Impact of mandatory CSR on social enterprises - Paul Basil, Founder and CEO, Villgro

In the recent changes to the company law regime in India, Paul Basil, Founder and CEO, Villgro, sees at least three positives from a social entrepreneurship perspective. “The 2 per cent CSR (corporate social responsibility) spending allows corporates to give back to India, which is the purpose that the law seeks to achieve,” begins Paul.

For starters, section 135 of the Companies Act, 2013, requires every company having net worth of Rs 500 crore or more, or turnover of Rs 1,000 crore or more, or a net profit of Rs 5 crore or more, during any financial year, to constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director. The Board should ensure that the company spends, in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy. The law requires companies to give preference to the local areas for spending the amount earmarked for Corporate Social Responsibility activities.To Paul, what is significant is that the new CSR law enables a social enterprise to receive capital – early stage, possibly, non-dilutive funding – to test out business models, to build newer markets. “And, I think, this is of brilliant strategic interest even for the corporates, because they can actually build business models through this undiluted funding in the bottom of the pyramid market. This 2 per cent is going to do a lot of good for non-profit sectors in India, because lot of such funding can go there.”

The third positive that Paul sees in CSR funding is the help for incubators. “Funding which corporates give to incubators approved by the Department of Science and Technology is going to be notified as CSR spend. That’s going to trigger a lot of entrepreneurship.”