Funding Social Enterprise to Achieve Much More

Social enterprises have risen as a dynamic alternative to public sector response in facing social and environmental issues by combining the “heart” of the aid sector with the ambitions, drive and business acumen of entrepreneurs. However, most social enterprises remain small-scale initiatives, and need better access to financing to scale up their operations. Impact Forum in Singapore successfully brought together social enterprises and impact investors for the first time to advance their collective cause. Read more

By Stephen P. Groff Vice-President, Asian Development Bank for Huffington Post and Straits Times (21 June 2012):

Asia’s rapid rise, considered by many to be the most successful story of economic development in recent history, has seen national economies expand at an unprecedented pace and human conditions dramatically improve.

Years before the Millennium Development Goal deadline of 2015, the region has already achieved targets for reducing gender disparities in education enrollment, for preventing a rise in HIV prevalence, for halting the spread of tuberculosis, and for halving the proportion of people without access to safe drinking water.

Between 1990 and 2009, the percentage of Asians living on less than $1.25 dropped dramatically, from half the population to less than a quarter.

Yet Asia’s growth has brought a new set of challenges, from food insecurity to growing urban slums to rising inequality. Asia and the Pacific is already highly vulnerable to natural disasters, and rapid growth has led to natural resource depletion and environmental degradation.

The enormity of these challenges requires more than just a public sector response — especially since aid funding is under increasing pressure as traditional donor countries tighten their belts.

There is, therefore, a great deal of excitement around the emergence of social enterprises. By combining the “heart” of the aid sector with the ambitions, drive and business acumen of entrepreneurs, social enterprises have created a powerful model for tackling social and environmental problems.

Take Frontier Markets, for example. This Indian social enterprise seeks out innovative ways to bring high quality, low cost renewable energy, clean water and health and hygiene products to poor households. It is steadily making progress toward its vision of reaching three million households, focusing on women and children living in rural and peri-urban areas, using a market-based model that puts a high value on customer care and service reliability.

In Vietnam, a for-profit company, Ecolink, provides its network of 800 ethnic minority farmers a marketing channel for their fair trade, organic agricultural products, particularly tea. While it exports products to Western Europe and North America, it is also developing a local market, and aims to open 20 stores across Vietnam.

Dhaka-based Waste Concern, meanwhile, collects organic waste from cities, recycles it into organic fertilizer and generates revenues through the carbon credits it earns by eliminating greenhouse gases emitted by rotting garbage. But Waste Concern’s impact doesn’t stop there. It saves cities and taxpayers the cost of waste collection, helps improve the environment and hygiene conditions of Bangladesh’s capital, provides jobs at its processing and recycling center and contributes to the country’s food security by helping farmers achieve higher yields. This remarkable model is being replicating in other cities in Bangladesh, and elsewhere in South and Southeast Asia.

There are of course many, many more examples of the ways that social enterprises are contributing to job creation, provision of basic services, and improving our environment.

However, most social enterprises remain small-scale initiatives, and the sector remains undersized in most developing countries of the region. To truly realize their tremendous potential, social enterprises need better access to financing to scale up their operations and increase their field of coverage. They also need the right regulatory and policy environments to grow.

The Asian Development Bank (ADB) supports access to finance through multiple inclusive financing initiatives, and advises governments on the basics of building and maintaining business-friendly environments through reliable rules, regulations and policies that don’t work against or disadvantage the private sector, including social enterprise.

We are also supporting social enterprise development by collaborating with various partners, including Impact Investment Shujog, the advocacy, research and capacity-building arm of Impact Investment Exchange Asia (IIX) — the region’s first private and public platforms for social enterprises to raise capital efficiently. Together we are preparing social enterprise landscape reports and studies on impact investors and market intermediaries.

The knowledge generated through this work is being made publicly available to inform, inspire and catalyze social entrepreneurship and impact investing. Forums in Bangladesh, India, Thailand and the Philippines have also connected social enterprise entrepreneurs with impact investors.

Finding funding to support social enterprise remains one of the sector’s greatest challenges, so creating incentives for private investors to put their money on the line for socially or environmentally beneficial purposes is a crucial component to the sector’s growth.

Much promise lies in the concept of Social Impact Bonds or Development Impact Bonds, which provide a vehicle to invest in the delivery of services that produce social or developmental results with the promise of near-commercial returns. Social Impact Bonds are currently being tested in Australia, Japan, the U.K. and the U.S., and these pilots show that there is plenty of room to address many of the region’s challenges through market-based approaches.

A critical factor behind Asia’s economic success is an ability to innovate, and a willingness to do the hard work required to succeed. These are the same characteristics we see in the nascent social enterprise sector.

With a continued commitment to harnessing the power of the market for social and environmental objectives — and the imagination and tenacity that forms the core of the world’s most dynamic region — there is little doubt that Asia can become the world’s social enterprise incubator.

Stephen P. Groff is Vice-President (Operations 2) of the Asian Development Bank. He is responsible for the full range of ADB’s operations in East Asia, Southeast Asia, and the Pacific. He is also responsible for the Central Operations Services Office. His mandate includes establishing strategic and operational priorities in his areas of responsibility, producing investment and technical assistance operations amounting to $4-5 billion annually, managing an existing portfolio of about $23 billion, and leading about 700 staff.

In addition, Mr. Groff supports ADB’s President in managing ADB’s overall operations, represents ADB in high-level multilateral fora, and contributes to managing its relationships with its 67 member country shareholders, other multilateral financial institutions, and key government, private sector, and civil society partners.

Prior to joining ADB, Mr. Groff was Deputy Director for Development Cooperation at the Paris-based Organisation for Economic Co-operation and Development (OECD)

Stephen P. Groff is Vice President for East Asia, Southeast Asia and the Pacific at the ADB in Manila and is a keynote speaker at the June 25 first annual Impact Forum organized in Singapore by IIX Asia Impact Investment Shujog. This article was originally published in The Straits Times.


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