Is social entrepreneurship the answer to poverty in our country? Certain sectors of Philippine society seem to think so. Not surprisingly, there are pending bills in Congress that seek to provide support for social enterprises. Among these is the Poverty Reduction through Social Entrepreneurship (PRESENT) Bill, the Senate version of which was filed by Sen. Bam Aquino. According to the bill, a social enterprise purposefully renders “both transactional and transformational services” for the benefit marginalized sectors such as farmers, fishers, persons with disabilities, and indigenous peoples. The bill is supported by the PRESENT Coalition, which is an alliance of various social entrepreneurs and advocates, which include academia and civil society.
While the PRESENT Bill addresses some important points such as the need to get social enterprises integrated in the value chain, there are some provisions (or the absence of relevant ones) that betray a lack of understanding of the mechanisms that result in the successful scaling of social enterprises or in the scaling of innovative solutions to social problems. For example, the proposed law provides for the establishment of a social enterprise development fund, which is meant for value chain financing and enterprise development services. The bill also provides for special credit windows that can be used by social enterprises for buying assets or for augmenting their working capital. What makes these different from the credit facilities already made available by government financial institutions to micro-, small and medium enterprises (MSMEs), and which are not fully availed of anyway?
At De La Salle University, we have undertaken several studies on the business models of various for-profit social enterprises and on the services provided by social business incubators. Thanks to the support of the Social Enterprise Research Network (SERN) of the Center for Business Research and Development (CBRD), we have generated some valuable insights on how for-profit social enterprises face the challenges of reconciling their financial and social objectives, even as they strive for business growth. Among our findings is that the scaling of social enterprises is largely dependent on their adoption of innovative business models, the business acumen of their owners and/or managers, and on their ability to leverage on the resources of other organizations through social or institutional networks. Many of the social enterprises we encountered also seem averse to availing of loans, preferring other forms of financing.
For many small businesses, including social enterprises, finding a way to be part of the industry-level value chain, especially getting access to bigger markets, is important. However, studies show that it is rarely the small players that define the activities of the industrial value chain. The lead player is usually a big firm that needs the products or services of smaller players, and that provides the credit/financial resources and expertise to these smaller players, who latch onto the value chain as a valued supplier. In the social enterprise sphere, there are examples of non-government organizations (e.g. Gawad Kalinga Enchanted Farm) that trigger the linkage between the social enterprise and key suppliers and potential markets. Thus, it might be better to provide incentives not directly to the social enterprises but to the enablers of value chain integration for small enterprises.
Another concern is how to define social enterprises, which are the supposed beneficiaries of the proposed law, but this is problematic especially since there is still a lack of agreement of what a social enterprise is in the literature. A viable solution to this problem can be drawn from the article “A Positive Theory of Social Entrepreneurship,” written by Filipe Santos, Academic Director of the Social Entrepreneurship Initiative at INSEAD. Santos argued that social entrepreneurship is the pursuit of sustainable solutions to problems of neglected positive externalities (or areas that could have positive social impact, but that, for some reason, neither government nor commercial enterprises want to venture into). Might it not be better that incentives be given to organizations that address these neglected positive externalities (e.g. electrification of remote island economies, employment for persons with disabilities)? Therefore, there is no need to distinguish between organizational types, as long as their business model addresses these social needs, perhaps in the form of a prototype or of a proof of concept that needs additional support to scale. Also, the government should not be using public funds to support to programs and activities that are already being addressed by government agencies or by commercial enterprises.
The general idea is that the incentives, instead of being given to hundreds of small enterprises, can instead be given to those organizations that can trigger the scaling of innovative solutions and, therefore, generate more impact. Also, support can be given to those that have already shown a proof of concept so that there is assurance of a more effective use of resources. Other small social enterprises can avail of needed resources by tapping into support mechanisms already provided for by existing laws such as the BMBE law, Kalakalan law, etc. and existing programs offered by DTI, DOST, etc.
Raymund B. Habaradas is an Associate Professor at the Management and Organization Department of the Ramon V. Del Rosario College of Business of De La Salle University (DLSU). He does research on corporate social initiatives, social entrepreneurship and SME development. He is also the Director of the DLSU Center for Business Research and Development and is a Fellow of the center’s Social Enterprise Research Network. He welcomes comments at email@example.com. The views expressed above are the author’s and do not necessarily reflect the official position of DLSU, its faculty, and its administrators.