On Social Entrepreneurship in Kampala

An anecdote that explores lessons in social entrepreneurship, based on an immersive cultural experience in the outskirts of Kampala. It includes a collection of photographs and primary knowledge, but is indeed liable to what some social scientists would call the ‘observer bias’. So if you have this bias, do hold it but brush it aside for a short while, for the sake of an anecdote.

March 2017

I could begin this essay by delving into the philosophy underlying social entrepreneurship and the motivations that drive such initiatives but I already attempted that here. Oftentimes, motivations, such as altruism or a willingness to do social good, are cited as the forces that differentiate social entrepreneurship from non-profit initiatives. Had I followed this line of thought, I would begin with the deconstruction of social purposes and move onto their role in driving entrepreneurial activity. The essay would probably become a monologue on whether there is such a thing as ‘social purpose’, what its underlying motivations are, and eventually we would have run circles around the idea of social entrepreneurship without so much as a brush over the subject itself. I’m not saying this did that.

To save time, let us side-step the profoundness of such questions and treat social entrepreneurship as the pragmatic and value-creating one that it is. Social entrepreneurship attempts to heal the wounds that capitalism creates (through targeting social concerns such as poverty and environment), without ignoring its realities (such as the need for revenue generation to operate with self-sufficiency). The underlying assumption here is that capitalism is an imperfect system because it neglects anything that does not maximise profits, as shown by examples of market failures and global disparity. This is also my personal opinion. So, I would like to tell an anecdote of my own (a primary and possibly biased account).

It begins with my decision to major in undergraduate Philosophy. The decision was a result of the need to pre-decide my major before enrolling in university, as per norms in the British educational system. I thought Philosophy was a good exercise in understanding why’s, and I had some nagging why’s to address at the time. To begin with, why did the world’s richest 1% own more than all the rest? Ironically, I left university with far more why’s than when I had entered.

Nevertheless, there are no wrong decisions if viewed right. A philosophy major drove me to take a more thorough approach to questions and existing problems. Complemented with a bi-partite Economics major and news headlines, I grew aware of the fault lines in our existing economic structures. Why? Well, for me the answer lay in current uses (or misuses) of capital tools. I understood that a complex interplay of social, environmental and financial factors existed and they did not always work well together. There was no reliable “normative distribution” to box these factors into empirical graphs or to predict their effect on behaviours. What was evident was that these factors must meet. This led to more questions, a pressing one being: when these forces do meet, how do they create such economic complexities?

It seemed to me that these factors met in a place that the market ignored and where government policies had failed to correct unmet needs. Michael Porter and Mark Kramer address this space in their theory of shared value, in which:

“societal needs, not just conventional economic needs, define markets and social harms can create internal costs for the firm.”

In this respect, conventional economic theories that argue for profit maximisation ignore the fact that reducing externalities or social harms can increase society’s overall welfare. In the example of fair trade coffee farming in Cote d’Ivoire, investing in consortiums for small farmers’ may be costly initially, but increased efficiency can lead to greater strategic benefits for both farmers and corporations who purchase the produce in the medium run. On reading such examples, I started understanding the value of social entrepreneurship. Another question was:

How effective are organisations that have taken an existential position against market-based profit (non-profits) in their absolute dedication to upholding social values?

I would argue that without external financing, the first type of organisation finds it difficult to achieve self-sustainability and thus value creation depends on this additional financing. Their dedication to value creation is admirable in most situations but it often falls apart as soon as their lifelines falter. Oftentimes, external financing means non-profits must cater to external interests that may not be entirely dedicated to social causes. Or then:

If non profits are not social enterprises, what is the difference between a social enterprise and an organisation whose internal structure is incentivised by conventional economic interests?

Here, is where social enterprises may not be so different from organisations that prioritise profit generation. In my anecdote, it seemed that that there was a lot of space for social value creation in the market.

