Reducing poverty through social entreprise
Friday, 6 January 2012
Mohammad Helal Uddin
Economic development organisations have long been seeking ways to apply market-based approaches as a means to poverty reduction in developing countries. A shining success of this endeavour is microfinance. First appearing in the early 1970's, by 2006 more than 113 million micro-credit clients were benefiting from this innovative market-based approach to reducing poverty all over the world. Microfinance received universal recognition when Prof Mohammed Yunus, founder of the Grameen Bank, won the Nobel Peace Prize in December 2006. Being inspired partly by the success of microfinance as well as by a desire to find new innovative solutions to the problem of intractable poverty, there is a rising tide of new entrepreneurial strategies which are practised in the social sector. This convergence of business method and social interest to effect social change has given birth to a new hybrid field of social entrepreneurship with a new type of institution, social enterprise.
While both business and social entrepreneurs measure performance in terms of profitability and return on investment, a social entrepreneur also includes the impact s/he makes on society through his or her action. Most social enterprises are built on business models that combine a revenue-generating objective with social value generation. Put another way, they redefine entrepreneurship as we have long known it by adding social components. Business entrepreneurs are constantly seeking ways to increase profits through more sales, higher profit margins, new markets and products expansion practices. Social entrepreneurs may also seek higher profits, yet be willing to accept lower margins and operate in more difficult market environments where government interventions are absent or insufficient as long as they are able to offer social benefits. The very nature of their field activities may reflect a pursuit of a mission-related impact, as opposed to normal businesses that are more concerned about such issues as competition and product differentiation.
In addition, social enterprise does not seek to supplant existing concepts for the third sector such as the social economy or the non-profit sector. Rather, it is intended to bridge these two concepts, by shedding light on features of the third sector that are currently becoming more prevalent in entrepreneurial activities focused on social aims.
The contribution of social enterprises to socio-economic development can be seen from various perspectives. Some of these are worth mentioning like, providing access to basic services to local communities including people who are unable to pay; contributing to a more balanced use of local resources encouraged by wide participation of local stakeholders; contributing to the promotion of inclusive governance models that empower local community in strategic decision-making; creating new employment as a result of the new services supplied and favouring labour market integration of disadvantaged people such as minority groups, single women, people with disabilities, etc. Social enterprises also supply goods and services with a high public value. Services supplied by social enterprises in this area include community and general interest services, such as, transport, micro-credit, water supply, cultural development, recreation, trade fair, management of protected sites and environmental activities, etc.
A business initiative claiming to be a social enterprise which aims at alleviating poverty must meet at least one of the following criteria:
Employ and train proportionately significant numbers of poor people in its main business activity.
Make credit available to poor people at reasonable rates, no higher than twice the rate charged by banks to their creditworthy clients, for personal or business uses without unfair or unethical lending practices.
Offer technical, material or financial assistance to enable the poor to engage in family-run businesses, with returns to investors generated from products made from the activities.
Xingeng Workshop in China is such an ideal model of social enterprise dedicated to improve the living conditions of disadvantaged groups and the education of students from poor families via promoting fair trade for handicrafts.
There are considerable impediments to social enterprises. The barriers that hamper social enterprise development include the lack of supporting environment and infrastructure, restricted access to resources, privileged administrative treatment of specific organisational forms, unsuitable institutional framework and an inconsistent legal environment. In addition, fragile political systems prevent social enterprises from building medium and longer-term strategies while the lack of skills of social entrepreneurs adds to the chronic financial and other types of problems to most social enterprises.
The prerequisites for a full exploitation of the important social, economic and employment-generation roles of social enterprises include a number of basic policies and legal measures, which are important for creating an appropriate environment for social-enterprise development. Encouraging entrepreneurs to take socially oriented initiatives by providing institutional and resource-based supports is crucial for success of these types of endeavors. In broad terms, the principal requirement is to create a legal context which does not disadvantage social enterprises in comparison with business organisations. This means a legal framework that is not over-restrictive or over-regulated, but allows flexible entrepreneurial activity.
Poverty alleviation is considered the root of all social and economic development. To achieve the Millennium Development Goal of poverty reduction, comprehensive efforts from all sectors are a must. Beside government and NGO efforts using market capitalism for poverty reduction, a combination of profitability and social motives can be a useful strategy as well as a sustainable one. Social enterprise is now at its infancy in Bangladesh. To have full advantage of the system Bangladesh should build its own social enterprise system based on its cultural, political and economic condition.
