Question 1: What are the benefits of social enterprise for international economic development?
Jul14
What do you perceive as being the benefit or value-added of social enterprise to international economic development? What do you see as the benefit to your organization or yourself specifically? What could be done to encourage more cooperation and sharing between the social enterprise and international development communities? Why should social enterprise be important to international economic development agencies?
19 Comments
Can Social Enterprise be used more effectively
Social enterprise can be made more effective by taking the program to the poorest of the poor. Today most of the Micro Finance Organizations supported by World Bank and many other Big Funders do not support the reall poor but well to do among the poor. This has been my experience since five years.The real poor are not supported nor are they eligible for loans since their businesses are too small. Hence we are here to support the cause of the marginalised to take up enterprises . We have come up with an Innovative Business plan for the poorest of the poor.Will International Organizations support us?
A.C.Alexander Our website: www.servhability.orgDear Mr Alexander
Nice to see your mail. i think after long time we are again getting in touch. Thanks to SEEP. Good initiative from your side. I agree with your point.However, biggest challenge in India is identification of actual poor itself. I think unfortunately every body talk about Prof Yunus and grameen Bank. But in reality no body is actually practising the Social enterprise model of Prof . Yunus. I strongly believe that he got recognistion because he actually made the Poorest of the Poor as the owners of small enterprise. The real Social Enterprise Model should address the issue of converting a mere wage earner to a Micro enterprise owner. Hopefully we will carry forward this discussion. All the best for your wonderful work.
Mallikarjuna, Delhi
Benefits of social enterprise
Accountability to customers/community and donors/investors – without necessarily imposing the financial profitability on work that offers a social return on investment; Increased efficiency and better quality work; mobilizing new resources from the private sector; potential for achieving standards in not-for-profit work; in the long run – as social enterprise and the mainstream economy become increasingly linkes – the merging of our financial and moral values, offering investors and consumers an opportunity to live out their moral purpose in their daily economic lives.
Mary McVay
Does SE work for the poorest of the poor?
Hello and thanks for your comments!
Above, Alexander suggests that microfinance, in its current form, overlooks the poorest of the poor. Aside from providing loans for the poorest of the poor to create businesses – is there a way that ‘Social Enterprise’ can more directly assist this demographic?
In recent years, Social Enterprises (SEs) of many varieties have assisted the poor. Have the SEs assisted the poorest of the poor, though? As Social Enterprise harnesses the power of the market to achieve its goals, are the poorest of the poor overlooked? Can this demographic be included in current SE models?
And Mr. Mallikarjuna suggests that the ‘Social Enterprise Model’ should convert simple wage earners to microenterprise owners. In this case, Social Enterprise could be considered one variety of social enterprise – but not the only variety of social enterprise. How can Social Enterprise help wage earners?
Poorest of the Poor
Yes, Suprisingly, although with subsidized interested rate, one of the NGOs we were supporting had 99% repayment rate (supported byPKSF, Bangladesh).
Wage earners are not sometimes enterprise minded, a reality. Or micro-enterprenuers, with huge volume of orders after a trade fair, cant just be motivated for expansion.
Remembering an internal OD results for wage earners (lowest rank and minimum wage earners), they need other MF products – e.g. education loan and other micro-insurance support.
Graduating the Poorest of the Poor through Empowerment Pyramid
Dear Mr. Will Morgan,
Thank you very much for your observations. I feel, poorest of the poor needs to go through a series of interventions before thinking of Social enterprise! They need to group, upgrade their Skills, link up with Finance , Market intelligence and then they can think of graduating to a micro enterprise. To convert wage earners to micro enterprise owners, i strongly feel that these are the prerequisites to promote a social enterprise through poorest of the poor. But iam sure how it is going to happen! To me the true social enterprise should belong to BOP then only desaired social change will happen. However, i do not feel that this is the only ways, there can be several ways, but this will be the effective way!
Regards
Mallikarjuna.Iytha
On the observations of Will
On the observations of Will Morgan and Mallikarjuna.Iytha:
When we think of how social enterprise can help the poorest of the poor we need to think beyond sole-proprietor entrepreneurship. “Enterprises” become “social” through their benefits to others — people, environment, etc. If we look beyond the parameters of micro-lending, it becomes clear that we can build businesses that bring these benefits to their communities. We can accomplish this through building business management capacity while incentivizing the entrepreneur to manage in socially responsible ways and expanding opportunities in their communities — creating quality jobs, protecting the environment, expanding markets.
We can also target the poorest through creation of, and support for, alternative business models. The group success of an employee owned business, or a co-op or partnership, will enable the participants to rise much higher than they could on their own.
