Patricia Buensuceso
Word Count: 1830 / PIN:10518
Patricia Buensuceso
Providing an EAR to the Problems of Social Enterprises Introduction It has been a trend for companies at present to practice corporate social responsibility (CSR). Seldom are there companies - especially the multinationals- that do not engage in CSR in one way or another. Most companies even partner with some charitable institutions or non government organizations to be able to do their CSR activities well as it is, after all, a company’s way of giving back to society at large. People, however, do not see CSR all in the same way. The perception of people about CSR has evolved and changed through the years. While many see it as something good and beneficial to society, others still question the motives of companies engaging in CSR. These companies are, after all, run by business men and not by philanthropists. To address the issue, a new breed of businessmen emerged – those who are called social entrepreneurs. They build social enterprises to better impact the society, prioritizing the social benefits over profits. Though these new breed serve for a cause, still a lot of people doubt the existence of social entrepreneurs and social enterprises. How social enterprises are able to create considerable impact to society is one of the issues social enterprises are faced with. As such, social entrepreneurs face a lot of challenges at present; the most testing perhaps is the conflict of doing business to exist and existing not for business at the same time. Corporate Social Responsibility Milton Friedman was among the firsts who gave meaning to corporate social responsibility back in the 1970s. Friedman (1970) argued that businesses ought “to conduct the business in accord with shareholders’ desires, which generally will be to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom.” Friedman, in this exposition, posits that the money made out of businesses will be put to use for good causes to help society. Through the years, CSR has been defined in many different ways by scholars and business people alike. Others define it as a form of self regulation; some as a business model. Dissecting the words, it would also be perhaps easy to grasp what the term means. In a simple sense, CSR is “a voluntary approach that a business enterprise takes to meet or exceed stakeholder expectations by integrating social, ethical, and environmental concerns together with the usual measures of revenue, profit, and legal obligation (BNET Business Dictionary).” Companies conduct CSR in various ways. While some have charities to help, others choose to focus on the environment, support an advocacy or spread awareness about a social issue. Companies employ CSR for different reasons too. While some do it to increase profits, others do it out of plain willingness to give back. The motive behind CSR, however, is unquantifiable and perhaps quite impossible to judge. Only the company knows of its real intentions in engaging in such activity and the people will only have to take its word for it. There are still some, however, who chose to take things with a grain of salt. From Corporate Social Responsibility to Social Entrepreneurship Both disbelief and strong belief in CSR paved the way for the birth of a new group of entrepreneurs – the social entrepreneurs. With a stronger drive to address the issues society is
Patricia Buensuceso
faced with, these social entrepreneurs are focused in solving the problems of society through building social enterprises. With social development among communities as its main objective, social enterprises serve communities more for the improvement of social conditions rather than for economic purposes. A social enterprise is “a business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximize profit for shareholders and owners (Social Enterprise London).” The social objectives these pursue include job creation, education and provision of local services. Social entrepreneurship, like corporate social responsibility, can take on many forms. It may be in the form of non government organizations, credit cooperatives and microfinance, among others. Despite this clear distinction, however, confusion on the part of the entrepreneur may still arise. Baron (2005) argues that social entrepreneurs are those willing to operate at a financial loss; those who sacrifice financial gains for satisfaction. Though this may be the case, to work for profit may always be a temptation, especially when the profit is necessary to keep the business running. When social enterprises should have a society-over-profit point of view, a major conflict seems to present itself because these social enterprises would not be able to sustain themselves if they do not also push for profit. In other words, social entrepreneurs should drive their enterprises to earn profit to sustain itself and consequently be able to do what they actually exist for in the first place. In this, the essence of social entrepreneurship may also be lost and the values these social enterprises hold be sacrificed. To be able to understand better this particular problem that may arise out of unregulated social enterprises, it would be better to consider one particular form of social enterprise – microfinance. Microfinance as a Social Enterprise One form of social enterprise gaining much attention in recent times is microfinance. Microfinance, commonly known as the lending of small amounts to small people, has found much acceptance and recognition not only in developing countries but in other developed parts of the world as well. Though successful, microfinance still faces a lot of considerable issues. Among the most discussed and studied issues on microfinance is its ability to meet its objectives. As a social enterprise, the main objectives of microfinance are sustainability and outreach. Oftentimes, people question the goal of microfinance. When people do such, people question its effectiveness as a social enterprise translating to its real ability to alleviate poverty and address the concerns of society. Microfinance institutions (MFIs) are designed to help the poor and low income households. It does so through provision of credit in form of small loans. It also provides other financial services to these households, which commercial and formal financial institutions usually neglect. As such microfinance as a social enterprise enables these households to incorporate themselves in the financial system. This aspect of microfinance is what makes it a social enterprise. It helps the poorer households – who form majority of the society in most developing countries – be financially included, which consequently enables them to smoothen consumption and improve their living conditions through time.
