'Social enterprises', 'community enterprises' and 'enterprises'

Research for this paper interviewed Rice mills / storage, Agricultural input retailers, Pharmacies, Microfinance organizations, Community water supply organizations, Telecommunications centres and general retailers (it was not possible to evaluate any schools as research was done during holidays).

The research showed SMSEs want to work for the community. Most entrepreneurs said that although they wanted to break even or make money, they also wanted their enterprise to help their community.

One third of enterprises surveyed said that they only had social goals - profit was not a motivation for them. In these enterprises, typically rural community enterprises, the leaders of the enterprises did not see themselves as 'entrepreneurs', but as community workers. Their objective was cost recovery, not profit, and the whole community jointly owned the enterprise. Community organizations are most effective when they provide a service that many in a community need, such as primary education, microfinance and water supply. They may be the most efficient form of enterprise in these sectors since they benefit from increased loyalty, reduced labour costs (since members provide time for free), better local knowledge and simplified sales (since everyone in the community will know of and trust the enterprise). For example community owned microfinance organizations have low labour costs and use community pressure to ensure repayment.

One third of enterprises interviewed had a mix of social and commercial goals; the entrepreneur wanted to make a profit but also wanted to serve the community. Enterprises in developing countries more often have a strong community focus. There may be two explanations for this. Many entrepreneurs have a genuine concern for the social needs of their community. People with social conviction are less likely to join public sector institutions in developing countries, since the public sector is less efficient and jobs in the public sector are more often obtained as a result of contacts than conviction. This desire to help the community may be enhanced as few people move from their 'home' area. Also, serving the community can be a wise risk mitigation strategy. Few people have access to 'institutional' risk protection (such as insurance) but most face high levels of insecurity, so it is wise to build networks of 'mutual responsibility' for protection against unexpected events. The survey was in a Tsunami impacted area - many said that people started working together more following the Tsunami.

Finally, one third of enterprises said their motive was purely profit. However, even in these businesses entrepreneurs understood that it can be 'good business' to be seen to be doing good.  Many of the traders we talked to stated that they were successful because of their 'position in the community' and told us that they offered better pricing to poorer customers. Stories of community service travel fast, and can create differentiation in markets with undifferentiated products and pricing. Good 'public relations' can lead to better sales.

Enterprises said they offer cost recovery prices for poor customers when they have excess capacity - for example milling poor farmers' rice when there are no other demands on the machines. Also, some enterprises are happy to bundle advice with product sales - spending more time with a poor customer. For example pharmacies give the poor basic medical advice, microfinance managers give business development advice.

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Box: SANASA Development Bank's Sector Prioritization Approach

The SANASA Development Bank is a specialist 'Development Bank', owned by the SANASA cooperative movement of Sri Lanka. It focuses on supporting Social Enterprises, both providing traditional lending (at times using preferential loan schemes) and giving training and advice to entrepreneurs.

In order to determine which social sectors are priority, each branch of the bank has reviewed its local market. The branch starts with a long-list of priority sectors, defined by the National Development Plan. A structured set of metrics then determines which sectors already have many entrepreneurs and which sectors are most likely to grow in future.

Sectors where the private sector is already active and where there are good growth opportunities are targets for lending. Sectors where there are opportunities but no entrepreneurs yet active are priorities for training and mobilization.