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Social enterprise In the business of solving social problems

 The Big Issue South Africa 26 September 2019

Social enterprise — using financially sustainable businesses to solve social problems — is the latest trend in both the private and NGO sectors. Even government now pricks up its ears when social enterprise is mentioned, with minister of Economic Development, Ebrahim Patel, recently saying, “There is now an increased interest in a better mix between private and social enterprises as a further response to the lack of balanced development in the past. The social economy is frequently under-recognised, under-appreciated and an under-marketed part of the modern economy." T O Molefe examines the state of this fledgling sector in South Africa. (1657 Words) - By T O Molefe

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Paul Kim is one of an emerging group of aspirant, socially-conscious South Africans who have taken to social entrepreneurship. In 2010 he co-founded Edge Campus, a company that is developing a text-only mobile gaming platform he hopes will revolutionise learning and, more importantly, give it real-world applicability.

Kim, a Stellenbosch University actuarial science graduate, became a social entrepreneur after identifying a complex social problem - the human cost of South Africa's failing education system - and believing that problems such  as this one can only be solved by creative ideas.

Kim's story, while not unique, is rare.

According to the most recent Global Entrepreneurship Monitor (GEM) report, only 0.1 to 4.3% of working-age entrepreneurs in the 49 countries surveyed in the study are involved in social entrepreneurship activity (SEA). South Africa's SEA activity is right in the middle at 1.8%. However, many of the country's social enterprises are young and on the brink of taking off, which is to be expected, as social entrepreneurship is a relatively new concept.

Tom Fox, chief technical adviser for the United Nation's International Labour Organisation (ILO), says social enterprise, as a way of applying business principles to solve social problems, is attracting increasing interest worldwide.

Fox says the practice has its roots in the social economy movement, which includes associations, foundations, co-operatives and mutual benefit societies. The concept emerged as a result of increased pressure on governments to improve the efficiency and effectiveness of service delivery to their citizens. Non-profit organisations, too, have come under pressure from funders who would like to see them become more efficient and financially sustainable.

Also, the recent global economic crisis - coupled with initiatives like the Global Reporting Index - has forced the corporate sector to re-examine its strategies to identify ways of making sustainability core to business models by integrating economic, social and environmental goals with their traditional goal of financial profitability. Partnering with or supporting social enterprises can be a way of doing this.

Because social entrepreneurship and social enterprise are relatively new, there is no universally accepted definition of what they are. The University of Johannesburg's Centre for Social Entrepreneurship, working with the ILO, the Economic Development Department and the African Social Enterprise Network (ASEN), has proposed a uniquely South African definition: It defines a social enterprise as one whose primary objective is to address social problems through a financially sustainable business model, where surpluses are mainly reinvested for that purpose. So a social entrepreneur would be anyone who sets out to create a social enterprise.

Profitability

Financial profitability and its reinvestment to achieve a social purpose is what best distinguishes social enterprise from other forms of business models such as ethical businesses, which aim to achieve financial goals with minimum negative impact to society and the environment.

Wizzit Bank is perhaps one of the finest examples of social entrepreneurship in South Africa. During a dinner conversation in 2002, businessman Cyril Ramaphosa told Charles Rowlinson and Brian Richardson of the frustrations his son experienced when trying to open a bank account. It was during this conversation, Richardson says, that the seed which led to the founding of Wizzit Bank was planted. His thoughts were if it was that difficult for a person from a privileged background to open a bank account, it must be exponentially more so for the millions of South Africans from disadvantaged backgrounds.

Richardson, a banking industry stalwart, and his friend Rowlinson then developed the model for Wizzit Bank. They began by looking at the basic problem, namely South Africa's "unbanked", who are estimated collectively to have at least R12 billion in cash outside of the banking system. This has many social costs.

One is that every year inflation eats into what these people believe to be their savings. In addition, this money sitting outside the system could be invested in products that would allow the unbanked to retire financially secure. As it stands, South Africa has budgeted to pay in excess of R35 billion in old age grants in the coming year.