The writer is a student of the Department of Development Studies, University of Dhaka. He can be reached at email: helalds@gmail.com
Economic development organisations have long been seeking ways to apply market-based approaches as a means to poverty reduction in developing countries. A shining success of this endeavour is microfinance. First appearing in the early 1970's, by 2006 more than 113 million micro-credit clients were benefiting from this innovative market-based approach to reducing poverty all over the world. Microfinance received universal recognition when Prof Mohammed Yunus, founder of the Grameen Bank, won the Nobel Peace Prize in December 2006. Being inspired partly by the success of microfinance as well as by a desire to find new innovative solutions to the problem of intractable poverty, there is a rising tide of new entrepreneurial strategies which are practised in the social sector. This convergence of business method and social interest to effect social change has given birth to a new hybrid field of social entrepreneurship with a new type of institution, social enterprise.
While both business and social entrepreneurs measure performance in terms of profitability and return on investment, a social entrepreneur also includes the impact s/he makes on society through his or her action. Most social enterprises are built on business models that combine a revenue-generating objective with social value generation. Put another way, they redefine entrepreneurship as we have long known it by adding social components. Business entrepreneurs are constantly seeking ways to increase profits through more sales, higher profit margins, new markets and products expansion practices. Social entrepreneurs may also seek higher profits, yet be willing to accept lower margins and operate in more difficult market environments where government interventions are absent or insufficient as long as they are able to offer social benefits. The very nature of their field activities may reflect a pursuit of a mission-related impact, as opposed to normal businesses that are more concerned about such issues as competition and product differentiation.
In addition, social enterprise does not seek to supplant existing concepts for the third sector such as the social economy or the non-profit sector. Rather, it is intended to bridge these two concepts, by shedding light on features of the third sector that are currently becoming more prevalent in entrepreneurial activities focused on social aims.
The contribution of social enterprises to socio-economic development can be seen from various perspectives. Some of these are worth mentioning like, providing access to basic services to local communities including people who are unable to pay; contributing to a more balanced use of local resources encouraged by wide participation of local stakeholders; contributing to the promotion of inclusive governance models that empower local community in strategic decision-making; creating new employment as a result of the new services supplied and favouring labour market integration of disadvantaged people such as minority groups, single women, people with disabilities, etc. Social enterprises also supply goods and services with a high public value. Services supplied by social enterprises in this area include community and general interest services, such as, transport, micro-credit, water supply, cultural development, recreation, trade fair, management of protected sites and environmental activities, etc.
A business initiative claiming to be a social enterprise which aims at alleviating poverty must meet at least one of the following criteria:
Employ and train proportionately significant numbers of poor people in its main business activity.
Make credit available to poor people at reasonable rates, no higher than twice the rate charged by banks to their creditworthy clients, for personal or business uses without unfair or unethical lending practices.
Offer technical, material or financial assistance to enable the poor to engage in family-run businesses, with returns to investors generated from products made from the activities.
Xingeng Workshop in China is such an ideal model of social enterprise dedicated to improve the living conditions of disadvantaged groups and the education of students from poor families via promoting fair trade for handicrafts.
There are considerable impediments to social enterprises. The barriers that hamper social enterprise development include the lack of supporting environment and infrastructure, restricted access to resources, privileged administrative treatment of specific organisational forms, unsuitable institutional framework and an inconsistent legal environment. In addition, fragile political systems prevent social enterprises from building medium and longer-term strategies while the lack of skills of social entrepreneurs adds to the chronic financial and other types of problems to most social enterprises.
The prerequisites for a full exploitation of the important social, economic and employment-generation roles of social enterprises include a number of basic policies and legal measures, which are important for creating an appropriate environment for social-enterprise development. Encouraging entrepreneurs to take socially oriented initiatives by providing institutional and resource-based supports is crucial for success of these types of endeavors. In broad terms, the principal requirement is to create a legal context which does not disadvantage social enterprises in comparison with business organisations. This means a legal framework that is not over-restrictive or over-regulated, but allows flexible entrepreneurial activity.
Poverty alleviation is considered the root of all social and economic development. To achieve the Millennium Development Goal of poverty reduction, comprehensive efforts from all sectors are a must. Beside government and NGO efforts using market capitalism for poverty reduction, a combination of profitability and social motives can be a useful strategy as well as a sustainable one. Social enterprise is now at its infancy in Bangladesh. To have full advantage of the system Bangladesh should build its own social enterprise system based on its cultural, political and economic condition.
The writer is a student of the Department of Development Studies, University of Dhaka. He can be reached at email: helalds@gmail.com