepreneurs towards projects that generate both financial return and
long-term social impact.
Investment should support the growth of high-potential social enterprises and break the
“glass ceiling” that hinders their development. This glass ceiling could include regulatory
and tax burdens, as well as employee skills gaps and shortage. Examples of non-
financial resources include business development services, financial literacy
programmes, technology advice and mentoring, alongside access to networks and
markets.
The creation of hubs or space-based support allows for a collaborative engagement on
similar models of success. Through value chain analysis, case studies and policy
framework tools, this paper explores how incubator hubs can unlock the innovation
potential of Pakistan’s social entrepreneurs.
4 EPG Economic and Strategy Consulting
CONTENTS
Executive Summary 5
The Business School Incubator Model 7
Public and Private Funding 9
Research and Development 10
Infrastructure and Entrepreneurial Culture 11
Indian Case Study: IIMA 14
A comparative Value Chain Analysis 16
Policy Frameworks 18
Conclusion 22
References 23
About the authors 25
Recent thought leadership 26
About the Economic Policy Group
The Economic Policy Group ("EPG") is an economic and strategy consulting firm based in London. We offer economic and regulatory policy advice, social
investment impact analysis, litigation support and business management expertise to corporations, governments and the third sector around the world. More
information can be found at www.economicpolicygroup.com.
© 2012 EPG Economic and Strategy Consulting. All rights reserved.
5 EPG Economic and Strategy Consulting
Policymakers,
educational heads
and social
entrepreneurs are
paramount to
building a
sustainable and
stable knowledge-
driven economy.
EXECUTIVE SUMMARY
In the context of the accelerating pace of globalisation, the stiffening of competition and
financial instabilities in the West, the focus is shifting from developed markets towards
emerging markets.
The next decade will be the first time since the Industrial Revolution when emerging
economies will add more to global growth than all developed economies combined. In
some sectors, this growth will factor in to more than 80%.
1
Entrepreneurial businesses
will be able to develop new business models which focus on high value-add niche
segments whilst complementing the value chains generated by large corporations.
Interestingly, the educational sector holds great potential in the emerging Asian Markets.
But what sets it apart from the other conventional sectors? Business schools in countries
such as India and Pakistan have huge growth potential in both delivering financial return
on investment and social impact return.
This report will analyse the business education sector in Pakistan and examine how
incubator models can harness the potential to develop enterprises which serve both
commercial and social purposes.
There is a cross-dependency of various factors which can help to foster the combined
growth of business education and social entrepreneurship in Pakistan. Policymakers,
educational heads and social entrepreneurs are paramount to building a sustainable and
stable knowledge-driven economy.
Figure 1: The macroeconomic environment
Source: EPG.
The figure above gives a snapshot of a market structure which fosters growth and
development at all levels of governance. The objective is to incorporate this on a micro
level to the business education sector for which an incubator hub can be analysed in
greater detail.
Pakistan is home to numerous microenterprises in rural and urban areas, which serve as
a pipeline for two players: a) policy-makers, for whom long-term social impact can
address community needs; and b) investors, who will need greater deal flow to finance
these microenterprises.
1
McKinsey & Company (McKinsey), "The Power of Many: Realizing the socioeconomic potential of entrepreneurs in the 21st century",
October 2011.
Macroeconomic Environment
Political Business
A sense of security in
terms of a stable
environment for long
term investment
plans.
Provide a sense of
justice and uphold
law. Enforce
analytical and ethical
jurisprudence .
Social fabric that
stems to provide
equal social
opportunities.
Business
environment wherein
investors feel safe
and understand the
risk and returns of
investments.
Legal Social
6 EPG Economic and Strategy Consulting
In an effort to promote foreign investment, the Government of Pakistan has employed
taxation exemptions in the following sectors: interest income on foreign currency
accounts, capital gains on sales of shares of listed companies, income from manufacture
of solar energy equipment and income from fruit processing. Renewable energy and
agriculture are fast-growing sectors in Pakistan, whilst mobile banking and other
technology-infused consumer industries.
The development community in Pakistan has tried to address the challenge of inefficient
funding to smaller enterprises at the base of the pyramid by creating microfinance
lending instruments and private sector intermediary institutions, including those
supported by the International Finance Corporation.
Microfinance Banks (MFBs), such as the Kashf Foundation, First Microfinance Bank Ltd
and the Orangi Pilot Project are established as separate legal structures administered
and regulated by the State Bank of Pakistan. These institutions have made considerable
strides in Pakistan in improving access to capital from loan sizes of US$10 to more than
US$1,000 for small businesses. Currently, default rates for SME clients of MFBs in
Pakistan are amongst the lowest in the world, highlighting the success of the sector and
the strength of their legal structures.
This paper will examine how both public and private sectors in Pakistan can maximise
the opportunities in the nascent social enterprise sector in Pakistan, by harnessing the
skills of young social entrepreneurs and investing in incubator hubs to further projects
that achieve both financial and social returns.
7 EPG Economic and Strategy Consulting
THE BUSINESS SCHOOL INCUBATOR MODEL
Investment in higher education programmes should maintain a focus on better alignment
of student skill-sets to the economic fabric of the market.
Pakistan requires a dynamic approach towards education to ensure socio-economic
growth. The roles of the government, the private sector and infrastructure in building
business education hubs are crucial.
