Donors are currently showing a very keen interest in social business and are adopting specific strategies and tools (Asian Development Bank, USAID, DFID, KFW and, just recently, AFD). Indeed, social business could be seen as a miracle solution in this context of fiscal austerity. But let there be no mistake: public financial support continues to be one of the conditions for its success. 

credit: Grameen Danone Foods
credit: Grameen Danone Foods

Reconciling the social objective and the need for profitability

The aim of social business is, as with social policies, to address social problems, but at the same time by generating incomes that are essential to the sustainability of the project, based on an entrepreneurial economic model. It involves organizations with different statuses (associations, NGOs, cooperatives, enterprises…) which have a priority social (and/or environmental) objective and are seeking to achieve financial equilibrium in order not to be dependent on public financing.

While profit is not the primary objective, it is the way to ensure the autonomy of the project, as well as its growth if reinvestments are made in it. The beneficiaries of these projects can be clients (who are sold essential products at a low price), or employees (who are offered more than just a job: improved working conditions, return to work…), suppliers (who are offered stable outlets at a fair price, by helping them to structure their sectors), and external persons (who are offered products and services, or a share of the profits).

But how can financial equilibrium be achieved when you are selling a product or service for the poorest? How to determine a price that is low enough to be accessible to the target beneficiaries, but high enough to achieve financial equilibrium? Social business faces two challenges: address a social problem (fight against poverty, improve access to basic services or essential products, fight against deforestation…) with stakeholders who are generally poor, while earning enough money to ensure the organization’s financial autonomy.

Innovation: The key to success

Achieving this generally requires a great deal of innovation, as the challenge often lies in succeeding in creating a market where it did not previously exist. This is the real difficulty of the undertaking, which no doubt accounts for the fact that today there are more people who extol the merits of social business in terms of coming to the aid of Official Development Assistance than people who have succeeded in developing sustainable social businesses in Southern countries.

Giving life to this oxymoron of social business consequently requires finding the right idea, technical and organizational innovation, distribution, and relevant partnerships which can reconcile the priority social objective and the need for profitability. This idea must then be further developed, tested, adjusted and experimented. It is a long, uncertain and risky process, and by definition generates little profit in the long term.

The social business Nutrizaza in Madagascar, which aims to fight against chronic child malnutrition by selling nutritious semisolid food for babies, is a prime example of the permanent tension between the economic objective (not sell at a loss, achieve financial equilibrium) and social objective (sell the semisolid food at a low price in order to reach the poorest families). There has been a continuous adjustment of the model for nearly ten years now, following the initial idea led by an NGO (GRET), and it has not yet achieved financial equilibrium. The success of this project, which is today within reach, has come about through the determination of local actors and the financial support (grant) provided by AFD for several years. Setting up a social business project would therefore appear to be relatively complicated and there is still little support in the start-up phase, as few public partners manage to mobilize sufficient grant amounts to support such innovative and risky projects which take quite a long time to develop.

Essential to involve governments and donors

Social business is not the miracle solution to resolve social problems and allow State withdrawal. Indeed, social business can only be developed with public financial support and in the context of public policies that are conducive to the emergence of this type of project.

Public grants (and private grants if philanthropic foundations turn talk into action concerning risk-taking and social innovation) are necessary. However, the role of public donors is not to support projects that are already structured, already financed and with the risk under control, but to support innovation and take the risk of financing projects that are not yet profitable. This is indeed one of the main challenges for Official Development Assistance in the coming years: How to manage, lead, assume and share the risk of social innovation and thereby achieve the goal of economic, ecological and social transition?

I subscribe to the ID4D newsletter

Once a week, I receive the latest blog posts!

Agenda