Social enterprises need to be innovative and flexible
I would like to support Linda’s observation that perhaps the main reason for promoting social enterprises is not necessarily to establish or expand microenterprises in the informal sector of economy. Sustainable social enterprises can effectively operate in the formal sector of economy while providing services/products or asset building capacity for their low income communities or poorest-of the-poor. There are significant examples of this situation. Please also keep in mind that as communities progress and develop its inevitable that informal sector of economy is forced to shrink and a greater emphasis will be on strong and competitive businesses regardless of whether there are social enterprises or for-profit businesses. I believe a social enterprise needs to stay competitive and efficient while it achieves its social objectives. In any way financial sustainability of the social enterprise depends on its business strategies to compete within the market. Failure to do so jeopardizes achieving all its social objectives.
I’m quite aware that these ideas open a grey area where things are not so black and white. Social enterprises need to be innovative and flexible, frequently evaluating their financial and social objectives, indicators, and results to create a balance for survival.
Microfranchising
Dear Will:
I've been thinking a lot about this question over the past few days and, frankly, made it more complicated than I should have. I was seeking some high-level answer to your question when I should have just looked right in front of my face for an example. My organization, VisionSpring, provides a great example of a social enterprise model that can convert simple wage earners to microenterprise owners. We use a model of microfranchising to help accomplish this.
First off, for everyone to get a better sense of what microfranchising is, please go to our partner's, BYU Marriott School of Management, website for a great definition (http://marriottschool.byu.edu/selfreliance/microfr...).
VisionSpring is focused on empowering low-income men and women to start their own businesses selling reading glasses. The purpose of this effort is twofold. First, people need to be able to see clearly up-close to earn a living. Artisans, farmers, tailors, among others, all require clear, up-close vision to earn a livelihood. Reading glasses are a simple and affordable tool to accomplish this. Second, we believe that training and empowering local entrepreneurs to start their own businesses selling these products that we are creating a market-based solution that is locally-owned and operated. Now, where does microfranchising fit in and how does it help simple wage earners become microenterprise owners?
Microfranchising represents the belief that 80% of people are not true entrepreneurs (myself included). In fact, most people would prefer to follow a step-by-step system that enables them to successfully and profitably operate their own business. VisionSpring has employed this model since its inception in 2002. Using our Business In A Bag (http://visionspring.org/how-we-work/business-in-a-...), we empower people to start their own businesses selling OTC reading glasses and other related eye care products. We have condensed all of the products and services necessary into a backpack that enables our Vision Entrepreneurs to earn at least $1 per pair of glasses sold.
How does this answer Will's original question of conversion? Well, becoming a VisionSpring microfranchise owner is the definition of a microenterprise owner. Typically, our Vision Entrepreneurs have come from informal means of employment whether being laborers or farmers or some other informal job. The opportunity to have access to a business system and to become part of a global organization is quite appealing. Our microfranchising system helps to formalize the informal. Furthermore, our ownership structure allows these entrepreneurs to slowly assume control of their businesses and not take out expensive and risky loans. Through a consignment and deposit model, VisionSpring bears the financial risk of a microfranchise start-up. Slowly, over a six month period, we institute a savings scheme that enables the Vision Entrepreneurs to ultimately own their businesses without having to pay up-front. It is an interesting and powerful financing model that helps us reach very low-income people.
Just a simple example to help answer your great question Will.
Best,
Graham
Dear colleagues, Sorry
Dear colleagues,
Sorry for coming late, but I have been following all the discussion. I felt that I have to add on the imporatant point that Graham raised. I fully agree that ‘’....80% of people are not true entrepreneurs …. most people would prefer to follow a step-by-step system that enables them to successfully and profitably operate their own business…. ‘’
May be this is more so in very poor countries like Ethiopia. And this, I would say is one of the most important challenges that the microfinance/microenterprise sector is facing, yet not enough attention is being devoted to solving it. As a microfinance practitioner and researcher, I would say this is a real challenge.
Indeed, a more problematic issue is the ‘low income perspective’ or ‘aspiration failure’ that prevail among most microfinance clients in many rural areas, who after getting the additional ox or the ‘subsistence’ level of income that has been set as a target (construction of residential house of local standard, for example) most would stop asking for more loan or only take a small amount. In a detailed study, CHF (2007) reported a much more convincing findings of ‘‘ASPIRATION FAILURE’‘ from a detailed qualitative and quantitative survey conducted in five biggest regions of Ethiopia (Tigray, Amhara, Oromia, South, and Afar) covering nine Woredas (districts), involving 144 households from each of the nine Woredas. The study strongly argues that due to ‘satisfaction’ (or ‘happiness’) with one’s circumstances, and absence of ‘role models’ in the localities, there is a widespread occurrence of aspiration failure – individuals being unwilling to make pro-active investments to better their own lives. For example, a question was asked to respondents: “… A banker came to you and offered to lend any amount of money you ask – How much would you ask for it if the loan was payable in one year, 5 years, 10 yares? …” The response clearly come out that the amount that would be borrowed remain relatively small, even for a 10-year repayment period. Is the theory of ‘Backward-bending Labour Supply Curve’ at work? Can the award ceremonies for best ‘role-model’ farmers at the federal and regional levels in Ethiopia help solve this ever-present challenge?
