Opportunites for scaling social enterprises - Tshikululu Serious Enterprise Development workshop 2010

Opportunities for scaling social enterprises through enterprise development

DR FRANÇOIS BONNICISCHWAB FOUNDATION FOR SOCIAL ENTREPRENEURSHIP

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“ We are continually faced with a series of great opportunities, that are brilliantly disguised as insoluble problems “

John W Gardner

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Social enterprises should be considered as a subset of opportunities in enterprise development, that not only contribute to the creation of employment opportunities but also that tackle some of the significant social and environmental challenges faced by South African citizens ‐ such as health, education, crime, access to energy, conservation, etc.

In this session, we will visit a few local and international case studies of successful social enterprises, and explore the opportunity for supporting social enterprises as part of an aligned enterprise development and corporate social investment strategy.

Session description

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• what are social enterprises?

• international / local trends & examples

• exploring opportunities in ED strategy

• what are the potential benefits & risks

• real opportunities for ED investments

In this breakaway sessionIn this breakaway session

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social enterprisessocial enterprises

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Defining social enterprise concepts

an organization or venture that primarily advances a social mission through entrepreneurial earned income strategies & robust business models Social Enterprise Alliance

social enterprise

non‐loss, non‐dividend business aimed at social objectives , eg.

“poverty alleviation, education, health, environment, whatever is needed to address the problems faced by society Grameen Creative

social business

practical, innovative and market‐oriented approaches (whether for‐profit or not) aimed at catalyzing large scale and sustainable, systemic social change through innovation Schwab Foundation

social entrepreneur‐

ship


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Organizational Model Spectrum

traditional for‐profitbusinesses

traditional non‐profitNGO/charity

non‐profit with income generation

socially responsible business

Mission motive •

Stakeholder accountability •

Performance measured in •social impact or SROI

Income reinvested in social •programs or operational costs

corporation practising

CSI

social enterprise &

social businesses

Hybrid spectrum

• Profit‐making motive

• Shareholder accountability

• Performance measured in economic ROI

• Profit redistributed to shareholders


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Finance for Social Enterprises

Jed Emerson (2003) “The Blended Value Map: Tracking the Intersects and Opportunities of Economic, Social and Environmental Value Creation ”


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• international / local trends & case studies




trends & case studiestrends & case studies

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Social enterprise in South Africa ‐ trends

Social enterprise is an increasingly used and recognized approach of tackling the multiple challenges of socio‐economic and enterprise development.

Research by the ILO, the University of Johannesburg and Tshikululu agree on three elements which make up the working definition for social enterprise in SA:

In South Africa, using the above definition, social enterprises can and do currently exist as CCs, companies, section 21 non profit organisations, as trusts and voluntary associations.

The 2009 GEM report recognised and focused on social enterprises in South Africa for the first time.


B Fury, Tshikululu Social Investments. “Social Enterprise Development in South Africa ‐ creating a virtuous circle”

• has a primary social purpose – has a clearly stated social purpose as its core objective

• uses a financially sustainable business model – has a realistic prospect of generating sufficient income to exceed costs, now, or at some point in the future; and

• is accountable & transparent – mechanisms to ensure accountability to beneficiaries

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Local Case Study: Shonaquip

• provides high quality appropriate, locally made modular, fitted wheelchairs and equipment

• trains family and healthcare professionals to empowers those with disabilities to reintegrate into society and the workforce

• has made a significant contribution to the expanding the quality and supply of equipment to both public & private health sectors

• has contributed to both national and international policies regarding mobility and empowerment of the disabled

• impressive 65% growth in revenue rate last year• expansion into neighbouring SADC countries

• Shonaquip is proving that social enterprises can have real impact at scale.

Jobazda Khatun25 years old, solar panel engineer

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Social enterprise in South Africa ‐ trends

International Labour Organization have given a recent focus and emphasis to social enterprises, viewing them as part of the broader Social Economy (putting people and communities ahead of profit),together with co‐operatives, mutual associations etc.

Several networks of social entrepreneurs & social enterprises exist in SA:‐ African Social Entrepreneurs Network (ASEN) www.asenetwork.org

‐ South African Social Investment Exchange (SASIX) www.sasix.org

‐ Ashoka Southern Africa www.ashoka.org

‐ Schwab Foundation for Social Entrepreneurship www.schwabfound.org

And other networks that also include social entrepreneurs‐ Technoserve www.technoserve.org

‐ Endeavor www.endeavor.org



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International trends: Legal Structures of Social Businesses

Community interest companies (CIC) are a type of limited company designed specifically for those wishing to operate for the benefit of the community rather than primarily for the benefit of owners of the company.

CICs can be limited by shares, or by guarantee, and will have a statutory “Asset Lock” to prevent the assets and profits being distributed, except as permitted by legislation. This ensures the assets and profits are retained within the CIC for community purposes, or transferred to another asset‐locked organisation, such as another CIC or charity.