Universities should promote knowledge transfer and talent exchange both by creating
R&D incubator hubs as well as strengthening academic potential. The formation of
university clusters could be a powerful launching pad for developing different facets of
innovation strategy.
Figure 2: The Business Incubator Model
Source: EPG.
The figure above presents an overview of the various macro inputs which need to be
taken into consideration from both an investor and a policy perspective. Our approach is
to deliver a comprehensive analysis of each support framework.
A research study claims that “five years after graduation, the average annual income for
entrepreneurship majors and MBAs who concentrated in entrepreneurship was almost
27% higher than for other business majors and students with standard MBAs”.
2
Business schools can best provide platforms for entrepreneurial skills that will help
students identify new business ideas and provide them with a practical approach
including a willingness to take calculated risks, the ability work effectively in a team, the
creative skills to organise resources and the vision to recognise opportunity.
2
S.A.J. Shirazi, "Tapping the Entrepreneurial Spirit", Pakistan Today, 3 August 2011. Accessed 30 December 2011).
Government
Support
Research and
Development
Funding
Infrastructure
Technical (initial
expertise f or business,
sales, marketing etc.)
Organisational
(management inputs plus
relational support f or
human resources
development )
Inf rastructure (providing
initial capital, land,
equipment)
Private investors
Goverment grants and
donations
International publications Research grants
Faculty-Student ratio
(indicator of quality
assurance)
Campus area,
computers, Bloomberg
and Reuters terminals,
Library
Incubation centre f or
business start-ups:
provide initial seed
f unding
Self generating f unds
(regular, executive
courses, vocational etc
courses)
Business
Education
8 EPG Economic and Strategy Consulting
The Association to Advance Collegiate Schools of Business (AACSB) is a global, non-
profit membership organisation of educational institutions, businesses and other entities
devoted to the advancement of management education. Established in 1916, AACSB
International provides its members with a variety of products and services to assist with
the continuous improvement of business programmes in their schools.
3
Below is a tabular representation of the estimated number of global educational
institutions offering business degrees at any level, as of January 2012.
Figure 3: Estimated number of educational institutions offering
Business degrees (January 2012)
Source: AACSB, Page 9, Business School Data Trends and 2012 List of Accredited
Schools, 2012.
There are 99 higher education institutions offering business education in Pakistan.
Although this is still a significant number, a major concern has been the rapid formation
of business schools across Pakistan more for monetary reasons rather than the creation
of socio-economic and quality academic hubs.
There has been a mushrooming of educational institutes, outside universities, in
Pakistan, especially those providing business-related degrees. However, these often
lack the credibility and quality of private sector institutions.
4
Nevertheless, there are institutions which aim to improve the quality of business
education in Pakistan and foster entrepreneurship. In July 2011, Pakistan hosted its
inaugural Junior World Entrepreneurship Forum Conference at the Lahore School of
Economics which was attended by large number of young scholars from UET, LUMS,
UCP, Punjab University, FAST, NUST, IM Sciences and Lahore School of Economics.
3
AACSB website homepage. Accessed 6 October 2012.
4
A.A. Qureshi, "How do perceptions of the importance of Service-Quality Determinants differ across key stakeholder groups in the
Pakistan Higher Education Sector?", MPhil Thesis, March 2012.
0
500
1,000
1,500
2,000
2,500
Number of Institutions
9 EPG Economic and Strategy Consulting
The mission of the
HEC is to facilitate
institutions of
higher education
to serve as
engines of growth.
The MIT Enterprise Forum of Pakistan is a good example of a membership organisation
which promotes the growth of innovative and technologically-oriented enterprises
through specialised executive education programmes. These programmes include
roundtables, discussion panels, investor forums and awards ceremonies which
showcase successful entrepreneurs. The executive education includes developing and
providing linkages for angel investors in Pakistan, discussing exit strategies, investor
incentives and regulatory frameworks to create an enabling environment for social
investment in the country.
PUBLIC AND PRIVATE FUNDING
Funding for incubator hubs in business schools must be aimed toward the objective of
long-term sustainability. The funding support should partially come from the
Government, forming a basis for fixed costs, namely, staff, utilities and rental expenses.
It is also in the interest of the government to build a solid foundation of business schools
for socio-economic development. Private funding also plays a role in determining the
scope of upside, or Return on Investment (ROI), for the investor.
The Sharpe Ratio
5
of the investment on business education should be calculated not
only in terms of pure financial gain but also in terms of the social impact returns. In the
long-term, business schools should be able to self-sustain and generate funds from full-
time and executive education programmes as well as initial capital investments to
incubator hubs.
The Higher Education Commission (HEC) is an educational body in Pakistan which was
formed in 2002, committed to providing a platform for socio-economic development.
HEC is dedicated to improving both the quality and quantity of business education
institutions and assist in its development from both macro and micro perspectives.
Dr Javaid R Laghari, the Chairperson of the HEC stated: “The mission of the HEC is to
facilitate institutions of higher education to serve as engines of growth for the socio-
economic development of Pakistan. HEC is faced with three key challenges: (a) quality;
(b) access; and (c) relevance.”
Whilst Government policies should support the creation of incubator hubs, they can aim
to minimise their input in the admission, governance and management of business
schools. Business schools need to have autonomy to grow so that rather than being a
centre of political focus in the long run, they can be more focused on wholesome
educational development and socioeconomic reform.
