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Social Enterprise in Asia: Businesses with a Mission

Article | 2 July 2013

Social enterprises have improved the lives of millions in developing Asia through better livelihood opportunities and access to affordable services, says Bart Édes, ADB's Director of Poverty Reduction, Gender and Social Development.

What is a social enterprise? How can it help reduce poverty and improve the lives of the poor and the disadvantaged?

A social enterprise is a business-oriented not-for-profit, or a mission-oriented for-profit enterprise. It has a social or environmental mission - or both - at the core of its work and seek to operate in a financially sustainable manner.

What have social enterprises accomplished in Asia and the Pacific and where can they achieve the greatest impact?

Social enterprises work in many sectors, including education, finance, rural development, health, water, and energy. Collectively, they have improved the lives of millions of people in developing Asia by creating livelihood opportunities and expanding access to affordable essential services.

India, the Philippines and Singapore are among the Asian countries with a thriving social enterprise sector. For example, in India, where large numbers of people lack access to electricity or modern fuels, SELCO Solar provides sustainable energy solutions and services to under-served households and businesses. A very promising area for social enterprise activity is skills development and employment facilitation for poor, marginalized, and underemployed individuals.

What challenges confront social enterprises? With billions of dollars being invested in social impact funds, why is it still difficult for social enterprises to raise capital?

It's true that billions of dollars are being invested in socially responsible funds globally. But the companies in which these funds invest do not typically meet the more exacting standard of a social enterprise, which exists to create a better world rather than simply limit its negative impact upon the planet. The potential capital available to invest in social enterprises is indeed large, but remains mostly that - potential.

There are many obstacles facing social enterprises seeking capital. The first is awareness. Many people still have a hard time understanding what exactly a social enterprise is, and what it does. There is no universally accepted definition or tool for measuring, and proving, social impact. In addition, since most social enterprises are small, they face challenges similar to other micro and small-scaled companies. These include regulatory burdens and costs, and difficulties in convincing commercial banks that they can pay back a loan.

Another set of issues is related to internal capacity in key areas of a social enterprise, such as marketing, management, and strategy. Social enterprises that emerge out of the not-for-profit world often feature a particularly strong commitment to social justice, but are weaker on business acumen and entrepreneurial abilities.

What is impact investing and how does it support social enterprises?

Impact investors seek investments that yield both a financial and social return. They take notions of socially responsible investment one step further by proactively seeking investments with demonstrable, positive social and environmental impact.

The field of impact investing has emerged as an alternative asset class and holds the potential to channel large-scale private capital into initiatives that address some of the region's most pressing challenges. Impact investors come in many forms, and include development finance institutions, foundations, investment funds of various types, and high net-worth individuals. Examples include the Acumen Fund, Bamboo Finance, Rockefeller Foundation, Leapfrog Investments, FMO Dutch Development Bank, Root Capital, and Omidyar Network.

What is inclusive business? How is it different from a social enterprise, particularly in terms of impact and contribution to poverty reduction?

An inclusive business targets low-income markets with the dual purpose of making a profit and creating tangible development impact. This is done through the provision of improved livelihood opportunities and essential goods and services for poor people.

An inclusive business is often a subsidiary or line of business within a large company that was not set up with a social mission at its core - think of Unilever selling inexpensive water filters to base of the pyramid populations, and employing poor and marginalized persons to distribute those products.

"In recent years, ADB has supported research, analysis, awareness-building, and networking to promote social enterprises, impact investment, and inclusive business."

- Bart Édes, ADB's Director of Poverty Reduction, Gender and Social Development

Inclusive businesses tend to operate on a larger scale than social enterprises, which are typically small and carry out their activities in only a limited geographic area. That said, inclusive businesses and social enterprises have a great deal in common and there is overlap. A small social enterprise can grow and morph into an inclusive business.

Why and how is ADB promoting the development of social enterprises?

In recent years, ADB has supported research, analysis, awareness-building, and networking to promote social enterprises, impact investment, and inclusive business. The reason is simple: ADB's Strategy 2020 promotes private sector development, and recognizes that the development challenges of Asia and the Pacific are so enormous that businesses must play a significant role in addressing them.

In addition, ADB provides financing for inclusive businesses, like Grameen Phone in Bangladesh, and helps social enterprises find capital from impact investors operating in the region. For example, at the Investor Forum held during the Asia Clean Energy Forum 2013, ADB provided clean energy social enterprises with a platform to showcase their work in front of potential investors.