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Why are social enterprises not growing?
By: Ahad Nazir and Dr Vaqar Ahmed
Pakistan’s entrepreneurship profile is fast evolving. Only in the past decade the country has witnessed a fast growth of incubators and accelerators helping startup enterprises. Some of these incubators also invest in and develop their own startups. We also see angel investors in the market, willing to invest in uncharted ideas, sectors and regions. Several public sector universities are also helping to promote entrepreneurship and acting as a link between graduating students and the industry.
More recently, there have been reports on growth of formal social enterprises at least across urban localities, aiming to apply profitable strategies while maximising social wellbeing. A more encouraging trend is that several such social enterprises are being managed by women. While this has the potential to significantly increase the participation of women in Pakistani workforce, there are also genuine challenges to women-led social enterprises.
Unfortunately no federal or provincial policy interventionsare in sight to address such challenges.
A recent survey by the Sustainable Development Policy Institute (SDPI) found the following as the top-five challenges faced by women-led social enterprises: access to finance for startup and working capital; competition with for-profit entities and regressive taxation; weak participation in local and international marketing exhibitions; lack of adequate and senior level representation in business associations; and poor security available for human resource and assets at community level.
To mainstream women social entrepreneurs, there is a need to incentivise their businesses through public procurement mechanisms. There could be fixed and time-bound quotas in select sectors under public sector development programme and provincial annual development plans which could source their materials from women-led social enterprises.
Second, the central bank will need to see how to channel greater lending to such enterprises. One way to do so is through introducing lower short-term borrowing rates at least for those firms having ability to export their output.
Third, Federal Board of Revenue (FBR) will also need to see how it can zero-rate the inputs used by enterprises offering social impact. A related point for provincial revenue authorities is to lower their tax rates (and number of taxes)on social enterprises working in agriculture and livestock sectors – directly helping improve food security and livelihood outcomes in rural areas.
Fourth, as mentioned above, growth of social enterprises in general has mostly been an urban phenomenon until now. For this growth to move to rural communities, regulatory burdens for incorporating a social enterprise need easing. This task had to be initiated by Planning Commission’s Centre for Social Enterprise. After several rounds of advertisements this centre remains without visionary leadership. With half of the approved project life already gone, rest of the staff has yet to be hired. The member (social sector) at the Planning Commission who had initiated the PC-I is also not in position. Contrary to the promises in the project document, until now, none of the research studies and outreach meetings have been held. What is most unfortunate is that most social entrepreneurs in the country do not even know about the existence of this centre – indicating a lack of public-private engagement.
While the above mentioned laxness needs to be addressed at the federal level, the situation is not very different at the provincial level. The growth strategies and related policy documents in Punjab and Sindh do realise the potential of social enterprises and women entrepreneurs, however, these documents fall short of providing targeted and customised interventions for such entities. The provincial planning and development departments or their research arms have never convened a meeting to discuss the potential of women-led social enterprises.
Fifth, an urgent study is required to see why small-scale social enterprises funded through social safety nets, including Benazir Income Support Programme, are unable to sustain over the medium term. Apparently, the regulatory burden faced during the process of expanding and diversifying the businesses involves heavy compliance and related transaction costs.
Finally, the past federal and provincial budgets have made life complex for those working in the social work sector in general. Social enterprises and even community-based organisationsengaged in social work now face 56 annual taxes, levies and surcharges in various modes, including withholding taxes, advanced tax and minimum tax.Besides, these entities now also face provincial government’s general sales tax on services, apart from 15 other provincial taxes. This fiscal regime is leaving social enterprises incapable ofgraduating to the status of an exporting entity.

Source: http://dailytimes.com.pk/pakistan/07-Jul-17/why-are-social-enterprises-not-growing

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The opinions expressed in this article are the author's own and do not necessarily reflect the viewpoint or stance of SDPI.