The Government can initiate support business schools in three areas:
? Technical (information technology, equipment);
? Operational (management, human resources); and
? Infrastructural (freehold land, buildings at a discount).
The Government of Pakistan has shown a commitment towards building social
entrepreneurship hubs in the country through partnerships.
An example of a government-run programme is the Benazir Bhutto Shaheed Youth
Development Programme, initiated by the Government of Sindh, which addresses the
issue of unemployment by developing human talent in the province. The Programme
5
A ratio developed by Nobel laureate William F. Sharpe to measure risk-adjusted performance. The Sharpe Ratio is calculated by
subtracting the risk-free rate from the rate of return for a portfolio and dividing the result by the standard deviation of the portfolio
returns.
10 EPG Economic and Strategy Consulting
Improved
connectivity and
innovative IT
systems can
cultivate
information
exchange and
knowledge
transfer.
provides opportunities for skill development to approximately 100,000 semi-literate and
educated unemployed youth in Sindh for a period varying between three months to one
year.
The Government of Pakistan has also functioned as a social intermediary, funding the
Women Business Incubation Centre (WBIC), established by the Small and Medium
Enterprise Development Association (SMEDA). This centre provides hands-on support
to women entrepreneurs. Uniquely, the incubator offers training programmes to new
business ventures and supports existing enterprises owned and managed by women,
specifically in early stages when fledgling businesses are most vulnerable.
Women, often seen as careful and meticulous in their approach to business ownership,
are increasingly collaborating in community structures to create larger enterprises. This
cultural movement in Pakistan’s social structure holds much promise for investors
considering long-term investments, which should include raising employment,
diversifying skill-sets and broadening the scope of investment to wider segments of the
population.
RESEARCH AND DEVELOPMENT
Research and Development (R&D) is often one of the main components in the quality
evaluation of business school incubator hubs. Universities with R&D units are an
important facet of the social innovation strategy and the development of successful
entrepreneurial ventures in incubators.
Improved connectivity and innovative IT systems can cultivate information exchange and
knowledge transfer, creating in effect a virtual self-support network across business
schools in Pakistan.
Publication of research papers can also drive government grants for R&D. Support for
the publication of social entrepreneurship papers and articles in global journals can
encourage business school faculty to participate in international business conferences
and present their research findings, winning credibility in the social entrepreneurship
field. For example, the Lahore University of Management Sciences (LUMS), Iqra
University and Karachi and National College of Business Administration & Economics
have been very active in achieving recognition in social impact journals.
A generation of business leaders can be bred who participate in economic and social
policies and assist in creating a stable environment to promote social entrepreneurship.
The Karachi School of Business and Leadership (KSBL) has taken steps to encourage
R&D initiatives. KSBL is one of the highest-ranked business schools in Pakistan, and
was established by Pakistani business leaders who recognised that Karachi, the
business and commercial hub of Pakistan, needed a world-class business school.
By promoting economic and social change, KSBL’s objective is to nurture leaders who
create positive social impact in domestic projects through their knowledge, skills,
expertise and contribute to global best practice. The Dean of KSBL, Robert Wheeler
said, “We’ll cut back on the administrative work that faculty is often required to do in
Pakistan and encourage them to do applied research that could be used in the industry,
government and business.”
6
Furthermore, the Virtual University is an example of a non-profit educational institution
established by the Government of Pakistan which uses media and technology to create
knowledge transfer in Pakistan. Using free-to-air satellite television broadcasts and the
6
Haq's Musings, Riaz Haq blog, "KSBL world class business education in Pakistan", 3 January 2012. Accessed 6 October 2012.
11 EPG Economic and Strategy Consulting
internet, the Virtual University allows students to follow its rigorous programmes in a
virtual format, regardless of the students’ physical locations.
The University also aims to alleviate the lack of capacity in the existing universities while
simultaneously tackling the shortage of qualified professors in the country. The
University opened its virtual doors in 2002 and in a short span of time, it has reached
more than a hundred associated institutions providing infrastructure support to the
students. Pakistani students residing overseas in several other countries of the region
are also enrolled in the University's programmes.
Another example of a successful incubator hub is at the Institute of Business Education
(IBA), established in Karachi in 1955 with initial technical support from the Wharton
School of Finance at the University of Pennsylvania and the University of Southern
California. IBA’s Centre for Entrepreneurial Development (CED) aims to promote
entrepreneurship education at the university-level, a programme that culminates in a
business plan competition in which students pitch their business ideas to a panel of
judges.
Moreover, the IBA CED is not just geared towards students at IBA in Karachi – it targets
a consortium of eight universities across Pakistan – including those in Quetta, Peshawar
and Islamabad. This extension of the programme gives students in lesser known and
smaller universities access to quality entrepreneurship education, skills and
opportunities.
INFRASTRUCTURE AND ENTREPRENEURIAL
CULTURE
Infrastructure development for incubator hubs in business schools can take the form of:
? Phd faculty;
? a higher ratio of faculty to students;
? higher standard of buildings; and
? improved equipment.
The incubator hubs should be aimed at forming viable and scalable business models
aimed at social innovation. By strengthening the incubator hubs, one can promote
entrepreneurial opportunities to students, enhance their skill-sets through consistent
mentorship programmes, and provide them with access to capital. A big challenge in
Pakistan is the lack of entrepreneurial culture. University graduates spend large amounts
of time searching for employment in a job market where private sector opportunities are
poor.
