Middle East investors slow to back social enterprises, say experts

Investors in the Middle East are reluctant to offer funding to social enterprises, leaving start-ups struggling to attract capital, an industry forum heard on Tuesday

Impact investing – where investors seek social and financial returns – has been slow to take hold in the region, delegates were told, with traditional business models still absorbing the lion’s share of funding.

“There seems to be an intellectual appetite in this direction, to think about catalytic philanthropy and of looking at markets to leverage those for the poor,” said Gary White, co-founder of Water.org, a non-profit that provides access to safe water and sanitation. “But it seems that when the rubber hits the road, there is a pull back towards safer or more traditional [investments].”

There is a greater willingness in Europe and the US to support social ventures, in part because there are well-publicised examples of success stories, he added.

“It’s the kind of examples that people need to see to understand that you can help more people, faster by taking these types of innovative approaches,” he said.

White was addressing the opening event of Social Enterprise Week in Dubai, a platform that aims to bring together entrepreneurs, thought leaders and financiers to debate and collaborate on social ventures.

"When the rubber hits the road, there is a pull back towards safer or more traditional investments”

Lack of information on the impact of social start-ups further complicates the issue of funding, said Ali El Idrissi, an associate in JPMorgan's social finance team. “The thing that I’m really waiting for is data,” he said. “Understanding those investments and how they perform, that would allow us to talk about numbers rather than concepts.”

Entrepreneurs are also battling for a slice of a relatively small market. Of an estimated $60 trillion invested globally, just $40bn to $60bn is funnelled into impact investment. Much of this is generated by government schemes rather than private sources, El Idrissi said, and reflects the immaturity of the sector.

Alex Pitt, an angel investor and Mubadala employee, said awareness of the role of social enterprises is increasing and is likely to generate an uptick in funding.

“There’s a real buzz around social enterprise,” he said. “The environment is very supportive and conducive at the moment.”