Upon this hypothesis, I volunteered to spend three months in Kampala, Uganda. Here, the profit of eight big multinationals overshadowed the country’s total expenditure on health, education and employment. Through the UK’s Department for International Development, I was going to work with a non-profit organisation that would assign me to a local (revenue- based) project. With plenty of small business entrepreneurs, Kampala seemed to be the perfect test for what Austin J. Stevenson called “innovative social value creating activities” and S.A Zahra called “opportunities that enhance social wealth”. With this in mind, I packed my bag and boarded a flight to Kampala. A bag full of preconceptions and expectations.

[Disclaimer: I would like to avoid the subjective difficulty of which values and needs are societal enough to be addressed. So let us just say that there was a clear need to enhance the overall welfare of society].

Ten days into a two- week training period and most of my preconceptions had been unpacked. I was assigned to a project in my preferred field at the time; micro-finance. The project involved developing a pay-as-you-go micro-finance model to rollout Solar Home Systems in rural Uganda. It sounded fantastic- like an innovation in micro-finance itself. The initiative was something of a hybrid between Kenya-based, M-Pesa’s, revolutionary mobile-banking system for payments, and Shri Kshethra Dharmasthala Rural Development Programme (SKDRDP) in India. The former has proved to be the largest mobile-based financial payment platform in the developing world. While Safaricom’s brainchild shows profitable figures, it has arguably met the criteria for a social venture through increasing the overall welfare of society by reducing financial exclusion at the bottom of the pyramid. I would argue that it has also inspired a number of further initiatives in other countries, such easy-paisa, a similar initiative in Pakistan. I would further argue that the replication of successful projects such as M-Pesa, are important indicators that capture the success of social ventures, because their model is then used as a benchmark for successes in other contexts and countries.

SKDRDP won the prestigious Ashden Award and developed a plan for lending rural energy loans once borrowers had met their basic criteria to build credibility. The criteria are as simple as meeting paybacks on earlier loans for water and other household needs. Simple criteria, I thought. I would soon learn otherwise.

After visiting a sample of ten homes, I realised simplicity is relative. While some households had incomes stable enough to save 0.2 USD every three days, others could not even commit to a monthly school fee of 6 USD per month. Their unreliable income stream meant six mouths could potentially go unfed over the next month. To pay for an education that one must starve to have seemed counterintuitive, and so education was not a priority if it compromised survival. It takes no explanation to say that electricity was out of the question then.

When I asked if the family would like to access electricity, the sole breadwinner (and mother of four) responded by asking how much electricity you need in a living space of 40 square meters. Relatively wealthier households were generally those belonging to small entrepreneurs who owned little kiosks on the flushed, dusty roads of inner Kampala. One out of six homes were connected to the grid and the others seemed content with fourteen hours of light a day. They did not need electricity after dusk. In the U.K, fourteen hours of sunlight felt like a luxury but no electricity after dusk was unnatural (there was irony in that). Additionally, I found that households would much rather avoid additional stresses such as loan payment dates than further cramp their living spaces with a Solar Home System.

This is when I thought of two things. Firstly, the less information at hand, the simpler decision-making is (or perhaps that ‘ignorance is bliss’). Secondly, the task ahead seemed nearly insurmountable. How were we to convince these people of the value that Solar Home Systems could add to their lives and businesses? I could show them that the system took negligible floor space because it was designed to fit into the wall. So, for several days we tried and tried to convince several small households of the benefit, until we were nearly exhausted, hot and very dusty. Clearly, they were not convinced. We had hit a roadblock. It seemed almost too similar to the block hit by the enterprises of SPECIALISTERNE and Grameen Bank.

After borderline exhaustion came the kind of ‘aha’ moment they talk about at business school. It came with a grim realisation that months of studying usually surmount to just one valuable lesson amongst a blur of forgotten terminology. I remembered that even though the software testing company, SPECIALISTERNE, had achieved considerable growth within just four years its founder, Thorkil Sonn, faced the difficult decision between financial viability, self-sustainability and revenue growth. This not only amounted in possible tradeoffs between stakeholders and revenues but also posed a challenge to the organisation’s integral values to uphold the position of employees with Asperger’s Syndrome, who found employment elsewhere very challenging.

