Investing in the Emerging Social Enterprise Landscape

Abstract

This paper analyzes underlying sustainability issues in the emerging social investment landscape. Deploying social enterprise as an umbrella term, it argues that when asking how to best finance a social venture, one first needs to gain clarity about the inherent sustainability of the underlying model. The paper discusses four sub-categories of potential social investment targets. First, it looks at small and medium enterprises with a demonstrated social impact. These are typically real-sector for-profit companies that create both social and economic benefits - e.g. by offering jobs in particularly depressed areas, or producing goods and services that carry positive externalities so that they need not be imported in sectors such as healthcare. Second, it examines social entrepreneurs who provide private goods. These are typically mission-driven real-sector for-profit or not-for-profit organizations that create both social and economic benefits. Subsequently, it discusses social entrepreneurs who provide public goods. These are typically mission-driven real-sector not-for-profit organizations that mainly create social benefits. Finally, it distinguishes the other categories from microfinance institutions. Microfinance institutions work in the financial sector and create both economic and social benefits. Ranging from very small non profit associations to large commercial banks, they share a mission to serve the poor by extending very small loans and other products to either the unemployed, poor entrepreneurs or to others living in poverty that are not bankable. Such organizations can be incorporated under a variety of different legal statuses, including as foundations, cooperatives, credit unions, non-bank financial institutions or fully-fledged banks, but their business is distinctive from the real sector activities captured in the other categories.

Keywords: Social entrepreneurship, philanthropy

JEL Classification: L31