The Youth Engagement Services Network in Pakistan is an example of an organisation
which plays a leading role in developing entrepreneurship so that Pakistan’s youth
becomes the ultimate beneficiary of the economic development process. Their mandate
is to strengthen youth-led SMEs in order to spread social innovation models locally by
building strong links with public, private and educational institutions. Other change-
maker networks in Pakistan include Social Innovation Hub, Ashoka Pakistan and
Pakistan Sustainability Network.
Importantly, business plan development is a strong component of the incubator hub. At
the rural level, the WBIC offers business development services including training
programmes to women entrepreneurs. The effort is focused on encouraging new
business start-ups and the provision of support to existing enterprises by nurturing the
growth of businesses owned and managed by women to an extent that these become
sustainable; more specifically, in early stage, when they are most vulnerable.
12 EPG Economic and Strategy Consulting
Entrepreneurship
consistently
bridges the gap
between the
private sector,
human capital,
intellectualism and
government
At the urban level, youth organisations such as the Pasha Social Innovation Fund
provide entrepreneurs with business plan mentoring for cost-effective technology
implementation to social ventures. Similarly, training entrepreneurs in succession
management is crucial to ensuring the longevity of their enterprises, encouraging
replicability and providing scalability to other regions of the country. When a business
plan training programme has been put into place, an inter-generational knowledge
transfer will transpire and the culture of innovation will evolve.
In addition, building quantifiable and measurable targets adapted to rural and urban
environments in Pakistan as well as assessing investment readiness of the target
enterprises will be useful to fostering entrepreneurship. A large portion of early-stage
enterprises in Pakistan do not have the in-built skill sets to administer complex financial
products.
Due to this reason, and because the risk of default is lower in the growth stage, fewer
investors invest at the early stage. This means that the distribution of capital is skewed
towards the growth stage, while early-stage enterprises find it difficult to raise capital.
The pipeline, or deal flow for funding, structured across a range of risk and return
scenarios, needs to be better formed, and there needs to be more support for early-
stage enterprises. This goes hand-in-hand with the need for greater ?nancial literacy;
financial options across all stages of the organisational lifecycle; legal contractual
mechanisms to protect against mission drift and take-over and incentives to diversify
funding and the income base.
In this regard, combining the guarantee of loan capital with comprehensive mentoring
systems could drive a self-sustaining ecosystem of enterprises. Concerned parties need
to establish the appropriate metric system to transcend the conventional players – the
investor, the investee and the fund – and to examine the broader range of intermediaries
in the market.
The challenge for the investor is to identify the entrepreneur at an “inflection point”,
where the injection of loan capital would catalyse rapid growth in the enterprise and
influence both policy and grassroots development. The idea is not simply to grow one
organisation but to grow the sector industries at large, as success is often built through
collaboration. Entrepreneurship consistently bridges the gap between the private sector,
human capital, intellectualism and government, allowing for sustainable and scalable
growth across multiple sectors.
Investors also need to assess social impact and gauge whether entrepreneurial ventures
are actually effecting change in the communities and building unique and innovative
business models. The formation of an ecosystem will help to achieve this long-term
investment objective and further clarify the goals of the individual entrepreneurs in order
engage the right players that are needed for these early-stage enterprises to succeed.
Developing entrepreneurs could also take the form of initiating a “Fellows” system
comprising of Pakistan’s most inspirational social entrepreneurs who are eager to make
a long-term social impact. The Fellows System can create mentorship networks around
the incubator hubs, build a narrative around social entrepreneurship and help to
generate qualitative data for investors to account for ROI taking into account the “triple
bottom line” (TBL).
7
By sharing a passion for their projects, Fellows can help raise awareness of social
entrepreneurship through media interviews, speaking engagements and online
platforms, as well as engaging with both policymakers and private sector investors.
7
TBL accounting expands the traditional reporting framework to take into account social and environmental performance in
addition to financial performance."
13 EPG Economic and Strategy Consulting
An example of a Fellow for Pakistan is Dr. Asher Hasan, Founder and CEO of Naya
Jeevan, a non-profit organisation dedicated to regenerating the prospects of low-income
families by providing them with affordable access to quality healthcare infrastructure.
Naya Jeevan offers its insurance programme in Pakistan at subsidised rates under an
innovative health insurance model, underwritten by Allianz-EFU, IGI Insurance, and
AsiaCare. Hasan is a 2009 member of the Clinton Global Initiative, a TED Fellow and a
Draper Richards Social Entrepreneur Fellow for 2009-2011.
Roshaneh Zafar is another example of a Fellow who established Pakistan’s first
interconnected conglomerate of microfinance-based companies, the Kashf Foundation
and the Kashf Microfinance Bank. The Kashf Bank has so far attracted 15,000
depositors, a quarter of whom are women. Zafar aspires to increase this number to one
million by 2015 and aims for two-thirds of the recipients to be women.
8
In addition to the
bank, Zafar is diversifying the brand into an insurance company, a financial education
company and a business incubator to support the needs of micro-borrowers and help
them scale and expand their businesses.
8
Embassy of the United States, Press release, "Roshaneh Zafar: Pakistani Miracle Worker", 2010. Accessed 6 October 2012.
