Can business and social change be compatible?

In August 2016, the Supreme Court upheld government orders directing BRAC, the world’s largest non-government organisation, to pay Tk 404.20 crore in unpaid income tax between the years 1993 and 2012. This verdict overturned a previous High Court order which exempted BRAC from paying tax as it was deemed a non-profit organisation.

Though this perception has stuck, BRAC is more accurately a type of social enterprise. The organisation primarily finances its activities in health and education for example, through revenue generated from its 16 social enterprises and microfinance programme. These enterprises are run as businesses but are driven by the need to create employment and promote social goods.

What distinguishes social enterprises from businesses? While profit is the only bottom line for businesses, a social and/or environmental mission is paramount for social enterprises. A 2016 British Council study which surveyed 149 social enterprises in Bangladesh found that 44 percent consider their primary purpose to be social or environmental impact (over profit). Many social enterprises, especially social businesses, do generate profits but the majority is reinvested to sustain their programmes and scale up operations.

Take Aarong, a BRAC social enterprise. Starting out as a handicrafts venture to support rural artisans, it now employs 65,000 artisans and is the predominant lifestyle retail chain in the country. Run as a business, the profits it generates have allowed Aarong to be financially viable in the long term.

BRAC embodies a hybrid non-profit, a social enterprise model which uses product sales to fund the social mission and to scale up operations. Actively transitioning away from donor funding, BRAC is setting up multiple revenue streams to finance its programmes. Currently, it is 70 percent self-funded.

Perhaps the most famous model of social enterprise in Bangladesh is social business, a concept defined and mainstreamed by Muhammad Yunus. Grameen Intel, a social business IT company formed in collaboration by Intel Corporation and Grameen Trust, is one such model. “What distinguishes a social business from a regular business is its profit margin. Ours is a responsible profit margin– we keep the price as low as possible but at enough profit to make us sustainable in the long term,” says Pavel Hoq, chief operating officer of Grameen Intel. Initially, losses are commonplace. “Over the years, we hope to sell enough licenses for our software applications to eventually become profitable,” concludes Hoq.

Despite different models, all social enterprises start with an innovative idea. Social entrepreneurs identify an urgent need and then come up with a creative solution, vastly different from existing ones in the sector. Jeeon, an award-winning social enterprise in Dhaka, identified rural patients’ lack of access to quality healthcare. It then set about bridging this gap by training and equipping local intermediaries, usually rural pharmacists, to facilitate consultations with qualified doctors through the Projotno telemedicine service. Patients pay a subsidised price of Tk 250 for a consultation and Tk 50 for a follow-up visit.

Jeeon was incubated within mPower, another ICT-based social enterprise in Dhaka, through which it was able to access the right investors. “We have received support from the government since we were announced as one of the top 10 startups in Bangladesh. However, the majority of our support, financial and otherwise, is from foreign organisations,” says Ahmed Abu Bakr, Head of Product and Experience at Jeeon.

The study on social enterprise activity in Bangladesh found a general lack of awareness and understanding of such organisations to be a barrier to raising funds from investors. This poses significant challenges in scaling up operations. 48 percent of the social enterprises surveyed did not receive any funding. Only a small proportion has received loans or equity, capital traditionally accessed by businesses. Grameen Intel is taxed at the same rate as a mainstream commercial business, making it more difficult to compete for the social business to compete with the latter, according to Hoq.

Social enterprises also have no specific legal status in the country. There are no policies defining social enterprises or directly governing their activities in the country. “I think that it is a good time to push for a legal framework for social enterprises. My concern is that social entrepreneurship in Bangladesh is a term that is often under the shadow of social business, which is a very particular way of doing things. I would like to see a legal framework more like the B-corp (Benefit corporation), which is now an internationally recognised legal status across most developed nations,” says Abu Bakr.

Alongside innovation, execution is crucial for the sustainability of social enterprises. “You have to be able to provide a quality service on a large scale using a model proven over time to be sustainable,” says Runa Khan, founder and executive director of the NGO Friendship. A well-known social entrepreneur, she is adamant that the beneficiary is her top priority.

Friendship’s three hospital ships provide a three-tier healthcare system for people in remote char communities and riverbanks in the north and in the coastal belt in the south. Curative services including cleft lip and palate surgeries and cataract operations are performed for free.

“Friendship wants to be exemplary in making quality healthcare accessible to those in need,” says Khan. Since the ultra-poor cannot pay for these services, these programmes are entirely subsidised by donor funding. With a non-profit model, Friendship has sustained its programmes and crucially, managed to scale up operations over the past 15 years. Regardless, Friendship too is seeking to commercialize certain parts of its operations such as its weaving centres in order to diversify its funding model.

The future of social entrepreneurship in Bangladesh

Bangladesh is home to a vibrant social entrepreneurship scene. Social enterprises in Bangladesh are relatively young, with an average of six years in operation. A fifth of the social enterprises are run by women, compared to five percent in mainstream business. As many as 69 percent of their leaders are under 35 years of age.

“Young people in particular are eager to make a positive social and environmental impact with their ideas,” says Minhaz Anwar, founder of Better Stories, the first incubator in Bangladesh. “However, they are not completely aware of the financial health of their enterprises. We help them reconfigure their business models,” says Anwar.

“Due to less funding from bilateral and multilateral donors, non-profits are gearing towards profit-bearing organisations or more self-sustainable business models,” explains Anwar.

Social enterprises are increasingly turning to more businesslike models, for which Better Stories provides an incubation platform. Through ecosystem exercises, immersion journeys and financial modules, social entrepreneurs can learn how to operate businesses and pitch for funding to investors and banks.

Though several types of social enterprises exist, self-sustainable models are currently trending. Social entrepreneurs are creating jobs and solving urgent social and environmental problems, increasingly using ICT, in Bangladesh. Any great idea for a new product or service can, if nurtured and executed well, grow into a sustainable social enterprise that can significantly improve Bangladeshi people’s lives.