CIC – Community Interest Companies (UK)

L3C'sare low‐profit limited liability corporations, which function via a business modality that is a hybrid legal structure combining the financial advantages of the limited liability company, an LLC, with the social advantages of a non‐profit entity.

An L3C is run like a regular business and is profitable. However, unlike a for‐profit business, the primary focus of the L3C is not to make money, but to achieve socially beneficial aims, with profit making as a secondary goal.

L3C – Low‐profit Limited Liability Corporations (USA)


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1. Business objective will be to overcome poverty, or one or more problems (such as education, health, technology access, and environment) which threaten people and society; not profit maximization.

2. Financial and economic sustainability.

3. Investors get back their investment amount only. No dividend is given beyond investment money.

4. When investment amount is paid back, company profit stays with the company for expansion and improvement.

5. Environmentally conscious.

6. Workforce gets market wage withbetter working conditions.

7. …do it with joy.

The Six Seven Principles of Grameen Social Business

This was first written on a napkin in Davos at the World Economic Forum Annual Meeting in January 2009 by Professor Muhammad Yunus (Board member, Schwab Foundation)


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International Case Study: Grameen Bank

brings microcredit people in poverty who otherwise would not be able to obtain a loan

since its founding in 1983 it has loaned over 6 billion €—some in portions of as little as 5 Euros

it has 7.6 million clients, 97% women who are also owners of the bank

active in over 80,000 villages

98% loan recovery rate

100% literacy in 2nd generation

Jobazda Khatun25 years old, solar panel engineer

Source: Grameen Bank and Grameen Creative Labs

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International Case Study: Grameen Social Businesses

Following the success and reach of Grameen Bank, there was a realisation that this reach could be used to deliver other services and goods to the poor based on a similar business model.

The Grameen Group has over 20 businesses including: Grameen Shakti (GS), rural power company; Grameen Mobile (mobile phone service to 100 million inhabitants in rural Bangladesh).

More recently in Joint Ventures with multinational corporations as well. Danone, BASF, Adidas, Veolia.

This provides some fertile opportunity to explore how companies can support, build and even procure from social businesses as part of business strategy.

Source: Grameen Creative Lab

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International Case Study: Waste Concern

Iftekhar Enayetullah (and Maqsood Sinha) had the idea to solve the waste problems of mega‐cities and the communities that lived off landfill dumps

turns out it was a profitable social business that cleared waste effectively, employed & skilled marginalised poor people, and created compost from organic waste & reduced carbon emmissions that could be sold as carbon credits

http://www.youtube.com/watch?v=iFLTqVVQecg&feature=SeriesPlayList&p=910FAA4450B6A276


www.wasteconcern.org

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International Case Study: First Book

Kyle Zimmer recognised an huge need that was only partly filled by donors, but could be served even more with a market mechanism

Following huge success, proven impact and replication, First Book required the help of corporates to scale up their efforts and impact

http://www.youtube.com/watch?v=XqUzV1cqihE&feature=SeriesPlayList&p=910FAA4450B6A276


www.firstbook.org

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International Case Study: THE 99

Naif Al Mutawa was moved by the psychological effects of war andterrorism and his children’s future to create new role models in superheroes

Even before The 99, South African social enterprises have used mass media communications to change attitudes and behaviours has beensuccessfully achieved by Soul City, and subsequently Heartlines.http://www.youtube.com/watch?v=5GO3bO2fq1Y&feature=SeriesPlayList&p=910FAA4450B6A276


www.the99.org

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Video links to Social Entrepreneurs' Ideas Lab in Davos 2010

Iftekhar Enayetullah – Waste Concern:http://www.youtube.com/watch?v=iFLTqVVQecg&feature=SeriesPlayList&p=910FAA4450B6A276

Kyle Zimmer – FirstBookhttp://www.youtube.com/watch?v=XqUzV1cqihE&feature=SeriesPlayList&p=910FAA4450B6A276

Reed Page – Belu Waterhttp://www.youtube.com/watch?v=uKG6Bw1usCY&feature=SeriesPlayList&p=910FAA4450B6A276

Naif Al Mutawa – THE 99http://www.youtube.com/watch?v=5GO3bO2fq1Y&feature=SeriesPlayList&p=910FAA4450B6A276


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exploring the ED strategyexploring the ED strategy

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Enterprise Development could create “blended value”

discounted, monetized value of the social value that has been created, relative to the value of the investment.

Roberts Enterprise Development Fund (REDF)SROI

market‐based approach to addressing many of the social and environmental challenges facing the global community

Monitor Institute & World Economic Forum

impact investing

investors simultaneously generate economic, social & environmental value through providing capital to organizations, where that value is itself non‐divisible and thus a blend of the three. Jed Emmerson

blended value

exploring ED strategyexploring ED strategy

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The opportunity for investing in social enterprise is a simple and compelling one. If sustainable businesses which meet social needs can be financed and supported, we have the ability to create lasting social impact.

