Why NGOS should in­vest in so­cial busi­nesses?

Lesotho Times - - Leader - Tankiso s. Phori

THERE is no doubt that civil so­ci­ety or­ga­ni­za­tions (CSOS) or Non-gov­ern­men­tal Or­ga­ni­za­tions (NGOS) do a great job at dif­fer­ent lev­els to com­ple­ment the gov­ern­ment in re­spond­ing to the needs of those who are vul­ner­a­ble, poor, des­ti­tute or less ad­van­taged as some peo­ple would say.

Even though there are no up­dated statis­tics, ac­cord­ing to the Let­sema Net­work Ser­vice Direc­tory (2010) and mem­ber­ship data ob­tained from Le­sotho Coun­cil of NGOS (LCN) and other net­work or­ga­ni­za­tions, there were over 500 or­ga­ni­za­tions and groups in Le­sotho op­er­at­ing at dif­fer­ent lev­els with dif­fer­ent ca­pac­i­ties and re­sources to re­spond to the needs of vul­ner­a­ble fam­i­lies and com­mu­ni­ties.

All of these or­ga­ni­za­tions, though some of them are now de­funct or in­ac­tive, rely on ex­ter­nal donor fund­ing to ful­fil their mis­sions and re­alise their vi­sions of a pos­i­tive change in the lives of poor, vul­ner­a­ble peo­ple and their fam­i­lies and com­mu­ni­ties.

Most of them have been work­ing in the area of HIV and AIDS that has re­ceived a lot of sup­port in the last three decades. With the lat­est de­vel­op­ments in our en­vi­ron­ment, world economies, hu­man rights and new ill­nesses and viruses, their fo­cus is rapidly chang­ing, but still de­pen­dent on ex­ter­nal sup­port. Ma­jor­ity are how­ever still work­ing pri­mar­ily in the area of HIV/AIDS.

Ac­cord­ing to the UNAIDS re­port (2014) Le­sotho now has the sec­ond high­est HIV preva­lence in the world stand­ing at 23 per­cent, mak­ing the coun­try’s fu­ture un­cer­tain as the av­er­age life ex­pectancy stands at 48.7 years due to the dev­as­tat­ing im­pact of the epi­demic.

The coun­try also has the largest num­ber of vul­ner­a­ble house­holds with in­creased num­bers of or­phaned and vul­ner­a­ble chil­dren as a re­sult of HIV and AIDS.

Ac­cord­ing to the Sit­u­a­tion Anal­y­sis of Or­phans and Vul­ner­a­ble Chil­dren (2011), be­tween 10 per­cent and 13 per­cent (125,000) of all chil­dren (1,072,974) in Le­sotho are vul­ner­a­ble and they are be­tween the ages of 0 – 17 years.

The coun­try is clas­si­fied among the Least De­vel­oped Coun­tries with a per capita in­come of $1879 and it ranks 158 out of 187 coun­tries on the UN Hu­man De­vel­op­ment rank­ing, falling into the cat­e­gory of low hu­man de­vel­op­ment. Na­tional poverty fig­ures in­di­cate that 57.1 per­cent of the pop­u­la­tion lives be­low the na­tional poverty line (Le­sotho MDGS Sta­tus Re­port, 2013).

This poverty sta­tus leaves most fam­i­lies vul­ner­a­ble to a num­ber of so­cio-eco­nomic chal­lenges which among other things in­clude de­priv­ing chil­dren of the op­por­tu­ni­ties to grow in a nor­mal way and un­leash their po­ten­tial in life.

The chal­lenges fac­ing vul­ner­a­ble chil­dren and their house­holds call for a mul­ti­sec­toral re­sponse to their needs, in­clud­ing a more ro­bust and ac­tive role played by lo­cal CSOS and CBOS.

A com­bi­na­tion of fac­tors leaves the vul­ner­a­ble and poor even more des­per­ate and hope­less and widens the gap be­tween the rich and poor.

These in­clude high un­em­ploy­ment rate of 25.30 per­cent which seems to be on the in­crease. The 2008 global eco­nomic re­ces­sion that re­sulted in mul­ti­ple so­cio-eco­nomic and po­lit­i­cal chal­lenges in­clud­ing in­creased poverty and un­em­ploy­ment, is one of the fac­tors that left many Basotho poorer and vul­ner­a­ble to a num­ber of un­de­sir­able con­di­tions.

