A BLOG POST BY WENCHI YU Social entrepreneurship has become a topic of interest for those who are active in the citizen sector. It has been promoted by those in the development community as a sustainable solution to development challenges. Unlike traditional aid and philanthropy, it adopts a market-oriented business approach to solving social problems, and in the meantime, generates financial returns. It also allows capital investors to finance projects with better monitoring and evaluation to ensure financial accountability and maximize impact.
In Southeast Asia, while most NGOs still rely on traditional donations, social entrepreneurs are becoming a growing community in most of the region's developing economies. In addition to the commonly understood microfinance projects, social entrepreneurs take on food security, alternative energy, health, or environmental causes to improve the livelihood of the poor. Some of them have been doing this work before "social entrepreneurship" became a buzz word.
While the definition of "social enterprise" varies widely in the region, it is generally understood as organizations generating both financial and social returns. The Rockefeller Foundation is a major donor in support of innovative models. The United Kingdom's DFID is perhaps the most active government donor in support of social enterprise development. Knowledge sharing among investors, network building, capacity building for social enterprises, and listing social enterprises in stock exchanges to raise capital are among some of the top priorities.
Some governments have stepped up their efforts in support of social enterprise development. Singapore is perceived as the most active one; not only does the Ministry of Social and Family Development funds social enterprise start-ups, they give tax benefits to international organizations to base their Asia offices in the country, attracting talents and creating an enabling environment. The government of Hong Kong established the Social Innovation and Entrepreneurship Development Fund to encourage innovative solutions to social problems. Thailand also set up the Thai Social Enterprise Office and recently announced its plan to set up a fund to mobilize money from the public to finance operations of social entrepreneurs. The Philippines is considering the Social Enterprise Bill; if passed, it would be one of the first few countries in the world to legislate social enterprises.
Even though social enterprises are mushrooming in Southeast Asia, there are differing opinions about funding approaches to social enterprises. Some argue for a philanthropic approach while some others prefer an impact investing approach. These differences derive from the financing structures of a social enterprise. The two examples below might explain the distinct models of financing for social enterprises.
Doi Tung Development Project run by the Mae Fah Luang Foundation in Thailand was initiated by Her Royal Highness Princess Srinagarindra to tackle poverty in Doi Tung in northern Thailand. It helps ethnic minorities grow coffee, orchids, produce mulberry paper products, and do traditional weaving to replace illicit crop cultivation as a means to survival. Products are sold in Doi Tung shops in cities and at airports. While sales are good, profits alone are insufficient to support all projects so it continues to rely on funding from the Thai government and donor development agencies. The model has been replicated in Afghanistan and Indonesia.
ECHOStore is the acronym for Environment, Community, Hope, Organization Store started by three women in the Philippines. The vision of ECHOStore is to produce, source, and sell food and products made in the Philippines. Similar to the concept of the Whole Foods in the United States, ECHOStore identifies local farmers and entrepreneurs, and helps bring their products to the markets. While it is a for-profit business, it is about health, environment, and supporting local farmers, and many of them women. The business has been generating good profits while supporting social causes through its business and foundation.
Doi Tung and ECHOStore are of two different models with the former more focused on poverty alleviation through development and the latter on operating a business built on the concept of supporting communities. Both are social enterprises and both models are critical to local communities' development and growth. From the funding perspective, Doi Tung might be more suited for the philanthropic approach while ECHOStore might attract impact investors. Those who believe philanthropy should still be the way to go argue that impact investing is too far ahead in the region where the eco-system is simply unprepared, hence no deal flows. The Asian Venture Philanthropy Network leads that argument. Instead of focusing more on finance, they are more focused on social impact and advocate for a venture capital approach to funding social enterprises. On the other hand, those who believe it is time for capital markets to support social good have developed an innovative capital-raising stock exchange. The most recent development includes the Impact Investing Exchange Asia (IIX Asia) managed Impact Exchange, now listed in the Stock Exchange of Mauritius. Similar to crowd-funding, it allows individuals to buy stocks from the Exchange and invest in social enterprises. Regardless of the financing model and priority of finance or social impact, social enterprises are certainly becoming the favorite among donors.
Because social enterprises bring social and economic benefits to communities, government leaders increasingly find opportunities to support them. In the Philippines, Senator Bam Aquino who ran a successful social enterprise before becoming an elected official, uses his personal experience to advance the concept of social entrepreneurship in the region. In Singapore, a Memeber of Parliament, Penny Low, has led high-visibility platforms to encourage cross-sectoral conversations about social enterprises. In the meantime, philanthropists such as Bill Gates and economists such as Muhammad Yunus have been strong advocates for social entrepreneurship. Investment funds such as the Acumen Fund and the Omydiar Network are among some pioneers who only invest in social enterprises.
With the increased interest in the Western philanthropic world, social entrepreneurship has drawn attention and support from both public and private sector leaders in Southeast Asia where most countries are developing economies seeking solutions to social problems in transitions. According to a report by the Rockefeller Foundation, there is $10 trillion untapped assets in Southeast Asia. Imagine mobilizing just one percent of the capital for social entrepreneurship investment, and the potential it could leverage from government resources. In fact, social enterprises, by nature, require collaboration between public and private sectors. Public funding could potentially create new markets and spur innovation and demand before the private sector feels comfortable enough to invest with capital.
Southeast Asia has some of the most promising social entrepreneurs. With support, they can bring a promising future to the region.