Social capital

Need, passion and money are fuelling an emerging social enterprise trend on the African continent. We meet the entrepreneurs doing good business

It was a case that made the news in Ghana. Faced with a critically ill patient in hospital, doctors tried for hours to track down the right heart medication to save her life. Eventually, some five hours later, they found a store with supplies. But it was too late.

“By providing real-time information on availability and location of drugs, we are literally saving lives,” says Sangu Delle, an investor in social enterprise mPharma, set up in response to the tragedy. Founded by Ghanaian entrepreneur Gregory Rockson in 2013, mPharma collates data from pharmacies so when doctors prescribe a medicine, patients automatically receive an SMS to show where it is available. Delle – also Ghanaian – invested around $500,000 in the business through his fund, Golden Palm Investments. By uniting a fragmented market, mPharma has also been able to negotiate directly with big drug makers, such as Novartis and Pfizer, to cut out the middlemen and reduce drug prices by up to half. Three years on, mPharma’s e-prescription network operates in Ghana, Nigeria, Ivory Coast and Zambia, and has raised millions of dollars in Silicon Valley.

“We’ve had to turn money down from some of the top VCs,” says Delle.

mPharma is part of a new breed of businesses taking on some of Africa’s biggest social ills. Social enterprise – businesses that seek financial returns and positive social change – is a growing global trend. Investors spent $15bn on impact investments in 2015, up from $10.6bn in 2014, according to a study backed by JP Morgan. And Africa is on the agenda: of the $77bn put to work globally in 2015, 15 per cent found its way to sub-Saharan Africa – second only to North America’s 38 per cent.

“My generation is no longer comfortable just doing trade as the older generation did” Need, educated young people and growing pools of money are fuelling the trend. Poor access to services – from health, to energy and education – across Africa’s 54 countries is a big problem, but also a big opportunity for businesses, observes Delle. He believes Africa’s youth are ready for the challenge.

“My generation is no longer comfortable just doing trade as the older generation did,” he says.The funding landscape has grown, too. Some $9.3bn has been doled out so far in East Africa in more than 1,000 deals, according to a report by Nairobi-based Open Capital Advisors (OCA). Much of that financing comes from development actors – such as the International Finance Corporation (IFC) – or private foundations, which account for 85 per cent of disbursements in the region.

Successes such as mPharma have piqued commercial investors’ interest, too. Andreas Zeller, OCA’s managing partner, says he has seen new funders enter the African market in the last couple of years.

“There are more investors for social enterprises at every bracket of the capital market now than ever before,” he says. While energy, agriculture and financial services have done well, less funding finds its way to sectors such as health and education.

Social enterprise still has a way to go to make an impact. Investors feel there are too few businesses ready to absorb serious amounts of money, according to Zeller. OCA advises African entrepreneurs on how to reach this stage, offering anything from support on strategy to grow the business, to making systems more efficient. While it doesn’t fund startups itself, OCA says it has helped connect entrepreneurs to some $60m in financing.

Another constraint is human capital. “You see very high attrition rates, especially among middle management in places like Kenya,” observes Zeller. There is still a significant skills gap, too. Experience in project management and senior positions – such as chief financial officers – is lacking.

Entrepreneurs complain of structural obstacles, such as poor infrastructure – unreliable power and bad roads – and a lack of supportive government policies. But top of the list is financing. Funding for microenterprises, such as lone farmers, is relatively easy thanks to crowdfunding and peer-to-peer lending platforms such as Kiva. And at the other end of the scale, mega-funds have deep pockets to lavish $50m on bigger, quality deals. “But the middle is barren land,” Delle says. “It is full of great opportunities, but little capital.”

“Social entrepreneurs can innovate, create and improve systems”Delle is also critical of funds that look at sectors too narrowly. Africa accounts for 24 per cent of the global disease burden, yet has only a 3 per cent share of the world’s healthcare workers, he notes. “If you come to me and say you only want to invest in health and nothing else, you are missing the point,” he says. “We cannot solve healthcare without solving education.”

In the medium-term, aid will continue to dwarf social business in Africa because there simply aren’t enough entrepreneurs or the infrastructure yet to support a large social enterprise ecosystem. But that doesn’t mean it can’t make its mark. Investors said they intended to commit 16 per cent more to impact investments globally in 2016, according to JP Morgan’s report.

And social businesses can pilot new approaches that can eventually be scaled up by governments, argues Chris Ategeka, founder of Rides for Lives, a mobile hospital business that provides healthcare for rural areas in Uganda.

“Healthcare is a social good that should be provided by governments,” he says. “[But] social entrepreneurs can innovate, create and improve systems.”

A hand up

University is an expensive business. There are tuition fees, living costs and books. For poor students, it can be too much. Bank loans are the answer for some, but getting funding to study abroad is difficult.

This is where Prodigy Finance steps in. The company offers loans to postgraduate students accepted into top business schools around the world. The amount depends on your predicted future earning power; Prodigy weighs factors such as university course, industry, nationality and GMAT score. Funded by impact investors, the social enterprise offers backers the chance to invest in the next generation of leaders, says CEO Cameron Stevens.

