Social Entrepreneurship: Blurring the Boundaries of Business and Philanthropy
Social Entrepreneurship: Blurring the Boundaries of Business and Philanthropy

With the global economic crisis in its 3rd year, with national debts soaring to new heights, with austerity measures being proposed throughout Europe and the U.S., it is clear that governments around the world can no longer afford to provide high levels of social services to their citizens. While non-governmental organizations have traditionally filled in to provide services to the under-served, for –profit companies and entrepreneurs are increasingly playing a role as well.

Social entrepreneurs are defined by The Skoll Foundation as “society’s change agent: a pioneer of innovation that benefits humanity.”1 There are three main characteristics associated with social entrepreneurship endeavors: social innovation, accountability and sustainability.2 Social entrepreneurs can be found in both the for-profit and not-for-profit sectors.

Social entrepreneurship centers in business schools can be found across the globe. New Zealand’s first social entrepreneurship center recently broke ground at Massey University.3 South Africa’s University of Cape Town Graduate School of Business (GSB) sees its role as nurturing social entrepreneurs across Africa. GSB plans to partner with business schools across the continent allowing students to go to school in their home country.4

Governments are encouraging social entrepreneurs through offices and initiatives dedicated to providing services to social entrepreneurs, such as training workshop. For example, in May 2009, the White House launched the Office of Social Innovation and Civic Participation to promote partnerships for community services.5

Economic Development

Microfinance Meeting in India

Economic development was one of the first fields transformed by social entrepreneurs. In 1976, Mohammad Yunis started an initiative in Bangladesh to provide banking services to the rural poor, which soon became known as the field of micro-finance. The field of micro-finance has bloomed and is now found all over the world, in developing and developed countries.

Social entrepreneurship in banking is growing beyond micro-financing. Some investment companies are now becoming socially-conscious as well, such as Ignia Partners, which invests in affordable housing in Latin America.6 Citibank and J.P. Morgan and others are creating new social financial products.7

One element of economic development that is still a main-stay of social entrepreneurs is job creation. Many social entrepreneurs target those who are marginalized in society. In Canada, St. John’s Bakery provides jobs to marginalized individuals to get off welfare; the company initially received grants from United Way and the Canadian government and hopes to be self-sufficient within a couple of years.8 Rags2Riches in the Philippines works with the informal rug-weaving industry to cut-out the middlemen and provide access to markets and materials to help women pull their families out of poverty.9

Foreign Aid

Another aspect of economic development that is attracting social entrepreneurs is foreign aid. Traditionally, foreign aid has consisted of government funded projects (such as USAID projects), World Bank and IMF aid to developing country governments and NGOs, and NGO projects (both local and international).

Today, foreign aid is increasingly being organized by individuals. Nicholas Kristof coined the phrase D.I.Y (Do It Yourself) Foreign Aid to describe the phenomena of individuals creating and carrying out foreign aid projects around the world.

It’s all about what might be called Do-It-Yourself Foreign Aid, because it starts with the proposition that it’s not only presidents and United Nations officials who chip away at global challenges. Passionate individuals with great ideas can do the same, especially in the age of the Internet and social media.10

In his New York Times article, Kristof highlights the work of

  • Elizabeth Scharpf, a Harvard business school graduate who is starting a company to manufacture low-cost maxipads out of banana skins for women in the developing world who cannot afford other options;
  • Lisa Shannon who started an organization Run for Congo that raises money for women that suffered from war and rape in eastern Congo; and,
  • Maggie Doyne, a high school graduate that created and runs her own school/medical center/home for orphaned girls in Nepal.11

Despite their positive impact, social entrepreneurs face an uphill battle to find funding for their causes. There have been many developments though, to help alleviate this problem.

Innovative Ways to Tackle the Funding Issue

One challenge for many social entrepreneurs is the lack of funding. The funding problem is not only about access to traditional brokers and sources of investments, it is also about educating the gatekeepers, who are are not sure whether these initiatives are a business opportunity or a charitable contribution. The Global Impact Investing Rating System was recently developed to provide social ratings for companies and funds. It will provide investors with a new tool to evaluate the effectiveness of social endeavors in the for-profit world.12

Suzi Sosa, associate director and senior fellow in social entrepreneurship at the RGK Center for Philanthropy and Community Service at the University of Texas at Austin, credits the funding problem to the lack of “exits” in the social entrepreneurship world. Since social entrepreneurs are usually funded by patient investors willing to wait 15 years to see results, those who invest in traditional markets are not willing to wait that long for results. Increased mergers, acquisitions, IPOs of companies would lead to increased liquidity of funding and access to more traditional funds.13

Others are tackling the funding issue by developing new partnership models with for-profit enterprises. Computod@, an El Salvadoran social enterprise that sells low cost, refurbished computers to students, NGOs, and small businesses has teamed up with DPG, which sells paper products to the government and large corporations. In this partnership, DPG allows Computod@ to use their warehouses, which were not being used to full capacity, as well as trucks and labor to package and sell the product. In return, DPG gets a small monthly fee for use of these items as well as the prestige of giving back to the community.14

Another way to tackle the funding problem is through government policy. For example, Canada, which has seen a growth of social entrepreneurship in the last two years, could rework its laws to allow businesses and charities to form hybrid companies. Canada would also benefit from issuing a formal definition of social enterprise, thus allowing these organizations to raise capital within Canada.15

Conclusion

Social entrepreneurs play an important role in addressing a myriad of problems around the world, from global warming to poverty. Social entrepreneurs cannot supplant governments as the primary service provider. Nor can they solve the entire world’ problems on their own. However, governments and international organizations should find ways to support their efforts and encourage their involvment in making the world a better place.

What do you think? Join our discussion of this article on the Globalization101.org blog.

 


1 “Defining Social Entrepreneurship.” Social Edge. July 2007.
2 “Social good motivates some new enterprises.” The Herald. October 18, 2010.
3 Koveshnikova, Kristina. “NZ’s first social innovation centre to open.” The National Business Review. October 8, 2010.
4 Groves, Ellen. “Cape Town B-School Embraces Social Entrepreneurship.” Bloomberg Businessweek. March 17, 2010.
5 “Social good motivates some new enterprises.” The Herald. October 18, 2010.
6 Weber, Jonathan. ‘‘Impact Investing’ Teeters on Edge of Explosive Growth.” New York Times. October 9, 2010.
7 Jedidi, Kamel and Bruce Kogut. “How Social Entrepreneurs Heal The World’s Wounds.” Forbes. October 6, 2010.
8 Avery, Simon. “Canada playing catch-up in social enterprise.”The Globe and Mail. October 19, 2010.
9 Nabia, Jovel. “Social entrepreneurship in the Philippines.” Business World. October 8, 2010.
10 Kristof, Nicholas. “D.I.Y. Foreign-Aid Revolution.” New York Times. October 20, 2010.
11 Ibid.
12 Weber, Jonathan. ‘‘Impact Investing’ Teeters on Edge of Explosive Growth.” New York Times. October 9, 2010.
13 Sosa, Suzi. “Exit Strategies for Social Entrepreneurs.” Inc. October 21, 2010.
14 “Creating a Hi-tech Social Enterprise in El Salvador – Part 2.” Just Means. October 11, 2010.
15 Avery, Simon. “Canada playing catch-up in social enterprise.”The Globe and Mail. October 19, 2010.

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