Social enterprise must put income before impact to survive

Financial returns increase both the likelihood of start-ups attracting capital from private investors, and their ability to gain scale, say experts

Social entrepreneurs should not make the mistake of prioritising their social goals over creating a viable business and turning a profit, impact investors have said.

Financial returns increase both the likelihood of start-ups attracting capital from private investors, and their ability to gain scale, delegates at an industry forum heard.

“A clear ability to recoup financial investment, as well as a clear ability to measure the impact of that intervention are important,” said Soushiant Zanganehpour, strategy and operations manager, Skoll Centre for Social Entrepreneurship.

“One myth is that people think coming to a social investor means they don’t have to worry about giving them returns, which is not the case,” said Srikrishna Ramamoorthy, a partner with India-based seed fund Unitus. Instead, putting income before impact increases the likelihood of social ventures surviving and thriving. “All we’re saying is that low-income communities are a consumer segment of the market that is under-served.”

The comments came during the launch 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.

Social start-ups that aim to provide services to the low-income communities in the Middle East and North Africa will find a ready market, said Khaled Al-Gazawi, general manager of microfinance agency Grameen-Jameel.

There are up to 40 million people living in poverty in the region, just 10 per cent of whom have access to credit, according to data from the non-profit. “Microfinance has shown that if you provide a quality and reliable service to low-income communities they are willing to pay for it,” said Ramamoorthy. Gary White is the co-founder of Water.org, a non-profit that provides small loans to people living in poverty, to purchase access to safe water and sanitation.

By applying business tenets to a social mission, the non-profit has succeeded in scaling up its model and bringing down the cost of finance for households. The cost of the loans it offers has fallen from $36 per person to $10 per person, as loan repayments were recirculated into the pot, White said.

When we use [philanthropic] capital to jump start the market and get commercial capital flowing, the philanthropic cost per person reached comes down dramatically,” he said.  “There’s so much pent-up demand. As long as we’re truly serving the needs of the poor and not taking advantage of them, [social enterprise] is going to be a powerful tool to make that happen.”