The nascent term social entrepreneurship has much to embody, in terms of definition, data, literature, coverage, momentum and recognition, before it becomes a universally recognized concept.
In order to fill the data gap, the Thomson Reuters Foundation, in collaboration with Deutsche Bank, UnLtd and the Global Social Entrepreneurship Network, conducted an expert’s poll to recognize some of the best countries for social entrepreneurs in the world.
The report uses the following definition for social entrepreneurs:
“Social entrepreneurs are people who seek to solve social problems through entrepreneurial solutions.”
The research analysed six factors to measure the feasibility of setting up a social enterprise in each country: government policy support; ease of acquiring skilled staff; ease of making a living as a social entrepreneur; ease of accessing investment; public understanding of social entrepreneurship; and the momentum that the social entrepreneurship movement is gaining in the countries under study.
Poll results reveal that the United States is the best country for social entrepreneurs in terms of providing favourable conditions for social entrepreneurs to grow their businesses, attracting skilled staff and selling their product/service to the public. It is also one of the top countries in which the social entrepreneurship movement is gaining momentum. Closely following the US as the top ten countries that support entrepreneurship, are Canada, UK, Singapore, Israel, Chile, South Korea, Hong Kong, Malaysia and France.
The Reuters survey poll was conducted in the top 45 economies of the world, as ranked by the World Bank, including Pakistan, which was placed 44th in the list (just ahead of Greece) in terms of GDP. A minimum of 12 experts: academics, social entrepreneurs, investors, policymakers and support network staff, were surveyed to get a sense of the social entrepreneurial landscape in each country. Almost half the respondents in the entire sample identified themselves as social entrepreneurs. Pakistan was awarded a separate rank for each of the measures.
Favourable Conditions for Social Entrepreneurship
One of the first positive outcomes of the survey indicates that Pakistan is among the top twenty countries (ranked 17th) that provide favourable conditions for social entrepreneurs to start and grow their businesses.
An enabling environment for social entrepreneurs entails more than just the prevalence of a social problem that needs fixing. A report by GIIN and Dalberg: The Landscape for Impact Investment in South Asia identifies political instability and lack of security as the biggest deterrent to social sector investment.
However, both GIIN and Invest2Innovate’s survey on the entrepreneurship ecosystem in Pakistan found the climate for new businesses and entrepreneurs looks increasingly more optimistic as support structures in the form of incubators, accelerators and angel investors, have begun to strengthen their faith in local entrepreneurial leaders.
Measures taken by the government to support businesses and private sector growth have also increased FDI in the country, but the direct impact of these policy changes on the social impact investment sector remains unknown.
A total of USD 2 billion has been inserted into the country by impact investors who are serious in their resolve to measure the social impact made by local entrepreneurs. These investors are particularly encouraged by a large population and domestic market, a growing middle class which is gaining both education and international exposure, and the burgeoning need to find innovative solutions to social challenges. This reveals the glaring need to equip the population with adequate education, training and skills in order for them to take up challenges in the social economy.
The study explains how poorly performing social indicators in Pakistan point towards failure of public service provision, which is stimulating a socially responsible response from young entrepreneurs. As a result, local support is now more evident as start-up activity in the country becomes more indigenized .
In terms of government policy support, Pakistan lies in the bottom half of the spectrum (ranked 29th) in the Reuter’s poll, faring better than countries like Germany, Australia, South Africa and Turkey, among others.
The top three countries in this respect are South Korea, Singapore and France where respondents strongly believe that government policy has supported the growth of social enterprises.
In the same context, Pakistan landed the 25th spot for ease of accessing grant funding for social entrepreneurs.
South East Asian countries, along with India, bagged a majority of the top ten places, with Hong Kong topping the list.
The social entrepreneurship ecosystem in Pakistan suffers from a lack of regulation, which fails to put social businesses in separate categories. This implies that there is no construction of policy and no specific government department that is mandated with the task of supporting the social enterprise sector in the country. There is an absence of a standing committee in the parliament which identifies the sector and provides legislation. Competition laws do not target social enterprise, and little safety is to be expected when it comes to intellectual property rights.
However, this is primarily due to a lack of understanding of the newly coined term ‘social entrepreneurship’ and so government resources which are mostly directed towards SMEs international development initiatives are expected to find their way to social businesses.
