Reversing the Pyramid through Social Enterprise 1/2

Edgard Barki, Head of the Entrepreneurship Research Center at FGV Brazil, base of the pyramid researcher and expert on social enterprise, shares his experience gained on the Brazilian testing ground.  

More than one model of social enterprise

As the idea of business with a wider purpose slowly but surely gains ground around the world, social enterprise is increasingly being seen as an effective way to hit several birds with one stone – create jobs, empower civil society, foster community bonds and innovatively lift people left on the sidelines off the poverty line. But whereas the social entrepreneur largely seeks to develop an initiative that has a social or environmental impact, social entrepreneurship is not a one-model affair, states Prof. Edgard Barki of FGV-EAESP.

There are several options open to the aspiring social (ad)venturer. One possibility is to create an NGO-type structure that has as its main objective social impact though which is not financially sustainable due to its operations being funded by donations. On the other hand, some entrepreneurs may choose to create social enterprises adopting business models that diminish social vulnerability or negative environmental impact but avoid dependency on donations through their sales of products or services. Broadly speaking, these types of social enterprises have two operating models. In the first, as defined by Muhammed Yunus, Nobel Peace Laureate and the founder of the Grameen Bank, the organisation’s profits are reinvested in the company with no distribution of dividends, the purpose being to avoid dilemma between fostering social impact and maximizing shareholder benefits. The mantra here is “no loss, no dividends”. On the other spectrum, other types of social enterprises accept distribution of dividends in order to attract more investment. In Brazil, one of the most active countries in the world in terms of social entrepreneurship, most social enterprises do accept dividend distribution.

Brazil, a testing ground        

Why is Brazil so active in responsible enterprise? Paradoxically, Prof. Barki states that it may have to do with the fact that Brazil is one of the most unequal countries of the world, where services such as education, health and housing are inadequately offered in quantity and/or quality by the Government. True, the state offers universal health and education for the population, but the best schools in Brazil are private and it is not too uncommon to find people having to wait for months or even years for surgery. As such, many basic needs are not fulfilled – something that enables social enterprises to fill the gap. And demand is high.

Under such a context, social enterprises seek innovation in order to offer these services with high quality and low cost. But besides the difficulty of offering these types of services, social enterprises also suffer from a high degree of bureaucracy in the country, struggling to both attract and retain talent as well as raise capital. Moreover, although they offer products and services that should be provided by the Government, social enterprises pay the same high taxes as other, traditional for-profit companies.

A cornerstone in the pyramid

The main beneficiaries of social enterprises in Brazil are those at the base of the pyramid – people earning less than US$ 8 per day. Typically, social enterprises flourish mainly in the education, health, housing and financial services sectors, though there is currently increased interest in social enterprises in the fields of recycling and clean energy.

Brazil is noted for its success stories in terms of social innovation and entrepreneurship, those such as Banco Palmas, the developer of a social local currency, serving as a model for many others around the globe. A more recent, and successful, initiative – Terra Nova – focuses on the housing sector.

Many cities throughout Brazil are marked by the absence of proper shelter for the poorest – something that gives rise to families illegally occupying private property and the appearance of shanty housing with no access to light, water and proper sanitation. Brazilian society tends to view the occupants as unwelcome invaders and the families run the daily risk of being evicted. Terra Nova, one of the organisations dealing with the issue, takes on negotiations between the people that illegally occupy a private property and the landowner in such a way as to ensure that families pay monthly instalments for their presence. This payment eventually leads to the opportunity to gain the property rights to the land.

The initiative is beneficial on several levels: the original owner receives money for land, and the families become owners – a turning point in their lives that leads to a feeling of belonging to society since they also gain access to basic services such as water and energy. Moreover, they also gain something that most of us in developed countries take for granted – a zip code. Not only does having one increase self-esteem, families also feel that much safer as it dispels the fear of eviction and opens the way for improving the quality of their housing without the risk of losing everything overnight. The government also wins: the initiative solves a social and relevant problem, not to mention sparing it the nasty legal and ethical issues such situations can generate. Terra Nova is financially sustainable too, having also received financing from the impact investor MOV Investimentos.

Another example is the social enterprise 4you2 which operates in the education sector. With a large majority of modestly-off Brazilians unable to speak English, this can be an important differential in getting a job and gaining self-esteem. 4you2 tackles this problem by offering good quality, low cost English classes for the base of the pyramid populations. The difference lies in the fact that 4you2’s teachers are not volunteers but paid professionals, English-speakers living in Brazil for 6 months to a year and seeking a different kind of teaching experience. This has an advantage, since the students don’t just take English lessons but also earn a cultural experience, discussing Brazilian culture with their teachers and themselves reaching out to other ways of living beyond the limits of the poor districts.

As such, both Terra Nova and 4you2 indeed fulfil, through their different initiatives, the art of hitting several birds with one stone.

Read Part 2 of the article, with a focus on the innovative social incubator, NIP. 

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