Social Enterprise as financial-sustainability strategy for NGOs

Social Enterprise as financial-sustainability strategy for NGOs

 Social Enterprise (SE) is one of the financial-sustainability strategy components with practical application for NGOs. Social enterprise is any socially responsible income-generating activity whose revenue is used to support the organization’s mission.

Due to mounting frustration with the current funding status quo and the desire to decrease donor dependency, NGOs have opted to utilize private-sector entrepreneurial principles to bridge the gap. NGOs in Kenya and Somalia have to borrow a leaf from their colleagues elsewhere and introduce the concept in an effort to create a new breed of entrepreneurs and to stimulate the formation of a larger, sustainable pool of resources for NGO initiatives. Going beyond the traditional donor-grantee relationship, The NGO’s approach should focus on a new organizational “hybrid” – nonprofit in purpose and for-profit in approach ─ using the so-called “double bottom line” concept. As a hybrid, social enterprise is driven by two strong forces. First, the targeted social change often benefits from an innovative, entrepreneurial or enterprise-based solution. Second, the sustainability of the organization and its services requires the diversification of its funding stream, including earning additional income.

Experiences in other part of the world have demonstrated that social enterprise has great potential as a sustainability strategy for non-profits in emerging economies where markets are undeveloped and entry barriers are low. Comprehensive, well-structured programs, which complement business training and loans, legal advice and networking, increase the likelihood that NGOs will successfully create sustainable social enterprises that achieve both financial viability and social impact over the long term. Social enterprise methodologies provide the tools and input needed to assist NGOs in their business activities. Ultimately helping NGOs develop solid funding bases, which sustain their core social programs through earned income and incorporate the strategic use of grants for supplementary services and auxiliary social programs. With this approach, NGOs can establish or expand their income-generating activities and, at the same time, achieve their organizational missions.

The strategy to support social enterprise in Kenya and Somalia should include the following main components:

Develop the capabilities of NGOs for managing different aspects of social enterprise by providing an introduction to the SE concept (SE overview and organizational readiness for SE development; business-idea generation, asset leverage/selection and screening criteria; feasibility analysis; and business planning)

Initiate a zero-percent interest loan program and establish funds and fund management

The financial-sustainability strategy to support the work of NGOs is part organizational development and part business training and development. Using the “venture philanthropy portfolio” approach; Strategic or venture philanthropy uses a “portfolio approach” taken from venture capitalism, in which venture capitalists make both financial and technical investments in a group of new or growing businesses known as a portfolio. In our case, the portfolio can be a group of NGO participants, and its size is the number of portfolio members.

Since the “portfolio” is an investor approach, the results are measured in terms of “return on investment.” The SE financial and technical contributions, which are considered investments, are monetized, and the returns are assessed for social and economic impact. Economic returns to social enterprise are standard measures borrowed from business – profit/loss, gross margin, sales turnover and market penetration etc. SE also tries to capture economic returns to the community – increased tax base (more money for public social expenditure) and diminished donor dependency (money for social investments). Social impact is hard to measure, but the following indicators can show social returns – declining subsidies, new social investments and increased coverage of social costs.

Prospects for the Future

NGO self-financing is relatively unknown in the NGO community. More attention needs to focus on how best to promote this revenue-generating alternative among NGOs in Africa and how to evaluate its overall effectiveness as a self sustaining strategy. INGOs should continue to document, analyze, assess and help support local NGO self-financing initiatives. In addition, donors should also stimulate viable local funding alternatives by providing flexible resources, information and capacity building. NGOs require assistance to develop management strategies, staff capabilities and skills, organizational and legal structures, start-up funding, financial and accountability mechanisms, business planning and marketing tools. Collectively, such efforts can help NGOs move beyond discussions of “sustainability” toward the development of concrete alternative strategies, such as self-financing, and turn resource dependency into greater autonomy and self-reliance

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Abrimo Global Consulting Ltd is a specialized management consulting firm working to strengthen technical and management capacity of organizations both humanitarian and development organizations and as well as private sector by providing comprehensive technical support and other consulting services across disciplines and sectors.

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