Building support for social enterprise in Pakistan

The following is an excerpt of an article written by Ellie Ward for our partner Pioneers Post Magazine.

In the face of daunting social challenges, a growing number of people in Pakistan are working to develop a stronger Pakistani social enterprise ecosystem. 

A 2015 report by the Global Impact Investing Network (GIIN) and Dalberg concluded that ‘Pakistan’s large population, growing middle class, and increasingly favourable regulatory investment environment are creating strong foundations for attracting investors and the regulatory environment for business is seen to be improving.’ 

The non-profit sector in Pakistan has grown considerably in both size and scope in recent years. A 2015 report by the Overseas Development Institute (ODI) estimates that there are approximately 45,000 non-profit organisations in operation across the country, although around one third of these are not officially registered. Philanthropy is also well established in Pakistani culture. 

The terms social entrepreneurship and social enterprise are relatively new to Pakistan and there is no formal legal framework for social enterprises, or a national membership body.

However, there is a tradition of trading for social impact.  Dr Vaqar Ahmed, deputy executive director of the Sustainable Development Policy Institute in Pakistan, explains: “Many of the NGOs in this country have subsidiaries, which have been operating just like a social enterprise, even if they are not registered as one… NGOs have been quick to understand these newer terms.”  Health, education, microfinance and low cost housing construction are all areas proving to be compatible with the social enterprise model in Pakistan.

Surveying key stakeholders

In 2016, Ahmed called a historic meeting with delegates from both the private sector and government “to get a good understanding of where both the sectors stand in terms of their vision for social enterprise in Pakistan”. Officials from the planning commission, the finance department and some of the provincial outlets delivering entrepreneurship were all involved. “Per se the understanding of social entrepreneurship was weak,” says Ahmed. 

“In terms of the private sector, there’s only a very small business community that really understands what social entrepreneurship is… On the private sector side especially there were mixed views – many of the entities felt that it is difficult to be a start-up and a social enterprise at the same time. The mainstream thinking is that only once you are fully established and have a safe business model can you enter into a subsidiary that calls itself a social enterprise,” he explains.

Sadaf Mahmood of SEED (Social, Entrepreneurship and Equity Development) acknowledges that the meeting was critical in terms of putting social enterprise on the agendas of both government and mainstream business, but also stresses there are still yet to be commitments from either side in terms of helping to develop the social enterprise ecosystem. “At least someone is sitting down and listening to what we have to say…  [And] we’ve heard there might be a department being set up to support social enterprises. This is still to be witnessed. A lot of people within government are not familiar with what social enterprises are or their potential,” she says. 

It’s easy to understand Mahmood’s frustrations with the achingly slow bureaucratic processes around social enterprise when you consider the policy environment for traditional Micro, Small and Medium Sized Enterprises (MSMEs), which comprise around 90% of all businesses in Pakistan. The ODI concluded in its 2015 report that ‘persisting bureaucratic inefficiencies limit the efficacy of public mechanisms to support domestic entrepreneurship and innovation. Consequently, the country’s vibrant and ever-expanding MSME sector remains underserved’. 

In terms of appetite for impact investing, things are still at a very early stage. Despite some of Pakistan’s leading entrepreneurs taking an interest in this field and the work of organisations like Acumen (since 2002 it has supported 11 social enterprises with a total investment of $14.6m and created around 3,500 jobs in Pakistan), the movement generally “hasn’t been able to make a dent in the policy environment” says Ahmed. The impact investment community “needs to step up its advocacy efforts so their voices get heard,” he urges. 

An area described by the ODI as ‘an important topic for further research’ is the potential of Islamic finance to support social enterprise in Pakistan. There are at least seven private Islamic banks in operation in Pakistan and domestic commercial banks offer Islamic banking services. This financial sector ‘has the potential to facilitate the creation of tools to channel ‘enterprise philanthropy’ towards social enterprises’ concludes the ODI. 

What next?

So what needs to happen in order to help the social enterprise sector in Pakistan grow? Ahmed sets out his top three priorities:

  1. “A regulatory framework where the government is able to introduce a taxation regime that would work for social enterprises. None of the social entrepreneurs I have encountered are afraid to pay taxes… but they just feel that some of their activities should have a preferential tax rate.” (Currently in Pakistan social enterprises must register as either a private limited company or as an NGO.)
  2. “Take the social enterprise movement into the leading business schools. One would like to see business schools documenting social enterprise case studies and start teaching social entrepreneurship.”
  3. “I would like to see more venture capitalist interest going in to social enterprise… Currently the commercial bankers I’ve spoken to have no interest in loaning to social enterprises – it’s not a lucrative enough offer.”

Positive steps are being taken regarding Ahmed’s second priority. The British Council recently launched a pilot programme on social enterprise in six universities based in Pakistan. The programme aims to equip students with the skills needed to be successful social entrepreneurs and to ensure universities are able to support student-led social enterprise start-ups.

Zeenia Faraz runs the programme and says: “Social enterprise presents an ideal mechanism to enlist young people in Pakistan in developing their innovative ideas into businesses that deliver social and economic impact, address key development issues and contribute positively to society.”