Case Study
Invest2Innovate (I2I) is an example of a social intermediary which provides tailored
services to early-stage enterprises both to grow their businesses and connect them to
capital.
Pakistan is the pilot market where the intermediary plans to support the growth of a self-
sustaining ecosystem of microenterprises, fostering entrepreneurship using top-down and
bottom-up approaches.
I2I is keen to mentor entrepreneurs through its incubator function and Accelerator
programme, and aims to create an enabling environment for technological innovation by
cultivating local, regional, and global partnerships necessary to grow the social innovation
space.
I2I caters to a diverse range of early stage enterprises, some of which include MilkOp, a for-
profit enterprise that offers support to dairy farmers; a non-profit enterprise that delivers
affordable clean energy solutions to empower the rural poor; and Hosh Media, a social
enterprise that aims to transform Pakistan’s media industry by empowering and engaging
Pakistan’s youth in quality journalism online.
14 EPG Economic and Strategy Consulting
INDIAN CASE STUDY: IIMA
Entrepreneurial ventures lend momentum to business schools and the creation of
incubator hubs. In this report, the Indian Institute of Management, Ahmedabad (IIMA) is
used as a proxy model for Pakistan.
A key assumption for the proxy model is that within 10 to15 years, Pakistani Business
Schools can achieve the same growth trajectory as the current crop of Indian Business
Schools. The development of an economy is influenced by the growth and success of
entrepreneurs, and we present below a comparative graph showing the export intensity
for India and for Pakistan.
Figure 4: India and Pakistan export intensity (1980-2010)
Source: World Bank.
In the figure above, one can note that India excelled in export intensity (measured as
export dollars per capita). By contrast, Pakistani businesses struggled with infrastructure
deficit, security concerns, poor governance and regulation and lack of entrepreneurial
growth.
Pranay Gupta, CEO of Centre of Innovation and Entrepreneurship at the Indian Institute
of Management, Ahmedabad (IIMA), offered recommendations to students keen to
pursue entrepreneurial activities and start social ventures.
? A primary concern for many students is the opportunity cost of turning down
business school offers to launch riskier entrepreneurial ventures.
IIMA proposed that entrepreneurial students can apply for company placement
programmes 2 years after setting up their business venture. This increases student
confidence to invest in new business ventures. Statistically, IIMA has seen 20 to 30
-
50
100
150
200
250
300
350
400
1970 1980 1990 2000 2010
E
x
p
o
r
t
s
o
f
g
o
o
d
s
a
n
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s
e
r
v
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v
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e
(
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)
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i
v
i
d
e
d
b
y
p
o
p
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l
a
t
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o
n
India Pakistan
15 EPG Economic and Strategy Consulting
students launch their own start-ups; only 2-3 students have returned to apply for
company placements. The batch size is approximately 300, therefore around 10% of the
batch size takes the entrepreneurship route and only 10% of those who take the
entrepreneurship route return to complete business school.
? Many students have concerns that launching an entrepreneurial venture would
impair the payback of study loans (typical study loans are of the range of
INR1.5m).
IIMA, with the help of its alumni pool, created an entrepreneurship fund which allocates
an initial salary to entrepreneurs so that they are able to pay off their loans. IIMA has
also requested banks to push back the loan payoff date by one year. The typical seed
funding provided by IIMA is of the order of INR2.5m (approximately US$50,000). The
funding for entrepreneurial ventures is provided by the Indian government with a clause
to repay the funds in a particular time frame if the venture starts making profit.
Interestingly, there is no obligation to pay back seed funds if the business venture does
not have any operating profit and closes down.
However, there is a strict set of rules and regulations as to whom and how the funds are
allocated. A panel assessment of the business plan is initiated to determine its feasibility
and success. IIMA professors and industry experts make the final decision on whether
the business plan can qualify for seed funding from the Institute.
Figure 5: Benefits of an entrepreneurial system in business schools
Source: EPG.
Figure 5 shows that the ROI of business school incubator hubs is not only financial but
also social, entrepreneurial and political, and form an integral part of Corporate Social
Responsibility (CSR) activities. The arrows pointing outwards show the benefits or
outputs generated from the establishment of incubator hubs in business schools. By
contrast, in Figure 2, the arrows pointing inwards show the inputs that are needed to
successfully establish a business school incubator hub. There are some extra
parameters for organic growth which can be tailored as per policy and investor needs.
Business
Education
Financial
Social and
Reputational
Entrepreneurial
Political
Monetary gains in terms
of f ees f rom students and
executive courses
Increased grants f or
R&D, and travel activities
Donations f rom alumni,
f unding f rom investors
Entrepreneurship helps
gain momentum f or
business schools
Providing jobs to
unemployed youth as
part of a bigger picture of
CSR
CSR through innovative
courses related to carbon
and waste reduction, and
raising money f or
charities
Helps indirectly create a
stable political system by
providing understanding
of domestic and
international policies
Setting up of new
ventures relevant to local
and international
business
Social ventures related to
education, healthcare
lend a strong support f or
the CSR activities
16 EPG Economic and Strategy Consulting
A COMPARATIVE VALUE CHAIN ANALYSIS
A value chain analysis is a strategic representation of the various primary activities that
help generate an output. For the establishment of world-class business school incubator
hubs, there are various factors which would constitute as inputs. These inputs are then
compared across different business schools and a comparative assessment is made
about the strengths and weaknesses of each incubator hub.
