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news | December 28, 2016 | Uganda | Development

Sustainable Social Impact: The Social Business Approach

Pioneered by Professor Mohammed Yunus amongst others, the social business approach to achieving sustainable poverty reduction is gaining increasing recognition as a vital driver to poverty alleviation worldwide.

“A social business is a company with a social mission at its core.“

Set up to solve a specific problem affecting poor or disadvantaged members of society, social businesses operate exactly like normal companies, except that their primary focus is on achieving positive social impact. Unlike an NGO, a social business promotes sustainability through profit. Removing the need for fundraising allows social businesses to re-invest profits back into supporting sustainable social impact. The social business model asks how activities central to an organisation’s mission of supporting vulnerable populations, can generate income. This approach ensures sustainability, but also scalability, allowing projects to expand based on increased profit generation, rather than ever-increasing grant funding. Moreover, as a social business operates and expands based on profitability, the imperative to ensure efficiency, quality, and affordability to the customer base is vital. Success is decided by the quality, importance, and therefore uptake of the product or services they offer.

The social business approach is viewed as a key alternative to traditional grant-based programming, particularly in development contexts, as it can deliver long-term poverty reduction and development results, without the need for sustained donor funding. NGOs are increasingly looking toward this approach as an alternative to their current programming. This is vital for the following two reasons:

1. The traditional NGO approach to supporting vulnerable populations is fundamentally linked to finite project time-lines, and constrained by limited funding amounts and pre-defined activities. By developing a way of programming which is adaptable to the changing needs of the community in which NGO work, social business models represent a chance to achieve long term results, in a financially sustainable manner.

2. The overall reduction in foreign aid and development funds drives a need for diversity and additions to the existing funding base, to ensure that NGOs can continue to provide the humanitarian and development assistance that is so desperately needed, and support donor resources.

The Importance of the Private Sector

The role of the private sector as an increasingly important source of financing for development was recently recognised at the UN’s Financing for Development Conference held in Addis Ababa in July 2015. The key contribution of the private sector to the implementation of Sustainable Development Goals (SDGs) has also been formally acknowledged by numerous UN bodies. Most notably, Goal 17, seeks, among other things, to “encourage and promote effective public, public–private and civil society partnerships, building on the experience and resourcing strategies of partnerships.”

Foreign Direct Investment (FDI) - FDI is defined as cross-border investment by a resident entity in one economy with the objective of obtaining a lasting interest in an enterprise resident in another economy. (OECD)

Official Development Assistance (ODA) – ODA is defined as government aid designed to promote the economic development and welfare of developing countries. (OECD)

Foreign direct investment and other private financial flows from developed to developing countries dwarfs official development assistance. In 2014 ODA inflow to Africa was $28 billion. In the same year, FDI inflow was $54 billion, nearly twice ODA. However, the notion of how foreign and domestic companies can be development actors is not advanced enough for developing countries to capitalise on this resource. Using a proportion of ODA to leverage additional private and public financing for development-related projects and investments, and to capitalise on FDI as a driver for development, would help foreign aid to go further. NGOs can add value in this equation, by supporting social businesses to grow and prosper which, in turn, expands the long-term assistance offered to vulnerable members of society.

How can an NGO move away from donor funding, while continuing its core mandate of supporting vulnerable households?

ACTED is partnering with DreamShuttle, a Ugandan registered social business, to implement the REPARLE project – Renewable Energy Powering Agricultural and Rural Livelihood Enhancement.

The project aims to provide farmers with affordable agro-processing services, powered by renewable energy. The renewable energy, generated through a process called Biomass gasification, is dependent on a steady supply of sufficient biomass.

The term "biomass" refers to organic matter that has stored energy through the process of photosynthesis.

In this case, the biomass is supplied through the processing of key crops (such as maize, rice or groundnuts), which produces waste, known as feedstock, to power the gasifier. Heated in a low oxygen environment, biomass produces gasses which can be used to power an engine, thereby producing electricity. Once this waste has been utilised to produce electricity, it can also be sold as a charcoal replacement product, known as biochar.

The social impact of the project comes from supporting farmers to access affordable, high quality value addition services for their products such as biomass-powered milling. This ensures sustainable incomes and supports a move away from subsistence farming towards small-scale, commercial production. Moreover, profits can be reinvested into project activities, to scale up the model throughout Uganda, and eventually overseas.

Where does ACTED come in?

The project rests on ACTED’s ability to mobilise, support and develop the capacity of a large number of farmers, to increase their yields and improve the quality of their produce. In return for low cost value addition services, the farmers provide the feedstock necessary for Dreamshuttle to effectively produce electricity and supply biochar. In short, ACTED’s ability to bring farmers on-board guarantees sufficient business and feedstock supply for Dreamshuttle.

The Private Sector can benefit from NGOs’ knowledge and local networks

Choosing to partner with an NGO saves the private sector both time and money. NGOs in development contexts spend a significant amount of time identifying, developing and supporting networks of individuals, as a result of their programming in country. This represents an opportunity for the private sector to access these large networks, without facing the expensive and time-consuming investment required in building the relationships themselves. For business models that aim to provide social impact to “bottom of the pyramid” communities, either as suppliers or customer bases, this can be a vital aspect of business planning. The approach sees NGOs, working alongside the private sector, as catalysts of social change, introducing relevant knowledge and networks at points where they can leverage opportunities for sustainable social benefit. Markets can support positive social outcomes in a way that grant-funding cannot, by stimulating the private sector to act for the benefit of poorest within society.

The key to harnessing private sector investment, for the benefit of the poorest members of society, lies in finding synergies between business aims, and development needs. Social businesses walk the line between pure profitability and providing vulnerable populations with access to vital goods and services. In this context, NGOs have a role to play as watch-dogs for the vulnerable populations, but also as facilitators for the development and success of social business initiatives.

By further developing private sector/NGO partnerships, ACTED aims to ensure a sustainable means of supporting vulnerable households, while also empowering them to choose their own path to prosperity.