For instance, the promulgation of the recent National Financial Inclusion policy in 2015, and the resultant setting up of the Pakistan Microfinance Investment Company (PMIC) is a positive step in the regulatory support area.
Small and micro-businesses will now be able to benefit from a broader access to funds from non-formal funding sources through this company. Although a special preference or criterion for social enterprises has not been laid out in the process, small businesses with a social, environmental or community objective can be expected to benefit from the move. Owing to the current situation, the need for extensive research and exploration into this sector cannot be undermined.
The Planning Commission has also set up the Centre for Social Entrepreneurship (CSE) in 2015 to promote the concept of addressing social issues through enterprise development. It organises nationwide start-up competitions, and aims at establishing an autonomous accelerator/incubator special purpose vehicle to connect winners with relevant networks. The body also plans to conduct research and provide policy support to the government.
Non-financial support avenues for social entrepreneurship which comprise financial, legal and technical advice; access to markets and networks; and coaching mentoring and training, are best accessed in Singapore, Sweden and United Kingdom, while Pakistan is at number 27.
Studies show a lack of business management skills, poor operational/financial management skills, and a lack of access to information/networks pose severe challenges for upcoming enterprises. It is therefore true that there is a lack of strong capacity building of young enterprises, and failure to sustain themselves, leads to poor visibility in the entrepreneurial arena.
Most of the current social enterprises identified in the ODI survey on grants, incubators and innovation, belong to highly educated individuals with exposure to the western concept of social change, indicating that a personal network of funding, training and resource contacts are required before kick-starting a venture.
Some universities provide incubator activity to small social start-ups:
some notable incubators include the LUMS Centre for Entrepreneurship, NUST Centre for Innovation & Entrepreneurship, COMSAT Business Incubation Centre, IBA Centre for Entrepreneurial Development, Karachi Institute of Technology and Entrepreneurship, etc. Most of these universities are identified as first tier universities, and students outside them seldom discover themselves as risk takers.
Even for the incubators at work, the focus is on nurturing new businesses, and providing a testing ground for them, but there is little chance of providing commercial, financial or legal support for long term sustainability. In addition to this, incubators do not suffice the growing need of the enterprise sector: formal education for budding social entrepreneurs, including vocational trainings and certifications for skill enforcement are in high demand if the sector is to be formalised.
Marketing channels seem to be missing for social enterprises, who have limited access to customers while operating at a small scale . Platforms for the growth of such businesses are also absent from the industry, owing in part to the problem of identifying them separately as social innovators.
Pakistan is also the 29th best country for social entrepreneurs to sell to government and businesses, and the 28th best to sell to the public, as per the Reuter’s survey results.
Access to Investment (Debt or Equity)
An apparent lack of financing is evident from the poll results that show Pakistan is the 33rd best country in terms of access to investment. Experts interviewed in Pakistan were not confident that social entrepreneurs find it easy to access debt or equity financing. Respondents in Canada, Singapore and United States, the top three countries in the investment realm, were also neutral in their opinion on investment avenues for young starters.
Currently, businesses that identify themselves as social enterprises, seek out donations more often than other financial sources due to the lack of funding available for socially driven models. The ODI report finds that social businesses suffer from weak institutional support, and unfavourable industrial policies.
The formal finance sector is currently out of reach for social enterprises due to tedious documentation and lack of creditworthiness . Impact investors in the country have limited investment capacity and look for a quick, safe return.
Other studies find Pakistan is home to the largest impact investment landscape in the South Asian region. There are 18 impact investors (making up 32% of the social investment capital), including 11 Development Financial Institutions (DFIs) and 7 other funds, as well as several local foundations founded by philanthropists.
The culture of social work and philanthropy in Pakistan (in the form of grants to charities and social service support) has been understood to play a central role in supporting fledgling social enterprises, who otherwise have trouble accessing formal financial avenues.
Indirect forms of impact investment also encompass loans given to SMEs and funding by angel investors. The microfinance sector of Pakistan is of particular interest to investors due to growing loan needs, a large untapped market, and measurable socio-economic returns. However, businesses in this sector are driven by debt repayment, rather than innovation and competition , and so an overhaul of loan criterion will be required before social enterprises can be expected to fall in this category or borrowers.
