A social enterprise is broadly understood as an organisation that seeks to address social issues using sustainable business models; is involved in trading activities, with profit always or mainly reinvested into the enterprise; converges social and profit missions to create social value; and is impact-, rather than profit-driven.
South Africa’s challenging socioeconomic context, coupled with reduced donor funding, is a prime environment for non-profit organisations (NPO) to transform into social enterprises to ensure their sustainability. However, since it is not possible to commercialise all services, not all NPOs can be social enterprises.
Considered too high-risk, it can be difficult for these ventures to access bank loans. Companies can promote social enterprise through for example, capital support and facilitating entrance into the corporate supply chain. In South Africa, companies have started supporting social enterprise mostly through competitions, awards and workshops. An example of a competition is SAB Foundation’s Social Innovation Awards that has invested in 63 social entrepreneurs to date, to the value of R17 million, leading to a 61% increased turnover for award winners and a 62.5% increase in jobs.
Start-up capital can be provided to new social enterprises, as well as to non-profits that are transitioning towards social enterprise. The most suitable type of funding for feasibility and start-up is grant funding, usually from CSI budgets. Corporates could also explore how to use CSI budgets to support social enterprises via convertible grants.
Here, a company that has perhaps been working with a non-profit for some time gives a grant that is designed specifically to support that non-profit to set up a sustainable social enterprise. If that social enterprise reaches an agreed profit level, the grant is converted either into a loan, or into equity (should the non-profit set up a for-profit arm from which to run its social enterprise). This sort of capital enables a non-profit to work out if its income-generating idea is viable at low risk, and at the same time enables corporate donors to benefit, should the social enterprise be successful.
Scale and growth capital
When a social enterprise is at the scale and growth stage, corporate funding could come in the form of a regular loan, soft loan or patient capital. Soft loans are provided at zero or low interest rates, with favourable repayment terms.
Patient capital consists of long-term loans where repayment only kicks in after an agreed length of time, when cash flow will make repayment possible. Both of these options enable corporates to get more out of their CSI spend, as the money keeps circulating. There are intermediaries that operate in the social enterprise space and act as conduits for Broad-Based Black Economic Empowerment (BBBEE) and CSI spend, should this be required. South African examples include Simanye and Social Investment Africa.
Companies can partner with social enterprises by providing the following types of support from their BBBEE spend (among others):
- Subsidising skills development programmes offered by social enterprises
- Providing business development support, e.g. professional services via corporate volunteer programmes
- Making donations in kind, including office space
- Funding staff of social enterprises to attend recognised skills development programmes
- Providing enterprise development expenditure to subsidise entrepreneur support activities provided by the social enterprise.
There are many ways to provide an integrated solution that draws from socioeconomic development, skills development and/or economic development budgets to support social enterprises.
Written in collaboration with Rachael Millson of the Social Enterprise Academy South Africa – www.socialenterprise.academy/za
Read more: http://trialogue.co.za/socialenterprise-and-csi