When talk­ing in one of the fo­rums, an Econ­o­mist, Dr Maluke Letete from the Na­tional Univer­sity of Le­sotho (NUL) in­di­cated that the global econ­omy has re­cently re­cov­ered a lit­tle bit, and as a re­sult a growth in 2016 was ex­pected to be 3.4 per­cent and 3.6 in 2017.

Dr Letete said though this re­cov­ery might mean get­ting a lit­tle more of global fund­ing there are no guar­an­tees. This growth comes largely from emerg­ing mar­kets’ economies while “growth in ad­vanced economies is pro­jected to rise by 0.2 per­cent­age point in 2016 to 2.1 per­cent, and hold steady in 2017.”

Fun­da­men­tally the growth will come from emerg­ing mar­kets which have less con­tri­bu­tion to donor aid, and that is a chal­lenge to NGOS.

As a re­sult of the global eco­nomic de­cline, de­vel­oped coun­tries such as the United States of Amer­ica that have been ma­jor fund­ing sources for decades are be­gin­ning to close their wal­lets and save the money for their own peo­ple.

A re­cent change of ad­min­is­tra­tion in the United States of Amer­ica is a good ex­am­ple as it comes with pro­tec­tion­ist mea­sures against for­eign aid. Ac­cord­ing to Devex “the Trump ad­min­is­tra­tion proposes a 30.8 per­cent cut to the over­all for­eign aid bud­get…” (www.devex.com).

These cuts in for­eign aid were felt since 2008, so they are not nec­es­sar­ily new with the new US ad­min­is­tra­tion.

And look­ing back one can see how the re­duc­tion in global for­eign aid has im­pacted in coun­tries like Le­sotho.

For ex­am­ple, look­ing at the donor con­tri­bu­tion to­wards the na­tional bud­gets of the last three years — 2013/14; 2014/15; and 2015/16, one can the see graph steadily go­ing down.

To a larger ex­tent these re­duc­tions in for­eign aid af­fects the Le­sotho’s gov­ern­ment abil­ity to ef­fec­tively and sus­tain­ably meet the needs of its poor and vul­ner­a­ble pop­u­la­tion through the Min­istry of So­cial De­vel­op­ment (MOSD).

And bud­get al­lo­ca­tions for this min­istry re­main low, leav­ing unan­swered ques­tions as to how the coun­try through all key play­ers in­clud­ing NGOS can bet­ter re­spond to the needs of those who are less ad­van­taged or vul­ner­a­ble in­clud­ing chil­dren.

The bud­gets of the last three years (2013/14; 2014/15; and 2015/16), gave the MOSD, which is re­spon­si­ble for all vul­ner­a­ble groups such as the el­derly, peo­ple with dis­abil­i­ties, and or­phaned and other vul­ner­a­ble chil­dren, a shock­ingly low share — be­low 2 per­cent of the to­tal pro­posed al­lo­ca­tions or ex­pen­di­tures, as dis­played in the ta­ble be­low.

With this wor­ry­ing ex­ter­nal fund­ing pic­ture com­pounded by the gov­ern­ment’s lim­ited re­sources which un­der­mine its (gov­ern­ment) vi­sion of “a strong econ­omy and pros­per­ous na­tion” by 2020, NGOS as a key gov­ern­ment part­ner in im­prov­ing the qual­ity of life for vul­ner­a­ble groups and com­mu­ni­ties, have no choice but to find al­ter­na­tive means to gen­er­ate funds. And it is very crit­i­cal that these NGOS come up with cre­ative and in­no­va­tive ways to fi­nan­cially sus­tain the out­comes of the work that they have been do­ing and to ef­fec­tively re­spond to emerg­ing so­cial and eco­nomic needs among vul­ner­a­ble pop­u­la­tions.

The is­sue of sus­tain­abil­ity is embed­ded in most of the global fund­ing frame­works in­clud­ing the Paris Dec­la­ra­tion on Aid Ef­fec­tive­ness (2005) and USAID For­ward. The in­ter­na­tional in­sti­tu­tions and agen­cies such as the World Bank, In­ter­na­tional Monetary Fund and United Na­tions Agen­cies all call for pru­dent and sus­tain­able in­vest­ments be­cause fund­ing sources are dry­ing up fast.