Value chain analysis is important in allowing both public and private investors to
evaluate the quality of the outputs. Below is a short comparative analysis on Pakistani
business schools which ranks them as per a collective ranking in terms of:
? faculty;
? students;
? HECs; and
? and research activities.
The comparative analysis below for the US, Europe and Pakistan guides business
schools to adopt a comparative framework. Each category is divided into internal and
external subclass and weights assigned. A weight of 0 denotes the lowest ranking while
5 denotes the highest ranking.
Figure 6: Value Chain Analysis of US, European and Pakistani
Business Schools
0
1
2
3
4
5
6
Faculty
Development
Program
Students
Development
Program
Faculty
Renumeration and
Awards
Faculty Education
and Exposure
International
Faculty
Development
Program
International
Students
Development
Program
Industry Linkages Research
Environement
S
c
a
l
e
(
1
i
s
B
a
d
,
5
i
s
E
x
c
e
l
l
e
n
t
)
Oxford Cambridge LSE INSEAD IESE
17 EPG Economic and Strategy Consulting
Source: N.A. Kolachi and A.Z. Wajidi, "Business Education in Pakistan: Identifying
weaknesses and suggesting improvements", East West Journal of Economics and
Business, Vol. XI - 2008, No 1 and No 2, 2008. Lines smoothed for ease of reading.
As indicated above, Pakistani business schools can improve in areas of R&D, faculty
development and building a global brand.
It is worth noting that the above value chain analysis does not take into account all the
input factors in our model in Figure 2 due to lack of sufficient and liquid data.
0
1
2
3
4
5
6
Faculty
Development
Program
Students
Development
Program
Faculty
Renumeration and
Awards
Faculty Education
and Exposure
International
Faculty
Development
Program
International
Students
Development
Program
Industry Linkages Research
Environement
S
c
a
l
e
(
1
i
s
B
a
d
,
5
i
s
E
x
c
e
l
l
e
n
t
)
Harvard MIT CUNY Stanford Yale
0
1
2
3
4
5
6
Faculty
Development
Program
Students
Development
Program
Faculty
Renumeration and
Awards
Faculty Education
and Exposure
International
Faculty
Development
Program
International
Students
Development
Program
Industry Linkages Research
Environement
S
c
a
l
e
(
1
i
s
B
a
d
,
5
i
s
E
x
c
e
l
l
e
n
t
)
LUMS IBA SZABIST Bahria NUST
18 EPG Economic and Strategy Consulting
Pakistan would be
empowered to
make a leap
forward in
transparency and
corporate
governance
measures
Nevertheless it shows the comparative strengths and weaknesses of business schools
across these regions. A more comprehensive model can take into account a greater
number of factors to rank the business schools from a financial and social return
perspective as well as address major areas of improvement.
POLICY FRAMEWORKS
In order to garner the support of policymakers in Pakistan for business school
incubators, a government department would need to spearhead and cultivate social
entrepreneurship by building stakeholder dialogue and innovation labs.
An open and productive dialogue can be facilitated between investors, governments,
social intermediaries and entrepreneurs in order to:
? provide investment for incubator hubs;
? stimulate policies to build social enterprises; and
? create an enabling environment for social entrepreneurs.
The UK serves as a good example of how an established unit within the Government
can be dedicated to cultivate a movement of social innovation. As part of the Cabinet
Office, the Office of the Third Sector (OTS) leads the Government supporting a thriving
third sector, comprised of voluntary and community groups, social enterprises, charities
and cooperatives. The OTS enables the third sector to campaign for change, deliver
public services, promote social enterprise and strengthen communities.
The UK has been successful in uniting many networks in the third sector into one
cohesive coalition, which sits outside the government. The Social Enterprise Coalition is
a national body of social enterprises representing different national and regional support
networks. By engaging with the various networks of enterprises and entrepreneurs, there
is a united voice for policymakers, investors and state institutions to create an enabling
environment for social entrepreneurs.
In a similar way, a Social Innovation Coalition could be established in Pakistan to
centralise and mobilise action on SME investment. Several sectorial bodies responsible
for enterprise development could focus exclusively on social innovation strategy,
investment and research.
This coalition would be vital in spreading awareness around the allocation of public and
private funds for enterprise development. Crucially, the right stakeholders would
determine the success of the coalition. The coalition would report to the public on how
and where capital (loan and equity) is being deployed and to what effect.
Pakistan would be empowered to make a leap forward in transparency and corporate
governance measures and would become an attractive ground for investors interested in
the space. Figure 9 below gives an indication of the necessary components within the
Social Innovation Coalition which would need to be established.
Legal structures for the Social Innovation Coalition would dictate its formation outside
the Government of Pakistan. Not only will the administration of the coalition entity be
costly if it were established with the Government but the corporate governance of the
structure will be subject to several government adjustments which would unnecessarily
slow down the process.
The Government should act as an enabling agent, but not be directly involved in
influencing the decisions made within the coalition. The structure of the Social Innovation
Coalition should be that of a hybrid model: it should combine the intent to maximise
shareholder value in enterprises as well as create social impact.
19 EPG Economic and Strategy Consulting
Whilst the revenue stream would stem from membership fees to the Stakeholder
Dialogue secretariat unit, deal commission and reinvestment returns, the social impact
would be generated from the value-add metric systems that measure the benefits to
communities.