And, at the same time, working within the BBBEE frameworks, if social enterprise development is categorized as both enterprise development (ED) and as socio‐economic development (SED) for which there is a strong argument being made, there are potentially 20 BBBEE scorecards points up for grabs ‐ a win‐win‐win for business and for society.

A potential win‐win‐win ED investment?


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Enterprise Development is often categorized as either “core” to business operations, or unrelated and not having a direct value add to the business.

Investment in social enterprises could offer the opportunities of integrating both directly into business operations, but could also be considered central to business strategy and its sustainability or social development strategy, depending on the enterprise and its activities.

Corporates have mostly viewed their enterprise development (ED) and CSI (SED) strategies as as two separate and distinct areas ‐ but these can aligned in a much more strategic approach with social enterprises.


Value add to business operations or sustainability strategies

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The B‐BBEE legislation allocates: ‐15 scorecard points to companies which invest 3% of post‐tax‐profit for In terms of enterprise development. ‐5 points which are allocated to CSI spend under the socio‐economic development (SED) category.

Therefore investments in the development of social enterprises could present opportunities to enable enterprise development while simultaneously fulfilling socio‐economic development criteria.

“This has the potential to create a virtuous circle in which financially sustainable enterprises can be stimulated, which tackle key social issues and, assuming the B‐BBEE frameworks can be tweaked to take this hybrid approach into account, provides an added incentive for the private sector to invest in social enterprise development with a potential full 20 point reward on the B‐BBEE scorecard “


Opportunities in the B‐BBEE framework (from TSI research)

Source: B Fury, Tshikululu Social Investments. “Social Enterprise Development in South Africa ‐ creating a virtuous circle”

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Aligning the ED & SED strategies through social enterprise investments


• Equally important is to create clear guidance for corporates and other potential private sector investors wanting to take best advantage of B‐BBEE scorecard points (particularly when investing through enterprise development budgets) by investing in social enterprises, so that there is nomisunderstanding over whether investment in a social enterprise should be allocated points – as CSI rather than enterprise development ‐ but rather as both.

• Rather, as part of a joined‐up, strategic approach to creating maximum social impact, corporate decision‐makers should look outside their narrow CSI or enterprise development focuses to consider alternatives for creating social change through social enterprise development.

• And it is not just in providing important access to finance that corporates can contribute, but also in filling the gaps that exist in the provision of essential non‐financial business development services such as education and technical assistance in order to bring these enterprises to a point of investment readiness.

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Measuring the social impact / social return

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IRIS: a common language for reporting social & environmental impact

Impact Reporting & Investment Standards (IRIS)

• a common language for describing the social and environmental performance of an organization

• provides an independent and credible set of metrics for organizations to use when reporting their impact

• IRIS indicators span an array of performance objectives and include specialized metrics for a range of sectors including financial services, agriculture, and energy.

• like financial accounting standards, IRIS provides a basis for performance reporting and organizations need only report on applicable metrics from the IRIS library.

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benefits & risksbenefits & risks

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Benefits & risks

Potential benefits

• As before – opportunity for meeting both ED and SED criteria

• Potential tax benefits if social enterprise also has section 18A status

• Several social enterprises are gearing themselves to deliver this

• Creating direct sustainable social impact in addition to jobs

Potential Risks

• As with standard enteprise development support – all those plus:

• Delivering on a social impact agenda and revenue generating agenda can lead to tensions within the business as to priorities

• Only a few well established social enterprises with long track records exist at present in SA, although many are emerging

benefits & risksbenefits & risks

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• real opportunities for ED investments in SA

real SA opportunitiesreal SA opportunities

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SA social enterprise examples already supported by ED

Learn To Earn http://www.learntoearn.org.za

• Training for employment. Sewing, woodwork, crafts. Establishes small businesses.

• Feel Good Store – joint venture partnership with Foschini – retail outlet, work for sewing group, training ground for interns.http://www.tfg.co.za/csi/projects/tfgs.asp

Shanduka Black Umbrellas http://www.blackumbrellas.org

• support of emerging black business through enterprise development.

• business office hub provides with a working environment and support services that will enable them to thrive

• More than 20 corporates have invested and received ED & SED points, as well as tax benefits on donations


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Shonaquip www.shonaquip.co.zaemployment through empowering those with disabilities

Open Africa www.openafrica.orgrural jobs & environmental conservation through tourism

Soul City www.soulcity.org.za & Heartlines www.heartlines.org.zahealth and values through mass media communications

Johannesburg Housing Company www.jhc.co.zaaffordable low cost housing & building economically active neighbourhoods

The Hope Factory www.thehopefactory.co.zacreating sustainable livelihoods through business, technical & life skills

TSIBA Education www.tsiba.org.zaeducation in entrepreneurship & business

The Big Issue www.bigissue.org.zaemployment, skills targeting those who are homeless

Cause Activation www.cause.co.za

Selection of some SA social enterprises worth exploring


Raizcorp

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thank youthank you

DR FRANÇOIS BONNICI

SCHWAB FOUNDATION FOR SOCIAL ENTREPRENEURSHIP

[email protected] or [email protected]