Part of the fall-out of the recession is the rise of entrepreneurial innovations that use mainstream financial instruments to facilitate social development.
Corporate social investment (CSI) experts predict that a growing merger between social entrepreneurship and CSI will be one of the world's top trends in the future.
"Social entrepreneurship will become increasingly dominant and relevant in South Africa and globally, due to the globalisation of business as a tool for overcoming poverty and meeting the aspirations of many people," says Iqbal Survé, the executive chairperson of the Sekunjalo Group and a judge of the Mail & Guardian Investing in the Future Awards.
The concept of social entrepreneurship, which applies business principles to social ventures, emerged in literature on social change in the 1960s and 1970s. Where business entrepreneurs measure performance in profit and return, social entrepreneurs focus on creating social capital.
Survé says the global fi nancial meltdown in recent years has resulted in a decrease in social investment from corporates, but an increase from government- related entities wishing to further small, medium and microenterprises globally. "There is now a greater trend towards social entrepreneurship or investing to overcome poverty, as opposed to aid programmes," he says.
The success of asset management companies that focus on socially responsible investment products, such as Cadiz and Futuregrowth, has shown that "you can do good and make a return," says Glenda White, the director of Verge Management Services and chairperson of the Investing in the Future panel. "Socially responsible investment, and using mainstream financial instruments to facilitate social change, is growing in acceptance and strength," she says.
Modern-day social entrepreneurship is moving away from charitable donations to funds that invest in JSE-listed businesses with social responsibility initiatives. Innovative thinking is emerging among social entrepreneurs working in the financial sector about ways to raise equity to ensure the sustainability of funded organisations.
Former FirstRand chief executive Paul Harris was instrumental in setting up an investment fund with a transaction value of close to R400-million to finance Penreach, a schools development programme based in Mpumalanga. Called the Shalamuka Foundation, its aim is to reduce Penreach's reliance on grants and it provides a model that can be replicated by other social investors.
"The needs were growing and I was worried about the sustainability of donations. They make long-term planning difficult and limit growth opportunities," Harris says. At Heart Social Investment in Cape Town former stockbroker Peter Shrimpton has set up a R30-million brokerage, with backing from a Swiss bank, to raise equity for social enterprises that are sustainable and replicable.
The new financial models raise equity through black economic empowerment (BEE) ownership deals and other innovative investment options. Broad-based BEE codes of good practice and scorecards introduced by the department of trade and industry in 2007 not only provided an imperative for companies to contribute to social upliftment, but also created an enabler for the financial sustainability of social ventures.
Shirley Moulder, a trustee of the Southern Africa Trust and an Investing in the Future panel member, says discussions have started in the microfinance sector with financial
institutions to buy equity, "a radical shift from previous positions". "What is needed is to make organisations financially sustainable and for corporates to provide seed funding to kick off a working relationship," Moulder says.
Although general CSI spending has either decreased or remained static during the recession, there has been an increase in the number of companies looking for opportunities to enter the arena, says Tracey Henry, the chief executive of Tshikululu Social Investments. "BEE scorecard imperatives and sector charters are driving business to invest in social initiatives," she says.
"There is a greater incentive for business to comply. "Also, the worldwide focus on doing good business is having a positive impact on business to 'do what is right' and plough back into communities." CSI experts say that at the same time there has been growth in the number of private foundations and individuals contributing to social investment.
Financial Mail reports that private donations to good causes topped R17-billion in South Africa last year. As with corporates, foundations are becoming more conscious of the need to measure their impact and ensure that their money is spent effectively.
"Private giving will increase in the future and become more 'strategic' and developmental, less 'charity' and more about real need and sustainability," says Colleen du Toit, the chief executive of Charities Aid Foundation (CAF) Southern Africa. She points out that several NGOs have been using BEE deals to raise social investment equity for a number of years, with varying levels of success.
This was why late last year CAF convened a seminar on sustainable social investment that was addressed by FirstRand corporate finance experts. "What better time than now for NGOs and the institutions that support their work to be thinking together about more sustainable financial models? The Shalamuka model is succeeding and is a good example. More corporates should be leveraging their efforts," she says.
About the Author
Fiona Macleod’s articles were made possible through funding from the Open Society Foundation for South Africa’s Media Fellowship Programme