I have tried to summarise the existence of this very problem, in spite of all the efforts by government, donors, NGOs to enhance ‘‘microfinance opportunities’‘ in rural, isolated areas, as a key anti-poverty and development tool. The paper is titled:
‘‘Successes in Expanding Microfinance Opportunities in Rural Ethiopia – Where There is Little Entrepreneurship?’‘
The paper (15 pages) is posted at the CGAP/Microfinancegateway.org, as well as at the FAO/WB/IFAD/GTZ-sponsored ‘Rural Finance Learning Center’ web-site and can be viewed from either of the following sites:
http://www.microfinancegateway.org/content/article/detail/45194
http://www.ruralfinance.org/servlet/CDSServlet?status=ND0xMDgzNi41MzQxNC…
I look forward to hearing from you all.
Getaneh Gobezie
Tel: 251-911-092033
ETHIOPIA
—- On Sat, 7/19/08, communities@seepnetwork.org
Benefits of SEs to international development
It is a reality that a social enterprise will always be provided with grants/subsidies to achieve its social objectives. Successful SE’s ( looking at names of organization listed in page 24 of the concept paper), have received subsidies and technical assistance by donors.
In instances where there is a competition between an SE and private business (PB), it becomes an unfair competition. For example, cooperatives and MFIs – a business venture that has a COMPETITIVE ADVANTAGE since it can expand without an asset as collateral while simultaneously; it can access private capital (from private banks) because of good track record.
Public Accountability. It is therefore, crucial and an obligation of SEs to be accountable to partners (donors, employees, beneficiaries). Bottom line is good governance.
Outreach. It reaches the target groups and areas where the private sector/public sector refused to be involved with. A challenge for smaller organizations because of the risk involved – profitability and sustainability issue. Remembered an MFI decision in a nursery school with a break even operation than risking to an area where there is a history of high non-repayment rate. Or buying corn produce at a higher price than traders (not taking into account warehouse fee and manpower, as they said, it was a grant and support to farmers regardless it is net loss on its initial operations).
WHAT ARE THE CORPORATE ETHICS THAT GOVERNS SE’S?
Practicing sustainable development/technology, green productivity, fair trade and paying employees to what is legally (if not morally) appropriate. Tackling social issues and policy issues to address the root causes of poverty should be a crosscutting theme – dumping, trade agreements. Do we support or call them SE’s when the enterprise promote environmental degradation, uses child labor or pay unjust wages?
The challenge is what % of the profit is utilized for non-income generating activities in the pursuit of its social objectives. I agree (and have personally provided technical support) that SE’s should diversify their income portfolio on safe investment to ensure sustainability of the organization.
But, what % of profit share do the producers earn or as against market consolidator? Is there a transparency in the pricing, in the profit?
A case study published in regoverning markets is an illustration of SE Ethics, entitled: Keys to Inclusion of small-scale organic rice producers in supermarkets: the case of Upland Marketing Foundation Inc.
I have personally met Larry Digal, one of the authors. A dream come true was my comment on this.Great Points of Coverage
Dear Annlilly
I very much enjoyed your post. Thank you. When I read it and the points you raised, I was reminded very much of the complexities of operating a social enterprise. Social enterprises often have to walk a fine line between operating like a business while being held to the challenging standards of a public entity. Sometimes you feel pressures from one side more than another and unless you have clear guiding principles you might lose your balance. Boards of Directors, staff, donors, and customers, I believe, can help steer you back in the right direction. You captured some of these pressures quite well.
To another point, I would like respectfully disagree with your statement that social enterprises will always be provided with grants/subsidies. My disagreement is not based on the truth of your statement, but rather with the definitive nature of your statement. I believe that many, hopefully most, social enterprises have the intention of, (and have demonstrated some success) being truly market based and reliant only upon revenues derived by market offerings. The challenge, of course, is the execution of the intention. As we all know, there are myriad challenges to achieving this difficult objective. Let’s just hope that more and more social enterprises are able to prove me correct and provide market offerings to the poor in a sustainable manner!
Graham Macmillan
Great points of coverage
You wrote “I believe that many, hopefully most, social enterprises have the intention of, (and have demonstrated some success) being truly market based and reliant only upon revenues derived by market offerings”.
It vould be of high interest if you would provide us with some references
on above statement.
In my experience in the microfiance sector I haven’t been so luky.
Ascanio
clarification
apologies on the definitive nature of my statement. That comes from being involved in problematic SE’s in the last 3 years. Yes, you are right. And there are SE models that provide ISO to the sector. Albeit difficult in the reality of defining a fine line between business and public entity.