Global Initiatives Symposium in Taiwan 2009
Though microfinance seems to have a noble end, a conflict may still arise with the way the business is structured. With no collateral requirement and high possibility of loan default, microfinance is a high risk venture. As such, there is a need to actually generate profits to be able to sustain the enterprise. Surprisingly though, microfinance has also been proven to be one of the most profitable ventures at present. With no regulation in the industry, a conflict presents itself as some MFI operators may not be able to strike a balance between the need to realize profits for the sustainability of the business but at the same time prioritize its social ends. A threat also poses itself as some may venture into microfinance only for the profits and use the social objective part as a cover. In this, the essence of microfinance as a social enterprise may be lost. Providing an EAR to Microfinance Problems The problems microfinance is faced with may be brought about by two things – the absence of regulation and commercialization. The lack of a regulatory body overseeing microfinance activities poses a threat to the essence of microfinance. Due to lack of regulation, people tend to take advantage of the benefits that they get out of microfinance. The financial gains of microfinance are prioritized over the social gains, leading to another problem – commercialization. While commercializing microfinance may, in some way, be beneficial to financial development and growth, it may also destroy microfinance as a social enterprise. Being commercialized, it may deviate from what it was instituted for, which is really to serve the underprivileged by providing them access to financial services formal financial institutions deprive them of. Commercialized microfinance can also be monopolistic in a sense that these are the only institutions available to provide financial services low income households need. Since too many poor people depend on microfinance, the institutions take advantage of the need and destroy the essence of microfinance as a social enterprise. The threats posed on microfinance may still be prevented if proper action is taken. Provision of an EAR – education, advocacy for awareness, regulation – could perhaps address these issues. These measures can possibly counter the threats microfinance as a social enterprise is faced with. Education may work for the threats faced by MFIs as lack thereof may actually be a cause of the problem. People might not have the right understanding of microfinance, causing deviations from how and why microfinance is practiced. By educating people on the real deal of microfinance, more will be aware of what MFIs exist for. To complement efforts to increase understanding through education and awareness programs, a regulatory body may likewise be formed. This regulatory body should ensure that practices of MFIs are in congruence with its being a social enterprise. It will guide MFIs in working towards their goal as well as in striking the balance between working for profit to sustain its cause and commercialization. There may be other efforts by which these threats faced by social enterprises may be inhibited. Providing an EAR is only one of them. What is important, however, is that immediate action must be made to obliterate disillusion among people involved. Conclusion Microfinance institutions, just like other forms of social enterprises, are established for a purpose- to promote the development of society. With the success of microfinance at present,
Rethinking of Corporate Social Responsibility (CSR) and Social Entrepreneurship
Patricia Buensuceso
people are encouraged to venture into it. The profits realized out of microfinance, however, sometimes cause disillusion and make people venture into microfinance for the business end rather than the social ends. With this, problems of lack of regulation and commercialization of microfinance may ensue. These problems may destroy the essence of microfinance as a social enterprise. These threats posed on microfinance, however, may still be prevented if proper action is made. Proposed solutions to these threats include education, awareness and regulation (EAR). Education to spread awareness as to the true objectives of microfinance will help people realize the importance of microfinance as a social venture. Regulation will provide checks on MFI operations and ensure honest operations. It may likewise help in the prevention of microfinance commercialization. As how microfinance – as well as other social enterprises and CSR activities - is able to bring about change in society, it is something that should be promoted and uncompromised. Proper practice of such activities, with regulation to ensure its social objectives, will develop social enterprises and enable them to effect change in the lives of more people.
REFERENCES Aghion, Beatriz and Murdoch, Jonathan. (2005). The Economics of Microfinance.Cambridge: Massachusetts Institute of Technology. Baron, David. (2005). Corporate Social Responsibility and Social Entrepreneurship. Stanford Graduate School of Business Research Paper Series No. 1916, October 2005. BNET Business Dictionary. (Date Accessed: 15 March 2009). URL Available: http://dictionary.bnet.com/ Friedman, Milton. (1970). The Social Responsibility of Business Is to Increase Its Profits. The New York Times Magazine. September 13, 1970: pp. 32-33, 122, 126. Social Enterprise London. (Date Accessed: 15 March 2009). URL Available: http://www.sel.org.uk/
Global Initiatives Symposium in Taiwan 2009