Jayant Sinha, Omidyar Network India Advisors’ managing director, believes that India is at the epicenter of impact investing. Sinha should know, in India his company has invested $113 million in 35 companies since 2010, and has plans to invest another $200 million over the next five years.
While India has made massive strides in promoting social entrepreneurship there’s more to be done before it can realize its full potential and achieve massive scale. The right frameworks, regulatory systems, financial institutions, governing bodies, think tanks and policies need to be in place. The microfinance industry could have avoided the controversy created by SKS Microfinance had proper rules and regulation been drafted before its dizzying growth. On the other hand, due to prudent policy making and regulation, the clean energy sector, has been growing fast and has even attracted a commitment from the US government to invest $100 million. Also, unless large private enterprises and MNCs, make social entrepreneurship part of overall business strategy, social entrepreneurship maybe trying to take flight with one wing.
Various lessons can be learned from other countries that have employed different approaches to foster social entrepreneurship. We throw the spotlight on five countries: UK, US, Singapore, South Korea and Italy. Read on.
The UK has been the leader in devising innovative financing options. This has been possible because of government support, help from the financial institutions and openness of local state institutions. Social impact bonds (SIBs) are the UK’s most famous invention. The first SIB was developed by Social Finance to keep ex-prisoners from going back to jail. The non-profit partner in the SIB would only be paid if reoffending rates of prisoners went down.
Other social problems that SIBs are helping solve are in the areas of criminal justice, vulnerable children, health, unemployment and rough sleeping.
UK’s SIB experiment have been picked up and launched in other countries like the US and Australia. Countries like Ireland, Israel, Germany, Canada, France and Korea are seriously considering them.
The UK government’s efforts in promoting social entrepreneurship is led by Prime Minister David Cameron. In June, delivering the keynote at the first ever G8 Impact Investing Forum, he made three very important announcements. Tax breaks for social investments, a social stock exchange and a fresh infusion of funds to a tune of about $305 million for Big Society Capital, an independent financial institution that helps local communities buy assets.
The US is another country with a vibrant social entrepreneurship sector. The standout factor is the involvement and support of its academic institutions in nurturing the right talent for the industry and providing research assistance. The biggest collaboration is the Ashoka U that includes 40 of the top universities and colleges program. It was launched in 2008 to foster a campus-wide culture of social innovation .
Almost all the big universities have social entrepreneurship programs. Stanford for example, had 26 different courses to choose from. The Skoll Center for Social Entrepreneurship at Oxford’s Said Business School, which was founded in 2003 with a grant from Jeff Skoll, is one of the pioneers in this field. The others universities that have advanced courses and research initiatives include Brown, Duke, University of Maryland, Haas School of Business and Kellogg School of Management.
Another US creation, The Harvard Kennedy School Social Impact Bond Technical Assistance Lab (SIB Lab) conducts research on how governments can foster social innovation and improve results from social spends. SIB Lab also provides pro bono technical assistance for deployment of SIBs.
The US has been very accommodating when it comes to the structure of the legal entities like ‘benefit corporation’ (B Corp) and low-profit limited liability companies (L3Cs). B Corps as the name suggests are required to benefit society and its shareholders. L3Cs have a goal of performing socially beneficial activities while not maximizing income. This allows for for-profits and non-profits alike to benefit more from tax breaks and setting the right expectations to stakeholders.
Little Singapore made a big splash in the social entrepreneurship universe when it became the first country to launch Impact Investment Exchange (IIX), a social stock exchange for enterprises to raise capital.
Singapore started its social entrepreneurship journey more than a decade back. In 2003, the government set up the Social Enterprise Fund (now called ComCare Enterprise Fund). The fund provides seed funding to social enterprises that train and employ disadvantaged individuals, such as persons with disabilities, ex-offenders, or at-risk youth.
In 2007 the government published a report on the four broad models of social enterprises found in Singapore to guide new startups. They are: work integration model, plough-back-profit model, the subsidized services model and the social need model.
Support for social entrepreneurship starts at the top. The president Tony Tan Keng Yam, is an active supporter, he instituted the President’s Challenge Social Enterprise Award, in March this year, where two winners received about $12,000 in prize money.
4) South Korea:
It was the first country to introduce a Law on the Promotion of Social Enterprises back in 2007 that helped define social enterprises and certify them. Dubbed the Social Enterprise Promotion Act (SEPA) it defined social enterprises as organizations engaged in commercial activity and pursuing a social mission by “providing social services and creating jobs for the disadvantaged”. The goal of SEPA was to allow more collaboration between corporations and NGOs to help establish social enterprises by providing certifications, corporate tax credits, and preferential procurement practices.
The South Korean government certifies social enterprises so that they can get tax breaks and other subsidies and has certified more than 700 social enterprises and 1,700 early-stage social enterprises to date. Certified enterprises have to reinvest more than two-thirds of profits for social purposes and more than 30 per cent of their employees have to be from vulnerable and disadvantaged communities.
South Korea is perhaps the only country where large private enterprises play a big role. POSCO hires hundreds of individuals from disadvantaged communities or with disabilities through entities like POSWITH, POSecohousing, POSPlate, and Songdo SE. Another company called SK Group last year converted one of its companies with revenues of $89.5 million into the country’s largest social enterprise.
Italy introduced a law that recognized social enterprises in 2006. Social enterprises have developed around two specific laws. The first one, Law 381/91 created the social cooperative legal form. The second, Law 118/05 defined some general requirements applicable to any existing legal form, in order to be recognized as social businesses. Entities recognized as social enterprises have a mission of ‘general interest’, producing goods of social utility, involve workers and beneficiaries deeply and ploughing back profits into the firm.
According to the latest report on the social enterprise landscape in Italy by Iris Network and Unioncamere currently there are 22,468 non-profits and 85,445 for-profits that have ‘social enterprise’ potential because of their social impact. Between 2003 and 2010 employment in social enterprises increased over 70 per cent, at the end of 2010 there were around 383,000 workers employed in social enterprises in Italy, which is 9.74 per cent of the total currently working population.
This year in March, the country’s very first Social Innovation Agenda, was revealed by Fabrizio Cobis, director of Ministry of Education and Innovation,. The Agenda identifies five areas of proposed intervention for nurturing social innovation. These include public policy, finance mechanisms such as SIBs, social stock exchanges, venture capital and social entrepreneurship funds, and equity-based crowd-funding; measurement and impact of social innovation; methods to spark social innovation, launching challenges for social innovation and encouraging public-private sector partnerships.
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