Good corporate governance should feature heavily into the formation of this coalition to
oversee commercial activity, manage multi-organisation partnerships and encourage
membership of under-represented groups. Licensed brokerage services should be
introduced into the model via the financial intermediaries in the Social Investment Fund.
Nominated leaders of the Coalition should be responsible for connecting with
policymakers to influence regulations, promote accountability to its members and align
best practice with clear objectives.
Figure 9: Social Innovation Coalition
Source: EPG.
Stakeholder Dialogue
A number of stakeholders should be involved, including the Government of Pakistan; the
private sector, the Board of Investment, the Federal Board of Revenue, Community
Development Organisations, Foundations, Associations, Heads of Mission, Chambers of
Commerce, Legal units, private sector, SMEs, media, grassroots enterprises, Chambers
of Commerce, entrepreneurs and venture capitalists.
The high level of specialised business associations and chambers around the country
can be leveraged through Public Private Partnerships to strengthen stakeholder
dialogue. The unit would be maintained as a secretariat, building knowledge transfer
around social entrepreneurship through seminars and workshops. The outcome of these
discussions can become regulatory reform (on the policy level) or investment decisions
(on the private sector and investment level).
Social
Innovation
Coalition
Stakeholder
Dialogue
Social
Investment
Fund
Cross-border
entre-
preneurialism
Innovation
Lab
20 EPG Economic and Strategy Consulting
Social Investment Fund
The report, “Frontier Market: Pakistan” (2012), explores the innovation of a Social
Investment Fund, which uses an enhanced venture capital model to direct hybrid
investments with financial and social return into Pakistan’s early-stage enterprises. The
SIF is responsible for investment allocation, sector due diligence and risk diversification
and can be established within the Social Innovation Coalition.
Initially, the SIF would assimilate the capital deployment from active investor circles.
Subsequently, the financial intermediary group would structure debt and equity products
to broker transactions with mid-cap enterprises and SMEs. As an organised platform for
investors, the SIF interfaces between the commercial and social investment sectors to
facilitate a sustainable cycle of top-down and bottom-up capital growth across market
sectors in Pakistan.
The Social Innovation Coalition can play a role in harnessing in-country private sector
funds, traditionally labelled CSR, into project initiatives managed by entrepreneurs.
These funds, rather than being channelled into grants which fund “philanthropic
endeavours”, can actually be invested and re-invested into sustainable projects across
multiple sectors. With active resources, increased commercial activities can be
continually monitored and improved through the coalition.
In addition, further research could involve expanding the universe of the social
investment space to address the creation of sophisticated capital market instruments to
meet a variety of return-on-capital requirements whilst also maximising social returns.
Quasi-equity or mezzanine finance offers this possibility through hybrid debt and equity
instruments such as convertible bonds, shareholder loans, preferred shared and
unincorporated joint ventures. The securitisation of loans (successfully implemented in
microfinance organisations) could be another example of varied investment products to
be utilised for the SME market.
Further research could also explore the creation of a central loan loss reserve and a
social investment index or a public metric system. As a result, institutional investors may
be able to buy structured products that function like ?xed-income instruments and that
combine sub and above-market rate returns with high social and environmental impact.
Case Study
Apna Aarsh Pakistan (AAP) is an example of a hybrid social intermediary with a non-
profit arm that coordinates the various agricultural and ecological projects along
environmentally sustainable principles.
AAP also comprises of a consulting arm which works with CSR divisions within the private
sector and a research arm named the Centre for Sustainable Development, which conducts
macro policy studies on Pakistan’s political risk profiles in various regions of project operation.
AAP believes in giving a Hand-Up, not a hand-out to marginalised SMEs with respect to
environmentally sustainable principles.
AAP envisages its function as that of a facilitator; therefore their mandate, rather than to “re-
invent the wheel”, is to create beneficial linkages with relevant stakeholders. AAP prioritises
the current and future sustainability of communities and demonstrates a commitment to the
creation of a self-sustaining system of microenterprises across multiple sectors in Pakistan.
21 EPG Economic and Strategy Consulting
As new
technologies
evolve into the
market, the
returns from the
sale of these
technologies could
be reinvested.
An important area for future research will building a range of instruments to give the
market close to full informational transparency. This would necessitate sector-specific
performance data sets and the refining of existing metrics to include social impact
frameworks. These research initiatives would be strong facilitators in building an
enabling environment for investment into Pakistan’s social investment space.
Cross-border Entrepreneurialism
Investors and other stakeholders should also examine cross-border entrepreneurialism,
whereby social innovation models, implemented in other emerging economies, could be
replicated in Pakistan. Models should be considered in markets where either cultural or
geographical norms are similar to Pakistan in order to engender a similar success rate
and infuse a sense of inspiration amongst entrepreneurs.
The Bright Green Foundation is a strong example of a renewable energy model which
could be implemented in Pakistan. The organisation pioneers the “no ownership model”
to train 100,000 rural grassroots women to set up their own renewable energy
businesses by 2015 in Bangladesh. The Foundation provides linkages to financial
institutions at low interest rates, access to solar panels and other accessories at cost
effective prices and facilitates the setup of solar panel factories.