I further recalled that even Muhammad Yunus, the founder of Grameen Bank (the world’s first micro-finance institution), struggled for seven years before his organisation was granted any form of organisational recognition. In this was a lesson of determination and persistence despite the odds being stacked against you. As a social entrepreneur, Yunus initially needed loans from other organisations such as banks and peer groups. Yet, after many grants he pursued a successful model of financial sustainability and upheld the integrity of his organisation, by laying out Sixteen Decisions as a criterion for loans. He did not compromise on these. Thus, Yunus struck a balance between financial viability and organisational vision. In 1532, Nicolo Machiavelli wrote,

“There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things.”

While our organisation was not a pioneer by the same standard as Grameen, it certainly was leading a new initiative in its field. Coming back to the ‘aha’ moment, I consulted with the project manager and suggested that we demonstrate how these small entrepreneurs could nearly double their monthly income by staying open during early dusk hours. Most villagers had to walk several miles towards wealthier neighbourhoods- in the dark- to find shops that were still open after sunset. Others would have to plan their day in order to stock up on all essentials before dark.

This is where opportunity lay for our small entrepreneurs. Moreover, we could further alleviate their concerns about payment by integrating more flexibility into the pay-as-you-go model. They could pay per usage of the solar home system so that they did not have to purchase it in one go. Furthermore, I suggested that they pay at their own convenience, with no fixed instalments, and over a span of three years. I hoped this would relieve some of the doubts that discouraged them from adopting our product. After a few days of discussion and long calculations:

We realised that this timeframe was the furthest we could push our repayment calculations in order to maintain positive revenues within the life cycle of the products.

Our calculations included other commonplace assumptions in businesses, such as target sales. I will not make much mention about these assumptions in our calculations is that they were off the mark even though market research indicated otherwise (in that is a lesson for all businesses). Within a few weeks, the business realised that their loan rates were too low even if they met their target numbers. Unfortunately, I think this is one of the only things I took away from three long years spent studying classical economics is that the devil is always in the details of assumptions. We had to reevaluate our assumptions.

We spent the next few weeks speaking to local small entrepreneurs, gathering more data and demonstrating the benefits of using solar home systems through prototypes. The process was long and involved validating our old assumptions and adding new ones. We also spent a good deal of time conversing with our telecom partners for quick payment vehicles and negotiating payment rates. There were also strategic difficulties along the way, such as setting shop in nearby areas. Moreover, we had already pivoted between two payment models and realised there was a further need to increase our penetration and satisfy our targets.

To me, the work of a social entrepreneur did not belong in an entirely different realm from that of a corporate one. There was a still a need for communication (internal and external), organisational efficiency is imperative, values are to be upheld and there had to be short-term wins for long- term survival. Another key point was the value of franchising. While the project was no formally implemented while I was on field, I recently heard the initiative has taken off under a different name. However, the ideas are the same. The product is also the same, yet a key detail changed; the organisation partnered with a large telecom company, Warid. Once this took place, the initiative was able to leverage Warid’s established brand image. It seems that this resulted in a higher loan-adoption rate, possibly because it is easier for customers to trust a familiar brand or franchise.

The differences between social entrepreneurship and profit-making organisations were also present. I saw a uniform commitment- amongst all employees- to upholding the organisation’s integrity. There was a no-frills approach to packages, and salaries were never going to digitise into the same figures as hedge fund managers. More importantly, there seemed to be an overarching intrinsic commitment to what may be seen as a value, amongst individual employees. Similar to NGO workers, this commitment or philosophy for social good appeared to be the driving force for most of the workers I encountered.

Social enterprises are thus both similar and distinct from other organisations. They seem to be gaining a new place in the world today, where disparity is prevalent but social awareness is as well. While it does not mean that profit businesses will change their orientation away from profit maximisation, or that NGO’s will start making money, it does create a recognized need for shared value. For me, it is this underlying commitment to society, increased overall welfare and a clear underlying philosophy, that drives sustainable projects in social entrepreneurship. Muhammad Yunus’ philosophy seems to sum it up well:

“people want meaning in their lives- the kind of meaning that comes only from knowing that you are doing your part to make our world a better place.”