Is Social Enterprise 'Social' Enough?

This post was first published on NextBillion.

This year’s Sankalp Forum, coyly named the “Unconvention Summit” after its link up with Villgro, had a heavy focus on impact investing. Sessions ranged from ways to encourage more angel investment in India, to innovations in financing social enterprises and approaches to align donors’ agendas in fostering the sector.

But an important undercurrent to the entire summit was a question that Vineet Rai, managing director of Aavishkaar, posed in one of the opening sessions: Is impact investing living up to the claim of impact?

This is an important consideration that extends to the social enterprise sector more broadly (and it’s something past Sankalp events have explored as well—I previously wrote about them here and here).

Without measurable and well-defined social impact, social enterprises differ little from regular businesses, which also achieve ancillary social benefits such as employment generation, and the delivery of quality goods and services. But should social enterprises measure their impact at the enterprise level? How much should that impact count -and to whom? And how often should the measurements take place?

These are hot topics of debate, but but it’s clear that for policymakers and mission-driven funders to find impacting investing and social enterprise valuable, positive social impact must be attained. And diverting significant amounts of donor or public funding into the social enterprise sector should also require that this impact be achieved more cost-effectively than their non-profit counterparts or the status quo.

What mechanisms are in place to ensure that impact investors and the enterprises using their capital work to maximize the social impact that distinguishes their name? While none of the summit’s sessions explicitly addressed this subject, various participants touched upon the issue.

One of the most common feelings expressed by social entrepreneurs was that a payment or user fee, no matter how small, held them accountable to their customer. During a series of pitches by entrepreneurs, Dr. Parveez Ubed of ERC Eyecare, noted that even charging a modest fee of 50 Indian rupees (about $1) emboldened his patients to ask questions about their care and get the most out of their health care transaction. In contrast, if the service was free, then patients may be wary to take up the practitioner’s time or to question his judgments.

Catering services to the client is also what allows businesses to adapt and refine their models until they have a product or service that a customer is willing to pay for. The caveat to this approach is the challenge of latent demand. Often in areas such as health, an individual may not realize that he or she would benefit from a particular service such as screening or preventative care in the long run, and may be unwilling to pay. In these cases the immediate willingness of a patient to pay does not determine the potential social value of the service.

Another point raised by a limited partner of impact investment funds suggested that prospectively assessing an enterprise’s targeting strategies is sufficient to ensure social value. In other words, if a health care enterprise chooses to venture into a difficult geography such as rural Jharkhand, then that intent alone is enough to justify the enterprise’s social impact as this state, which has large tribal and poor populations, has significant needs for better health care and job creation.

While this calculation might work for a private investor who may be interested in achieving some social value without spending too much time determining specific outcomes, it is likely insufficient for a funder who could also opt to support a non-profit service delivery organization that uses tested and proven approaches to reaching the poor.

Finally, an idea that emerged in informal exchanges is that self-regulation can make a social enterprise “social.” In a country like India, government regulation is weak - and indeed the government is testing approaches like community-based monitoring to check up on its own public service providers. With providers operating at different levels of quality and price, social enterprises in these contexts may offer unique value to the poor by self-regulating and providing high quality products and services at a low cost. But though this may be true for many social businesses, it leaves investors and customers responsible for identifying forthright enterprises.

As the Summit unfolded, it became clear that the issue of accountability for impact is murky and far from being solved. Some felt it was up to impact investment funds to ensure that their investments yielded social benefits; others felt the responsibility should lie with individual enterprises. Social entrepreneurs, who often come from traditional entrepreneurship backgrounds, are accustomed to tracking outputs like the number of products delivered or clients enrolled, rather than outcomes like improvements in health or education status.

Many are open to collecting this kind of information with support from their investors or third-party groups. But they are wary of tools from the development sector, which may be time-intensive or costly. Some health care organizations are now sharing their self-reported results with the Center for Health Market Innovations (CHMI), which has collected reported results in ten categories including changes in service affordability, operational efficiency and health outcomes since 2011. This is a promising start, but the quality and depth of reporting vary by organization.

Some entrepreneurs noted that existing tools like the Impact Reporting and Investing Standards (IRIS), which have been developed to benefit impact investors, are expensive to implement. Finding practical ways to incorporate impact data collection into enterprises’ existing systems to track information on outputs seems to be the most practical way forward. CHMI is now working with IRIS and others in the field to develop heath-specific metrics that, once uniform across the sector, can reduce the reporting burden for many organizations. If approaches that minimize the time and resourced needed to capture impact data emerge in the social enterprise sector, they could help these enterprises build credibility and be valuable tools for the broader development field.