How social enterprises are overcoming hurdles and redefining development

Low pay, long work hours and few or no profits are not exactly one’s typical idea of a successful business. Yet a new type of venture has been attracting foreigners and locals alike by the hundreds, all motivated by the idea of enabling social change in Kenya.

They’re called social enterprises, a broad term encompassing a vast range of non-profit and for-profit organisations all working towards boosting development in a brand new way.

These businesses are not in it for the money. “The best social entrepreneurs could be running Fortune 500 companies,” says Roshan Paul, President of Amani Institute, which prepares people for careers in social change. “Everyone else around them is saying: What’s wrong with you?”

Rather, they take the best of entrepreneurial skills, like problem-solving, risk-taking and innovation, and apply them to solving complex challenges in the health, education or agricultural sectors.

Success stories like Jacaranda Health, which provides maternity healthcare to low-income women, or Bridge International Academies, a network of low-cost nursery and primary schools, have proven that the most complex challenges can be tackled with a good dose of creativity, persistence and motivation.

These stories, however, should not hide the fact that social entrepreneurship remains an extremely tough field.

Running any kind of business is difficult enough (80 per cent of entrepreneurs, social or not, fail in the first year and less than one per cent make it to the fifth year,) but social enterprises have to face a whole other category of challenges, one of them being figuring out the right business model and appropriate funding.

“Currently the options are very black and white,” says Agostine Ndung’u, Venture Programme manager at Ashoka, an international organisation that provides resources for social entrepreneurs to bring their projects to fruition.

Organisations can either register as non-profit or for-profit, or create a hybrid model combining the two in order to secure different types of funding.

Financial sustainability

Often, ventures choose to start as a non-profit and switch to the for-profit model once financial sustainability has been achieved.

“(Donations are) the only option because we don’t yet have revenue coming in on a steady basis,” explains Patricia Griffin of Komaza, which helps farmers increase their income through microforestry projects and currently operates as a non-profit.

“We hope to prove investors that as we change over to be a for-profit, we’ll have revenue and we’ll be self-sustaining.”

Newer business types like the B corporation model in the US and businesses limited by guarantee in Uganda show that legal frameworks around the world are slowly evolving to accommodate the needs of social enterprises.

Finding sources of funding can equally be challenging, with aid agencies still channelling most grants through traditional non-profits, and few local investors willing to bet on high-risk, low-return ventures, especially at the startup stage.

For now, the best funding opportunities come from abroad, with more private foundations like Bill & Melinda Gates, Rockefeller or Ford trusting social enterprises for development projects.

Other opportunities include fellowship programmes such as Acumen and Mulago, crowdfunding such as Indiegogo and startup incubators in Nairobi such as GrowthHub or iHub for ventures in the technology area.

New funding avenues

It is likely that new funding avenues will appear as the field of social entrepreneurship grows. Komaza and Honey Care, for example, have engaged into non-traditional partnerships with micro-finance organisation Kiva.

And “impact investing” portfolios, which allow traditional investors to inject cash into social enterprises, are becoming highly sought-after investments.

With few local sources of funding available, many organisations have been launched, run and staffed partly by expatriates, who come with the right connections, fundraising know-how and solid technical skills. Lack of an adequately-trained local workforce has also led managers to hire foreigners.

“We struggle with recruiting high-calibre local staff,” says Patricia Griffin, who underlines that hiring Kenyans is crucial to operate in the country.

Roshan Paul, of Amani institute, agrees: “Lots of people looking for work are not fit to be hired. Universities are too slow to create new courses and curriculum.”

Relocating to rural areas also seems to deter many Kenyans from joining social enterprises. Also, operating as a highly innovative organisation means having to break many bureaucratic barriers and skilfully navigate government policy. Like in every aspect of running a social enterprise, creativity is key. “It takes innovation to make that bureaucracy work for you,” says Nassir Katuramu, formerly with Ashoka.

He cites the example of Iko Toilets, a highly successful project launched by Ashoka fellow David Kuria, who turned public toilets into money-making entities by adding commercial rental space outside each toilet and selling human waste as processed fertiliser.

Kuria offered to set up the toilets and hand them over to the city once they would reach financial sustainability, turning it into a win-win situation for both parties.

“If you work with the government the right way, it doesn’t have to be a barrier. In fact it can be an enabler,” concurs Nicholas Daniels of One Acre Fund.

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