Another is that carrying large sums of cash is inherently risky. Crime remains an everyday reality for many South Africans and without the security of a bank account, the unbanked are exposed to financial and physical harm.

Richardson and Rowlinson identified that the main factor contributing to the unbanked problem was that mainstream banks did not have products to fit the needs or specific circumstances of the lower segment of the market. Through Wizzit Bank, they pioneered award-winning technology that allows people to become banked simply by having a cellphone.

The bank employs and trains "WizzKids" - unemployed people with at least a matric qualification - to work as field agents. Typically, WizzKids work in their communities, which are more often than not rural areas or urban townships. Using this model Wizzit Bank has provided employment opportunities and training for more than 6 000 people.

Legal forms

As promising as it is, social entrepreneurship still has to establish itself as a sector. And to do that the sector has to overcome all sorts of obstacles.

The newness of the concept means, in South Africa at least, that social enterprises do not yet have a legal form specifically dedicated to them. Companies - closed corporations and (Pty) Ltds -  section 21s, trusts and voluntary organisations have all been used to take the guise of social enterprises but are not ideal. In the United Kingdom, once the sector organised itself and founded the Social Enterprise Coalition as its voice, it lobbied policymakers to create a best-of-both worlds legal entity that catered to the specific needs of social enterprises. This saw the creation of the community interest company (CIC). The United States, too, has similar legal entities - low-profit limited liability companies.

These legal forms are important. They allow the social enterprise model to function with lesser regulatory and tax burdens than those imposed on conventional companies. They also allow them to apply for funding from foundations while making sure that any assets accumulated are reinvested in social causes.

However, not all new UK social enterprises are set up as CICs, says Peter Holbrook, chief executive of the Social Enterprise Coalition. He also says many social enterprises existing at the time opted to remain in whatever legal form they were when the new legal entity was introduced. As a result, the UK has a mix of entities with differing legal forms that call themselves social enterprises.

Holbrook says the intention was never to make it mandatory for social enterprises to register or convert to a specific legal form. CICs were created from the need for an alternate legal form that was easy to set up and had many of the benefits of charitable organisations without the limitations.

In South Africa, that need exists too. During the recent Social Enterprise World Forum held in Johannesburg, social entrepreneurs complained that one of their biggest battles is with the South African Revenue Service (SARS). Many who have registered their section 21 companies as public benefit organisations (PBOs) - which receive tax breaks including an income tax exemption - are often told by the taxman that if they continue to make profits they will lose their PBO status. But not being profitable goes against what social entrepreneurs aim to do.

Co-ordinating agency

The ILO has set up projects in South Africa specifically aimed at supporting the development of social enterprises, particularly among the youth. They see establishing close working relationships with academic institutions, enterprise development agencies and the government as key to the sector's development. They are also supporting the creation of a co-ordinating agency for the sector, similar to the Social Enterprise Coalition in the UK.

This sector body would be the one best positioned to lobby government and corporates so that room may be created, legally and otherwise, for social entrepreneurs to do their work. ASEN is one such body with the potential to do that.

ASEN chief executive, Yogi Nambiar, says that at the moment the organisation is working to create a community of continent-wide social enterprises that collaborate and share best practices and resources with each other. Registering with ASEN is free and the website already has a few vibrant communities that are sharing and collaborating. Nambiar stresses that it really is up to the social enterprise community to make the network what they want it to be.

Paul Kim agrees. He says while social enterprise presents almost limitless opportunities, working in a sector where no specific policies or long-running business models exist means that you're flying by the seat of your pants most of the time. Trying to bring a new idea to an established practice like education has also been tough. But, says Kim, he felt strongly that the education problem could not wait for policies and practices to be put in place.

Edge Campus recently won the idea-stage category of the Cape Town Entrepreneurship Competition and will be piloting a maths game on their platform in the coming months.

On the likelihood of success, Kim is pragmatic but hopeful: "Edge Campus may or may not become a success but the journey will add to public debate on how to address the education crisis in South Africa. If that is all that Edge Campus can contribute, then it is a million times better than adding to the pool of negative comments on the poor state of education in South Africa."

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