There­fore, hav­ing ex­plored dif­fer­ent al­ter­na­tive sources of fund­ing in­clud­ing once off do­na­tions by com­pa­nies through their cor­po­rate so­cial re­spon­si­bil­ity pro­grams, I strongly rec­om­mend that Le­sotho CSOS/NGOS should con­sider in­vest­ing in so­cial busi­nesses for their fi­nan­cial sus­tain­abil­ity. My ex­pe­ri­ence in Bangladesh where I vis­ited in Fe­bru­ary 2016 to learn more about the mi­cro-fi­nanc­ing and so­cial busi­ness models cre­ated by Pro­fes­sor Muham­mad Yunus, a founder of the Grameen Bank (a bank for the poor), taught me that so­cial busi­nesses is the way to go for our or­ga­ni­za­tions if they are to be fi­nan­cially sus­tain­able. But first what is a so­cial busi­ness?

In his Adam Smith Lec­ture de­liv­ered at Glas­gow Univer­sity on De­cem­ber 01st, 2008, Prof. Yunus de­fined a so­cial busi­ness as “a busi­ness whose pur­pose is to ad­dress and solve so­cial prob­lems, not to make money for its in­vestors. It is a non-loss non-div­i­dend com­pany. The in­vestor can re­coup his in­vest­ment cap­i­tal, but be­yond that no profit is to be taken out as div­i­dends by the in­vestors.

These prof­its re­main with the com­pany and are used to ex­pand its out­reach, to im­prove the qual­ity of the product or ser­vice it pro­vides, and to de­sign meth­ods to bring down the cost of the product or ser­vice”. In other words the “prof­its re­al­ized by the busi­ness are rein­vested in the busi­ness it­self (or used to start other so­cial busi­nesses), with the aim of in­creas­ing so­cial im­pact…”

Other def­i­ni­tions are also con­sis­tent with Prof. Yunus def­i­ni­tion of the so­cial busi­ness: The so­cial en­ter­prises are busi­ness cre­ated to fur­ther a so­cial pur­pose, ap­ply­ing busi­ness so­lu­tions to so­cial prob­lems and chal­lenges. As in­di­cated in some def­i­ni­tions of the so­cial en­ter­prise, “the ul­ti­mate goal is to achieve sus­tain­abil­ity by en­abling non-prof­its (CSOS) to sup­port them­selves fi­nan­cially in in­no­va­tive ways in­stead of re­ly­ing solely on grants and do­na­tions”.

Seven prin­ci­ples of so­cial busi­ness:

Pro­fes­sor Muham­mad Yunus and his col­leagues de­vel­oped the fol­low­ing prin­ci­ples for so­cial busi­ness to guide those seek­ing to ven­ture into this noble jour­ney for our com­mu­ni­ties: 1. Busi­ness ob­jec­tive will be to over­come poverty, or one or more prob­lems (such as ed­u­ca­tion, health, tech­nol­ogy ac­cess, and en­vi­ron­ment) which threaten peo­ple and so­ci­ety; not profit max­i­miza­tion. 2. Fi­nan­cial and eco­nomic sus­tain­abil­ity 3. In­vestors get back their in­vest­ment amount only. No div­i­dend is given be­yond in­vest­ment money 4. When in­vest­ment amount is paid back, com­pany profit stays with the com­pany for ex­pan­sion and im­prove­ment 5. Gen­der sen­si­tive and en­vi­ron­men­tally con

scious 6. Work­force gets mar­ket wage with bet­ter

work­ing con­di­tions 7. Do it with joy

You will no­tice that in his def­i­ni­tion Prof. Yunus talks about po­ten­tial in­vestors who can be ap­proached or vol­un­tar­ily put their money into the so­cial busi­ness as cap­i­tal, but not ex­pect to make profit out of it, in­stead leave the prof­its with the so­cial busi­ness for the good of those who are poor or in need. This is be­cause in most cases those who want to start so­cial busi­nesses do not have the money re­quired to get started. So they have to find in­vestors with a ‘so­cial heart’ to sup­port their ini­tia­tives. Even though some peo­ple are scep­ti­cal about the con­cept of the so­cial busi­ness, won­der­ing “why would any­one de­vote time, en­ergy, and money to projects with no per­sonal gain, Prof. Yunus shows us that nat­u­rally peo­ple (in­clud­ing busi­ness peo­ple) are driven by con­science and sym­pa­thy for oth­ers, there­fore, when ap­pro­pri­ately ap­proached they are will­ing to sup­port this kind of ini­tia­tives. In my pre­vi­ous con­ver­sa­tions with some busi­ness peo­ple, I learned that most of them have money that they would like to spend on those who are in need, but they do not know how.

