Business as a tool
According to the author Jasjit Singh, profit maximization and the address of societal needs do not have to be incompatible anymore. Recently, this idea has become a trend in which enterprises prefer to “create value while doing good”, protecting both the stakeholders involved and the shareholders’ value. Yet, while established companies can afford to tackle these challenges, others are apprehensive as they continue to believe that profit will have to be compromised to create a significant impact. Is this belief still justified? And why should we look at social enterprises specifically?
While charities are limited by the number of donations they receive, social enterprises utilize market forces such as the laws of demand and supply to serve their social mission. Therefore, they manage to address social issues usually considered too risky an investment by mainstream companies in a more financially sustainable manner. At the same time, they prioritize the needs of the underprivileged communities they serve and enable them to play an active role instead of relying on charity donations. In return, these communities, called beneficiaries, maintain their sense of dignity and independence.
Proximity Designs is an example of such a social enterprise. Founded in 2004 by Debbie Aung Din and Jim Taylor, formerly working in non-profit initiatives, the company designs innovative irrigation products for the farmers in Myanmar and spares them from collecting water one bucket at a time. Aung Din, originating from the country, explained that this idea arose after witnessing the severe lack of products, services, knowledge, and finance available to the farmers in rural Myanmar.
For this reason, Proximity ensures that its products are affordable to every farmer including the most destitute and makes conscious efforts to expand its network to secluded areas despite their unprofitability. The company even encourages competition as it recognizes the benefits it can provide to communities such as increasing their access to water systems, and thus, improving their productivity. Instead, Proximity responded to the competition by expanding its business into two new avenues, while always prioritizing the needs of the underprivileged farmers. It first developed a micro-financing unit to lend to small farm owners. For example, the company analyses the farmers’ harvest cycle that determines their cash availability and schedules the repayment of their loans. This financing unit has since managed to sustain itself and has become profitable even to external investors.
Proximity also developed farmer advisory services to teach communities how to best select seeds, utilize fertilizers, fight pests, and disease, among others. Although the business model for this unit is difficult to conceive, the company highly values its impact on the beneficiaries. As it later merges with its micro-financing unit, Proximity hopes to become a trusted advisor that helps the farmers manage their risks and loans and protect their crops. Taylor, one of the co-founders, explained that in contrast to commercial organizations restricted by their financial obligations to shareholders, Proximity is free to experiment, be ahead of the trends, and act as what resembles a market maker.
Funding social enterprises
As social enterprises generate lower returns, they cannot attract as many investors as mainstream companies. Thus, they usually need to rely on grants or concessionary funding such as low-interest loans to finance themselves. Yet, bargaining for those requires social enterprises to provide solid quantitative evidence of their impact.
Fortunately, Proximity’s innovative projects have proven to generate an income of $15 for the poor farmers for every dollar donated, and thus, the company has been able to convince donors. VisionSpring is another social enterprise that managed to quantify its impact. With only a US$5 subsidy per customer, the enterprise has enabled the poor population in India to afford eyeglasses. In turn, tea pickers have improved their productivity and increased their income by 20 percent. With an average income of US$2 per day, this translates into a US$200 additional income over the two years of the glasses’ lifespan.
Although these above numbers may rely on estimates, quantifying the social impact of social enterprises while allows us to evaluate these companies more critically and establish their credibility. Nonetheless, it is still debated whether social enterprises are more efficient in creating impact than charities.
To boldly go where companies fear to tread.
By closely interacting with beneficiaries within their societal context, social enterprises can create innovative solutions to improve the livelihood of communities often underserved by mainstream markets, and generate higher impact than the one for-profit organizations. Yet, as mindsets and expectations evolve, we hope that social concerns become the norm for mainstream companies as well.
Credit to Professor Jasjit