Amandla Kwinana explores social enterprises as a possible solution to the sustainability of NGOs in the ever-decreasing access to funding.
The long-term sustainability of any organisation is not child’s play, more so when it comes to non-profit organisations such as non-governmental organisations (NGOs). Most NGOs attribute their lack of sustainability to lack of funding. Where this challenge has been perceived as a hindrance to growth and longevity by some NGOs, social enterprises have turned it into an opportunity.
According to social entrepreneur Shrey Goyal, few non-profits such as Kagiso Trust have created robust earned income streams, though there is an increasing trend to do so. NGOs cannot continue to rely primarily on charitable contributions, public funding and foundation grants to support their programs and cover their administrative overhead. If, due to a bad economy, donations, grants, and public sector subsidies dried up, they may even have to shut down, says Goyal.
While NGOs and social enterprises both focus on building the social good, social enterprises differ in that they are first and foremost a business. Social enterprises run like any other company and the nature of their work allow for them to constitute the social sector.
NGOs however, despite their representation of 93% of the total number of organisations registered in terms of the Nonprofit Organisations Act (with trusts at 1% and social enterprises at 6%), often do not yield the expected returns. This could be attributed to the mismanagement of funds, inadequate or lack of governance, irregular reporting and accountability structures, and other factors which are mandatory for businesses. After all, the main goal of an NGO is to create social value, without much regard for the business bottom-line, while the social enterprise aims for sustainability in the financial, social and environmental sense. While there are numerous NGOs who prescribe to sound business practices, there are just as many who simply seek to carry out their social prerogative and strictly focus their resources on executing their projects and fundraising.
Fundraising is crucial for NGOs and social enterprises alike. However, whereas funds given to NGOs carry little or no consequential clauses, funds directed to social enterprises are in the form of loans and contractual obligations. Furthermore, social enterprises create self-sustaining social programmes. For example, a social enterprise can use funds to build a market place to address the unemployment of youth in a disadvantaged community and charge a minimal fee of R10 a day for the vendors. The market would provide vendors with access to a larger market such as tourists and surrounding businesses while making the facilities affordable enough for the vendors. The minimal fee would, in turn, cover the costs of maintaining the market. In the long-term, more youth would be employed, addressing the community’s unemployment challenges.
Self-sustainability is therefore at the heart of social enterprises. Without a solid sustainability strategy and revenue generation projects, the social enterprise will not embark on its social endeavours.
This emergent ‘social innovation’ is perhaps what is needed to ensure the sustainability of NGOs. The sector has seen increased allocation of capital due to the rise of impact investing, among other factors (refer to table below).
Some concerns have emerged based on the propriety and feasibility of the possibility of an organisation to serve two bottom lines simultaneously, reaping both financial and societal rewards. Unless the organisation’s social objectives and impact are compromised to some degree in pursuit of profit maximization, such debates hold no water. Nevertheless, there is a need to scrutinise organisations which could possibly be masquerading as social enterprises in hopes of greater financial gain.
As stated by Yoyo Sibisi, Kagiso Trust’s Head of Institutional Capacity Building, the environment in which NGOs find themselves today is not as it used to be in the past decade or two, so naturally there would be a need for innovation in the sector.
Sibisi highlights two important factors for NGOs to continue servicing their purpose. “NGOs should remain as independent as they possibly can otherwise they run the risk of being pulled in all directions by funders who may have a different agenda. Secondly, it is critical to remain relevant to the needs of the communities they serve in order to reclaim their space and make an impact” he says.
“Kagiso Trust views social enterprises as one of the avenues of self-sustainability for non-governmental organisations” Sibisi adds. “But it is important to note that this route is effective when the services provided by such entities are in line with their key mission; projects are self-sustainable, and the organisation retains what they purport to stand for.
As citizens and business look to more long-term solutions to the country’s social challenges, social enterprises may just be the kind of innovation NGOs should pursue.
Factors driving growth in the number of social enterprises and capital allocated to the sector