Social Entrepreneurship Issues - Case Study Example

Situation Analysis The overall situation described in this case study relates with how to systematically introduce elements of for-profit business in a business which is typically a social entrepreneurship. Social entrepreneurships are defined as effort by individuals in order to generate some social value by employing innovative techniques. The business and financial model of Kiva is also based upon the notion of social entrepreneurship as it offers loans to different entrepreneurs in poor countries through its field partners. A closer analysis of the facts provided in the case study would suggest that there are two groups of people who will be typically affected if Kiva start to pay interest to its lenders. Kiva’s existing business model does not allow lenders to receive interest against the funds they loan however; Kiva’s field partners charge the interest from the entrepreneurs. Though this rate is lower however, it is considered as enough to meet the requirements of the Kiva’s field partners. One group which obviously be affected by this will be the poor entrepreneurs because if start paying the interest to its lenders, this cost will certainly be passed on to the actual borrowers. Secondly, by not paying the interest, Kiva’s lenders are being affected though most of its lenders lend the money to gain the emotional returns rather than the financial returns. The situation described above therefore indicate towards the adaptation of a business model which can effectively combine both the elements together in order to create value for each of the stakeholders in terms of financial rewards. Problem Analysis A closer analysis of the facts would suggest that Kiva is facing two important problems i.e. strategic as well as of operational nature. It is Strategic in the sense that paying interest rates to the lenders may dilute its overall appeal and can significantly reduce its overall public image. Further, it also need to maintain its operational viability therefore in order to attract more funds, it may require paying interest to the lenders. Apart from this, a change in the business model of the firm would also force it to change its very character therefore may further require it to complete important legal requirements in order to comply with the existing legal requirements for the commercial organizations. Apart from this since the lenders of Kiva may not be directly into the business of lending therefore they may also be subject to the different regulatory requirements which can effectively discourage them to lend to Kiva owing to the increasing requirements which they have to fulfill. Since most of the Kiva’s lenders tend to lend out of altruism therefore if they are subject to more regulations, it will increase their overall costs and ultimately the increasing costs would fall onto the entrepreneurs to whom the money is lent. Microfinance organizations, over the period of time, were able to maintain their attraction mainly due to low interest rates charged by them as compared to the other informal sources of credit. As such if cost is increased, the advantage for borrowing from microfinance institutions may dilute and entrepreneurs may start re-borrowing from the other traditional informal sources of finance because of the less paper work and other administrative issues involved. Solution Analysis In order to overcome this situation, it is critical that Kiva must retain its original character and develop further business modalities which can allow it to improve its revenue generating capabilities. Kiva than can share its revenue with the lenders rather than paying off interest on the funds loaned by the lenders. Since historically the lenders of Kiva have re-loaned their amounts therefore for them it is more or less sunk cost with little or no utility. In order to take advantage of this fact, Kiva has to ensure that it generates enough revenue so that it can actually share with its lenders. In order to achieve this, Kiva may have to list its lenders as the shareholders or partners so that they can share the revenue of the firm. Though this may further create some regulatory issues for Kiva however, it will allow it further reward its lenders and ensure that it receive consistent flow of funds to lend. Since the overall purpose of Kiva is to lend to the entrepreneurs in poor countries at affordable rates in order to help them to develop sustainable businesses, therefore it shall focus on its core aim while aiming for developing new sources of revenue in order to accommodate the lenders while at the same time ensuring that it continue its original business model. Implementation Analysis In order to implement the above scheme of affairs, Kiva has to bring in new and innovative approach to increase its revenue. One important strategic step which it can take is the sharing of the interest earned by its field partners so that it can improve its revenue generating capability and reward those who actually lend the money. What is also significant to note that the Kiva may have to obtain special regulatory permissions from the authorities in order to peruse a business model in which the lenders actually become the shareholders/partners and can share the revenues of the firm? Since business is not-for profit therefore it has to maintain its essential character however, while remaining within this domain it can actually develop the methods and further business modalities which can allow it to reward its lenders. Another important step which Kiva can take is the development of the strategic alliances with different partners which can allow it to earn advertising revenue from its site. Since the firm gets many important benefits free of cost, it can actually offer space for the advertising purposes on its site in order to enhance its revenue generation capability so that it can accommodate its lenders. Providing advertising space on its or its allied sites would further allow it to develop a business model which is based upon the combination of social as well as commercial business while at the same time retaining its original characteristics of being a social entrepreneurship. Read More