In just the past decade we’ve seen a paradigm shift as a new model of social impact has emerged: social enterprise. Social entrepreneurship has largely captured the attention of charities, philanthropists, and academics, yet it is largely absent from the dialogue of the general public. So what exactly is this mythical term, and why has it saturated the halls of academia and villages of rural India?
Social entrepreneurship is the term used for ventures that integrate social impact with business principles. Often, business is a tool for conducting social impact. For example, a social enterprise might sell a liter of clean water to villagers and use the profits to conduct maintenance on the clean water infrastructure. For comparison, a charity would give a liter of clean water to a villager and raise additional money from donors to conduct the necessary maintenance.
Similar terms are used for this concept, including hybrid nonprofit, social enterprise, social ventures, and so on.
First Principles: Donor Retention
Once you are past the terminology, the buzz words, and the general fluff, you arrive at first principles. The value proposition of social enterprise is increased sustainability due to removal of donor retention issues – simply that social enterprises are more sustainable than traditional charity models or reverting to the government.
Since the 1960s, the number of active charitable organizations has skyrocketed. Alongside the incredible scale these organizations collectively achieved was often a lack of forethought in regards to sustainability.
The key vulnerability of charity models is donor retention. Let’s say that a nonprofit sets up a school or clean water infrastructure. Every year, that nonprofit must raise money from its donors to cover the costs of the project, whether that is teacher salary or infrastructure maintenance services. And herein lies the problem: looking at economic data, financial markets face corrections every five years or so. For many organizations, fundraising becomes difficult during these economic slumps, and the charitable projects that constantly depend on them are left. This is the traditional charity model.
Similarly, charities face problems in raising money even when they are backed by the government. Particularly in places like India, and various countries in South America and Africa, volatile political institutions mean that funding for an initiative can fluctuate from year to year, from politician to politician. If a nonprofit’s primary funding might disappear every four years, sustainability is near impossible to achieve.
First Principles: Dependency
One might argue that the largest charitable organizations don’t have any donor retention issues. Indeed, large foundations have billions upon billions of dollars. Here the key question becomes dependency; a charity who promises to fund projects in a poor community year after year creates projects and communities that are dependent.
This is a common theme even at the most well-funded levels of charity — namely foreign aid. International organizations, like the United Nations, understand that creating large-scale change in infrastructure, sanitation, and livelihood would take trillions of dollars and create dependencies. Thus, the “international community [must] look beyond foreign aid and focus on local capacity-building and jobs creation, so poor countries can help themselves”(Slavin).
Capacity-building, job creation, community-owned enterprises, and so on enable people to help themselves without depending on external organizations.
Why You Should Care
OSA Impact firmly believes in the potential of our fellow Odias. Odisha should not be depending on external organizations, or foreign aid for that matter. Rather, we should be fully focused on sustainable models of development, creating jobs, and empowering Odias to take ownership in their own development.