Half the world lives on less than $2.50 a day. That’s over three billion people. Over a billion have inadequate access to water, and some 2.6 billion lack basic sanitation. Every third child in the developing world does not have adequate shelter. The sheer scale of the problems of global poverty are overwhelming.
In the fight against poverty, one of the most exciting developments in recent years has come in the form of a new kind of business. It goes by many names: social enterprises, inclusive businesses, market-based solutions to poverty, among others. These enterprises create sustainable social impact by providing the poor with beneficial products and services, while creating improved livelihood opportunities. These innovative models can be found today in a wide range of areas, from healthcare to education, sanitation to housing. The excitement around them is heightened by the belief that they will achieve scale by tapping investment capital—including from impact investors, which intentionally deploy capital to achieve social impact as well as financial return—just as mainstream, commercial businesses have done.
But while the proliferation of new market-based solutions is encouraging, not many have made a significant dent on the problems they are trying to address. When our colleagues studied 439 market-based solutions in Africa, they found that a mere 13% of them had achieved significant scale.
The problem is that these social enterprises are usually operating in an environment that doesn’t support them, and sometimes is outright hostile. Take, for example, the value chain barriers facing organizations trying to deliver innovative, life-saving drugs to the rural poor in developing countries. While people in rural areas might desire and be able to afford these medications, logistics providers might not exist to get these products to their villages. And even if logistical hurdles were overcome, how would villagers get their hands on these drugs when they have no doctors to write prescriptions or pharmacists to fill them?
Or consider the public goods barriers facing an organization offering clean-burning cookstoves to poor customers. This firm is faced with not only the challenge of designing, developing and delivering a quality product at an affordable price, but also with convincing customers of the benefits of its innovation. The problem is that many of its target customers have low awareness of the health hazards of smoky cookstoves, and therefore little appreciation of the benefits of a clean-burning stove. On top of all of this, there may also be government barriers that potentially inhibit the growth of these new industries, such as where governments make solar lighting products bear a significant tax burden while heavily subsidizing the use of kerosene.
For the entrepreneur who is striving to make these models work, this is a steep, uphill struggle. Some choose to try to solve these problems themselves; for instance, they might extend their business models into gaps in the value chain, but at significant cost to the business in terms of complexity and risk. Others try to influence change in the environment. For example, an entrepreneur might try to make the case to government policymakers for more conducive regulation, but lacks the relationship access and clout needed to be effective.
The landscape of social enterprise is strewn with these tales of struggle and frustration. And yet, only a few solutions have achieved impressive scale and by doing so have been able to improve the lives of millions of people.
What’s different about the solutions that scaled is that they resulted from the powerful interplay of social enterprises and industry facilitators. From smallholder tea in Kenya, to microfinance in India, to solar energy in Bangladesh, we have seen that while innovative enterprises are clearly the engine of change, external facilitators can help them succeed and scale by working alongside them to tackle the tough barriers that stand in the way. We have seen a range of different actors—foundations, aid donors, nonprofits, multilateral development agencies, impact investors, government agencies—step into industry facilitation roles, but the common theme is that they worked to resolve scaling barriers to the benefit of all social enterprises in an industry, not just one.
Can social enterprises really solve poverty? Our considered view is that they can indeed make a tremendous contribution, but only if those of us who support these enterprises widen our lens and change our approach. We need to start seeing the systemic nature of the challenges that they face and play a stronger role to helping them overcome those challenges. If we do not, we run a very real risk that social enterprises will continue to inspire and excite, but not change the world in any significant way, and will always be the idea whose time never came.