Husk Power Systems is an early stage enterprise in India which has provided power to
thousands of rural Indians using proprietary technology, generating electricity in a cost-
effective manner using a biomass gasifier. The enterprise has installed 60 mini-power
plants that power approximately 25,000 households in more than 250 villages and
impact lives of approximately 150,000 people in rural India. Husk Power Systems has
invested in education and training to develop human capital in order to manage power
plants and create a sustainable ecosystem of microenterprises.
Innovation Lab
A research unit should be established where existing academic research can be
combined with technological advances, which could then be gauged to test their
adaptability to SME models.
Innovations in the field of mobile communications could be applied to create cloud
systems for farmers to understand the weather forecasts. Similarly, mobile technology
could be utilised in the health sector for patients to have a portable platform and
communication with their doctors.
In addition, electronic advances in capital machinery could be utilised in micro-hydro
systems, solar products, textile mills and irrigation systems. As new technologies evolve
into the market, the returns from the sale of these technologies could be reinvested back
into the Social Investment Fund.
The Pakistan Council for Renewable Energy Technologies (PCRET) is an example of a
government unit committed to the research, development and provision of energy
services to Pakistan’s remote areas. Recently, PCRET showed a commitment to
technological innovation in the SME sector by partnering with SME Leasing Limited.
PCRET will assist in the technical aspects of the projects, whereas SME Leasing Limited
will cater to the financial needs of the feasible projects. SME Leasing Limited, a
subsidiary of SME Bank Limited, specialises in providing financial solutions to SMEs in
Pakistan.
The Pakistan Innovation Board (PIB) is another example of a government unit which has
provided input into the National Innovation Strategy Framework and has championed
reforms in the area of innovation. The Board is chaired by Dr. Sohail Naqvi, Executive
22 EPG Economic and Strategy Consulting
Director of the Higher Education Commission and consists of prominent members of the
public sector, academia and the private sector.
The PIB was created in conjunction with The Competitiveness Support Fund (CSF), a
joint initiative of the Ministry of Finance, in the Government of Pakistan, and USAID,
established to position Pakistan on a more global competitive footing. The CSF is also
providing technical assistance and co-financing for initiatives related to
entrepreneurship, business incubators and private-sector led initiatives with research
institutes and universities that contribute to creating a knowledge-driven economy. The
First Innovation Workshop took place in Karachi in March 2010, and the discussion
provided crucial input for the draft innovation strategy.
CONCLUSION
Both the establishment of incubator hubs in business schools and new policy
frameworks to facilitate social innovation can leverage Pakistan’s home-grown capacity
in the global economy. Public and private investors can play an instrumental role in
shaping the ecosystem of self-sustaining enterprises and unlocking the full potential of
Pakistan’s social entrepreneurs.
The investment in human talent, as well as in institutions, will spearhead a dynamic
movement, where entrepreneurs will be the driving force of this change.
Raising both investor confidence and entrepreneurial confidence is critical to this
process. By changing mind-sets through education, mentorship and training
programmes, a strong enabling environment can be fostered to propel the
intergenerational wealth and knowledge transfer in Pakistan.
Crucially, careful due diligence of operating entrepreneurs and an understanding of the
social fabric within both urban and rural settings will be pivotal to the success of socio-
economic development in Pakistan. Following this, the educated class can take
advantage of the opportunities arising from business incubator hub models, and those at
the Base of the Pyramid can receive the necessary benefits of financial inclusion.
The need to create a knowledge economy around the social innovation movement in
Pakistan could not be timelier than it is today. A quiet optimism prevails both within
internal policy circles as well as within the international community on Pakistan’s ability
to catalyse widespread and enduring change in its economy.
END
23 EPG Economic and Strategy Consulting
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24 EPG Economic and Strategy Consulting
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25 EPG Economic and Strategy Consulting
ABOUT THE AUTHORS
Priya Shah
Priya works in the social impact sector, focusing on thought leadership and partnership-
building in Asia. She has worked on impact investing projects in Cambodia and India,
and is a Knowledge Chair on the Acumen Fund Chapter in London. She interviewed
over 30 thought leaders and CEOs for a report on social investment in Pakistan, and is
currently researching frugal innovation models in Indian healthcare.
Shailabh Shubhisham
Shailabh holds a Masters in Finance from London Business School, UK and a Masters
in Mathematics and Computing from Indian Institute of Technology, Delhi, India.
Shailabh has previously worked with Royal Bank of Scotland, Singapore and Lehman
Brothers Japan, Tokyo on the pricing and risk management of fixed income derivatives
covering the European and the Asian markets.
For more information, please contact: [email protected] and
[email protected].
Economic Policy Group (EPG)
EPG is an economic and strategy consulting firm based in London. We offer economic
and regulatory policy advice, social investment impact analysis, litigation support and
business management expertise to corporations, governments and the third sector
around the world.
With proven skills in a range of complex projects across an array of sectors, we offer
deep policy advice in a range of ‘real-world’ problems to offer long-lasting solutions to
our clients, that are tailored to their particular issue, in order to help them make better
business and policy decisions.
This publication contains general information only, and none of EPG Economic and
Strategy Consulting or its related entities ("EPG Network") is, by means of publication,
rendering professional advice or services. Before making any decision or taking any
action that may affect your finances or your businesses, you should consult a qualified
professional adviser. No entity in the EPG Network shall be responsible for any loss
whatsoever sustained by any person who relies on this publication.
26 EPG Economic and Strategy Consulting
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