At the same time, it is important to note that a large proportion of impact capital is invested in mature sectors such as energy and infrastructure, while social ventures related to education, health and poverty, have yet to grab attention of the large investor due to associated risks.
A few notable philanthropic investments include Madhvash & Jahangir Siddiqui Foundation, Aman Foundation, Kashf Foundation, Akhuwat, The Hashoo Foundation, the Citizens Foundation, Edhi Foundation, among others. In addition to this, international foundations such as Ashoka, Acumen, P@sha Fund for Social Innovation, the German Development Agency (GIZ) also operate Fellows Programs in Pakistan to fuel social entrepreneurship in the country.
It is also true that a growing reliance on charities , grants and foreign funding is in fact detrimental to the growth of potential social activity. Contribution of Pakistani Diaspora is also scattered and disengaged, revealing little or no outcome of their efforts. Therefore, local support networks and domestic knowledge sharing will lead to more diverse and sustainable means of accessing finance and empowering communities to own social challenges.
Attract Staff with Required Skills
Social entrepreneurs require motivated and skilled staff to help them achieve their goals. United States, France and Germany provide the best places for attracting employees with the right skills, while Pakistan is ranked 28th in this regard, sharing the position with Saudi Arabia. In this respect, countries like Hong Kong, Thailand, Indonesia, Malaysia and Singapore are among the bottom 10 countries.
General Understanding of What Social Entrepreneurs are Doing
Out of all 44 countries, Pakistani respondents put the country’s rank at 27th with respect to general understanding of what social entrepreneurs are doing in the country. Pakistan fares better than India, Russia, Thailand, South Africa, Ireland, among others.
Both literature and popular media depict a lack of consensus on the definition of social entrepreneurship. Due to the nascent nature of the movement, the general public has trouble understanding the difference between for-profit and non-profit social enterprises . The Global Entrepreneurship Monitor defines the term both loosely and broadly, to cater to social businesses that prioritise social value creation over financial gain, with some completely reinvesting their profits, while others making a profit for long-term gains.
The presence of a large informal sector and a marked disconnect between rural and urban areas also makes it hard for smaller social impact start-ups to make a lasting impression . Along with this, the weak data and evidence base for social businesses in Pakistan also makes it harder to understand social impact activities at individual and state level.
Making a Living through Social Enterprise
Pakistan shared the rank with 6 other countries when polled on whether the country makes it possible for social entrepreneurs to make a living through their work. These include Sweden, Spain, France, Norway, Japan and South Korea.
Social Entrepreneurship Movement Gaining Momentum
Social entrepreneurship is fast gaining momentum in Canada, United States, Singapore, India and Australia (the top 5 countries), while Pakistan is 18th in this regard, falling closely behind Saudi Arabia. The score is high for all countries, denoting rising trends of social entrepreneurship across the world, and recognition that the movement is picking up steam.
However, one of the key factors stifling the growth of social enterprise sector in Pakistan is a cultural gap that limits social impact measurement and inhibits the growth of formal associations to represent social enterprises.
With a view to measure favourability of entrepreneurial environment for women in the surveyed countries, respondents were asked about women representation in leadership roles and the extent to which they are being paid the same as men in social enterprises.
Out of the 44 countries studied, Pakistan was ranked as the 41st most favourable place for women entrepreneurs. Surprisingly, Pakistan fares better than United States in this respect, primarily due to the perception among the masses about the glaring gender gap in remuneration across sectors. Philippines, Russia and Norway are the three best countries to be a female social entrepreneur.
Currently only 1% of women in Pakistan participate in entrepreneurial activities, while almost half are illiterate, according to the Global Entrepreneurship Monitoring Report. This points to another dimension of social challenges that requires holistic entrepreneurial and policy actions to bring about sustainable change.
•The Landscape for Impact Investment in South Asia. Source: https://thegiin.org/assets/
•Invest to Innovate: http://invest2innovate.com/insights/peer/
•GEM’s Social Entrepreneurship Activity Report 2015-16. Source: http://gemconsortium.org/report/49542
About the Contributor:
Hira Mirza is a Digital Content Specialist, Researcher and Blogger. She cares about everything revolutionary, and wants to witness a global shift in social values, favourable for women and minorities, in her lifetime. She has published reports for development organisations, written for blogs &e-newsletters and contributed to national newspapers.