“Thirty years ago the only people [from Africa and Asia] who could study at a top foreign university were those from elite families,” he explains. “Now you see an emergence of the middle class, often the first in the family to go to graduate school. But they don’t have the funding to pay.”

Taking their cue from the successes and pitfalls of microfinance, Prodigy lends between 60 and 80 per cent of total costs, never 100 per cent, to avoid overburdening the student with debt. The rest is made up from savings or scholarships so that others have “skin in the game”, says Stevens.

Prodigy has helped more than 4,000 students from 111 countries since 2008. Three-quarters are from developing nations, including 40 per cent from Asia and 10 per cent from Africa. For Kwaku Agyare-Manu (left), who will get his MBA from the University of Cape Town this summer, the loan was a lifeline.

“You need someone to take a leap of faith, and keep taking those leaps”“I was shocked I couldn’t receive a sufficient study loan from any of the banks in South Africa,” he says. “Prodigy Finance was my last attempt at sourcing funding. Otherwise, I would have had to drop out of the course.”

The model works for investors, too, who earn on average 5.5 per cent yields. In the beginning, Stevens reached out to university alumni. But since 2014 a partnership with Credit Suisse has helped widen the investor base to UHNWIs and family offices, garnering investment of $85m. Prodigy’s total investment pot to date is $200m. Some investors, such as Nigeria’s TY Danjuma Family Office, put some of the returns back into scholarships, doubling down on impact.

Stevens hopes to increase funding to $400m in 2016, ramping up significantly to reach 10,000 students this year. If so, the scale-up is impressive – but it has taken time to prove the business, he cautions.

“We had to prove our model the hard way compared to doing something less impactful and more traditional, where you can raise funding faster,” he notes. “You need someone to take a leap of faith, and keep taking those leaps, with you.”

Flush with success

In Kenya, David Auerbach jovially rejects the notion that sanitation is not a glamorous topic. For his team, toilets are transformative.

For five years, his social enterprise Sanergy has built and installed low-cost toilets in urban slums, collecting and converting the waste into fertiliser. The company has more than 640 Fresh Life toilets in nine informal settlements, as well as in schools and residential blocks in the capital, Nairobi.

Sanergy works on a franchise model, with each operator setting the price per use, typically KES3-5 ($0.03-$0.05). While Sanergy sells each toilet at a loss – between $250-$500, versus a production cost of $500 – it makes up the difference through fertiliser sales. It also charges operators an annual fee of $60-$90.

“If we had done this as a nonprofit, for the sanitation sector, it would be a partial solution. You might build toilets, but not ensure the waste is safely removed from the community,” says cofounder Auerbach. Having a for-profit component allows the company to invest in waste disposal infrastructure, he adds.

Benefits abound. Operators earn around $1,000 a year; residential landlords see higher building occupancy rates; enrolment has risen 20 per cent in the 60 schools where Sanergy has toilets; and farmers’ fields yield 30 per cent more thanks to the fertiliser. Most importantly, however, many slum residents have gained access to a nearby toilet for the first time – crucial for women and children after dark.

It has taken $8m of patient capital – from funders such as the Gates Foundation – to get this far. Commercial investors only started to show interest in February. The biggest challenge is investors’ expectations of a quick return, says Auerbach. Still, he is hopeful: “It’s an important sign, for the health of our business but also for the larger sanitation sector where there has been so little investment so far.”

Trash to treasure

Bilikiss Adebiyi-Abiola believes in rubbish. A native of Lagos, Nigeria, she set up Wecyclers in 2012, a recycling company that rewards low-income families in return for trash. The social business model appealed because it forces the organisation to be efficient, says Adebiyi-Abiola.

Wecyclers employs staff to travel around two poor communities in Lagos collecting waste. Families receive points for each item, depending on its value, such as 1 point per kilogram of cardboard or 20 points for aluminium. Wecyclers sorts and sells the rubbish to recycling plants. The company gets around 24 naira ($0.12) per kilogram of cardboard, and 140 naira ($0.70) for aluminium. 

The benefits are two-fold for the 10,000 families currently subscribed. Customers can redeem the points for gifts or cash; 100 points gets a small bowl and 12,000 points will earn a TV, for example.

“People started recycling because they wanted something, like a TV,” says Adebiyi-Abiola. “But when they make a conscious effort to pick up the trash, they noticed improvements in the community such as cleaner drains and less malaria… It’s a foot in the door to becoming lifelong recyclers.”

So far, Wecyclers has helped recycle 2,500 tonnes of rubbish and demand is high; there are more than 1 million people – or 200,000 households – in just one of the communities the company serves. Adebiyi-Abiola hopes to reach 40,000 subscribers by the end of the year and eventually move into processing too. Not yet profitable, the business has attracted around $500,000 from NGOs, foundations and tech awards.

Being in hoc to market forces has pushed Wecyclers to adapt the business – and make it more viable in the long run than an NGO would be, says Adebiyi-Abiola. “In the beginning I thought people shouldn’t get cash [in return for points] because it makes it transactional,” she admits. “But people said ‘No’ and because I wanted to keep my customers happy and make money, I had to respect that. You don’t determine what works; as a social enterprise you get the truth out.”

Photo credit: Sanergy