In the same lec­ture men­tioned above, Prof. Yunus says “the con­cept of so­cial busi­ness got in­ter­na­tional at­ten­tion when Grameen Health­care Trust launched a joint ven­ture with Danone, a multi­na­tional com­pany from France. Grameen teamed up with Danone to bring nu­tri­tious for­ti­fied yo­gurt to the un­der­nour­ished chil­dren of ru­ral Bangladesh. The aim of this so­cial busi­ness is to fill the nu­tri­tional gap in the diet of these chil­dren. We sell the yo­gurt to the poor chil­dren at an af­ford­able price, charg­ing just enough to make the com­pany self-sus­tain­ing. Be­yond the re­turn of the orig­i­nal in­vest­ment cap­i­tal, nei­ther Grameen nor Danone will make any money from this ven­ture, by agree­ment.

Grameen Bank and Grameen Trust have also cre­ated a joint-ven­ture with Ve­o­lia of France to de­liver safe drink­ing wa­ter in the vil­lages of Bangladesh. These are just few ex­am­ples of how even the NGOS can go into part­ner­ships with es­tab­lished busi­nesses to start so­cial busi­nesses or to re­quest cap­i­tal for such busi­nesses. Usu­ally so­cial busi­nesses are ex­empted from pay­ing tax given their na­ture and the fact that they com­ple­ment the gov­ern­ment on its obli­ga­tion of meet­ing the needs of the poor. In the case of Le­sotho, this is some­thing that can be fur­ther in­ves­ti­gated with the Min­istry of Trade and the Le­sotho Rev­enue Au­thor­ity.

Prof. Yunus through his cen­tre, the Yunus Cen­tre and Grameen Trust are sup­port­ing coun­tries in Asia, North Amer­ica, Europe, Africa and other parts of the world to start so­cial busi­nesses for fi­nan­cial sus­tain­abil­ity of their de­vel­op­ment in­ter­ven­tions. Al­ba­nia is one of the coun­tries ben­e­fit­ing from their guid­ance and sup­port. Al­ba­nia is a small coun­try on the Mediter­ranean Sea, across from Italy and north of Greece. “Af­ter a long pe­riod of iso­la­tion and Com­mu­nist regime, it has opened up to new ideas…” They are still faced with a plenty of so­cial and eco­nomic chal­lenges in­clud­ing high lev­els of un­em­ploy­ment of youth etc. “Older peo­ple are be­ing left stranded, with no one to care for them. Tra­di­tional busi­nesses in Al­ba­nia do not ad­dress these is­sues as they are not prof­itable enough or just too dif­fi­cult to tackle. That’s why a new gen­er­a­tion of en­trepreneurs is turn­ing to­wards the idea of so­cial busi­ness” (Grameen Di­a­logue News­let­ter, April 2015).

I hope this ar­ti­cle will shed a light for our CSOS/NGOS on how the con­cept of so­cial busi­ness can help sus­tain their work fi­nan­cially so that they do not en­tirely de­pend on ex­ter­nal donor sup­port which is shrink­ing. I en­cour­age the CSOS to sit down with ex­perts and ex­pe­ri­enced peo­ple to fur­ther ex­plore this in­come gen­er­a­tion op­por­tu­nity and start some­where. Vi­sion Re­search Con­sul­tants is build­ing a re­la­tion­ship with Grameen Trust to ul­ti­mately be able to pro­vide tech­ni­cal as­sis­tance to Le­sotho CSOS in es­tab­lish­ing so­cial busi­nesses. The tech­ni­cal sup­port will in­clude de­vel­op­ment of busi­ness plans, re­source mo­bi­liza­tion to raise cap­i­tal and busi­ness man­age­ment sup­port.

I am also chal­leng­ing lo­cal busi­nesses and for­eign busi­nesses op­er­at­ing in Le­sotho to re-con­sider how they in­vest their so­cial re­spon­si­bil­ity pro­grams’ funds. While I am not against once off do­na­tions made by many com­pa­nies, I how­ever be­lieve that the im­pact of such funds can be more sus­tain­able if they in­vested in so­cial busi­nesses – sup­port­ing lo­cal CSOS to start in­come gen­er­a­tion projects which will be­have just like any other busi­nesses, but with a so­cial goal at the cen­tre of their heart.

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