Social Enterprise Designed to Overcome a Social Problem
Great Comments and observations! I appreciate Annlily’s comment about serving the poorest of the poor.
At least in theory, social enterprises are designed to solve a social problem or market failure (by public sector or private sector). A social enterprise is not always created to fuel self-employment and entrepreneurship. Many early examples of US-based social enterprises, called “afirmative businesses” were created to employ the “unemployable” or those people with barriers to employment such as ex-convicts, homeless people, people with HIV/AIDS, people with mental or physical disabilities.
These so-called “employment-based” social enterprises have also been implemented in many developing countries.Vunerable populations, such as the poorest of the poor, ethnic minorities, disabled, elderly, or refugees may never become entrepreneurs—instead, they need secure employment, in a supportive or enabling environment with a livable wage. In this case the business is designed around the needs and abiliities of the clients (often including complex psycho-social and physical needs) as well as the viability of the business. Business revenues cover wages + wage premiums (the difference between low wages and livable wages), plus hard skill and soft skill training and supportive services. Examples include Rubicon Programs, Greyston Bakery among others. www.redf.org has several interesting examples and publications in the US context. Counterpart International has also implemented social enterprise in Bulgaria, Ukraine and Central Asia.
How Social Production Transforms Markets and Freedom
As I read Kim’s convincing comment about workers and entrepreneurs, I am reminded of another truism we should all take to heart, that social enterprise requires both social and market exchange systems.
There is an excellent book that is very useful in conceptualizing the very foundations of this work: The Wealth of Networks: How Social Production Transforms Markets and Freedom by Yochai Benkler. It’s free and online (see link, below).
Entrepreneur vs Employee
Hi,
Interesting discussion.
Kim, re your comment above, I understand your concern, but I would not equate someone’s potential as an entrepreneur to be according to what population group they belong to (e.g., ethnic minority, refugees, the very poor). I think all population groups have some people who are more comfortable as employees and others as entrepreneurs.
Of course, there is the old debate about what is an entrepreneur – some people are ‘entrepreneurs’ out of need/inherited occupation – smallholder farmer, petty trader, craftsperson. Others are ‘entrepreneurs’ in the sense of taking a risk, building something new etc. In other situations people do not have the choice to be entrepreneurs (e.g., plantation and feudal systems with bonded labour which is all too common).
Social enterprise is interesting to me in that it provides a new choice, and may have the potential to do so for many people if scale issues can be understood. However, I am disappointed by the large percentage of ‘social enterprise’ projects that are about providing services and products to the poor, and not assisting the poor to build assets. For me, the latter is key, and if social enterprise can figure out how to channel investment money into asset-building opportunities for large numbers of the poor – either in employment or enterprise – that would be an incredible win.
Best,
Linda
Increasing these benefits of social enterprises in int'l dev.
Thanks Linda, Kim and Alvin for your contributions:
I’m curious about how others feel about Linda’s assertion that a large percentage of social enterprise projects are about providing services and products TO the poor, not assisting the poor to build assets. Yes, true? No, not true? Good? Bad?
Often, the business proposition to start any enterprise is that there is a market that is under-served, either by a product or a service. This is true of asset-building services/products just as it is with VisionSpring’s eyeglasses.
And microfinance as an industry is enormous at this point, finally gaining the attention of commercial banks. Can we assume that it is just a matter of waiting until commercial establishments begin to provide more asset-building products/services to the poor (other than microfinance)? Or, is it the responsibility (by default) of social enterprise to provide these services, seed a market, and then watch it flourish?
We’re talking in this discussion about the benefits of social enterprise in international development. Clearly, there are many in selling products and services to the poor, as well as providing asset-building products/services to the poor. How can me make this multiply? Will it on its own? Or will it be a similar experience as microfinance, i.e. 20 years until it becomes mainstream?
Can we promote social enterprises through incubation model??
My sincere apologies for entering the discussion at a late stage. Will Interesting questions you have put forward here, particularly about how do we multiply, expand, promote social enterprises. I’m a strong advocate of incubating strong social enterprises as a sustainable platform for international development to speed up the process. But as we all know adopting the incubation model and applying it to the concept of social enterprises has its own complexities due to the ownership nature of social enterprises, mission and objectives as well as investors’ social and economical expectations. That’s why I like to put forward the following question to the group for discussion;
Can we use the incubation model to promote and expand social enterprises? If you believe such model is viable, what is the best way of providing seed money to the social enterprises? Grants? Soft loans? And why?
What are the best ways of showing ROI (socially and economically) to investors to demonstrate the value of social enterprises as an effective tool in development?
After incubation process, how do you evaluate performance of the social enterprises for the purpose of accountability and transparency?
These questions keep up at night