NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Monday, January 19, 2015

In analyzing the capital flow for social enterprises, the picture behind this reality around the world adjusts depending on what region you go to. In the western markets such as the U.S. or Europe, capital structures are becoming more inclusive for social enterprises. But what’s happening in regions such as MENA?

Badr Jafar
Crescent Group
“It’s tough. The funding circles in our region do not yet see this space as a robust enough asset class to warrant serious attention. There is a broad perception that there is a definite trade-off between social impact and financial returns, and so I have heard many investors argue that they would rather contribute to social gains through straight charity without mixing it up with profit-seeking. For this reason, I always advise budding social entrepreneurs in MENA seeking financing not to overly pitch the social aspect of their ventures and instead to focus on financial metrics when presenting their ideas. I do envisage this will change gradually over time as the investment community increasingly appreciates the collective value of the triple bottom line, but we are not there yet.”

Medea Nocentini
C3 Consult & Coach for a Cause
“Social entrepreneurs in MENA have to make a choice when registering their license: either as non-profits, in which case they cannot raise funds from typical investors or generate revenues from trading activities (limiting their opportunities to scale and sustain themselves through business activities), or as for-profits, in which case they are not allowed to raise donations or apply for grants (limiting their opportunities to leverage the powerful combination of investments and donations that their social enterprise status could unleash). In a region where social and environmental needs are pressing, social enterprises have significant market potential. We might not need to label Middle Eastern social enterprises as such, as they represent attractive investment opportunities by the nature of the market.”

Ali El Idrissi
J.P. Morgan Social Finance
“In MENA, there has been a flurry of new initiatives supporting entrepreneurship from competitions such as the Hult Prize, the MIT Enterprise Forum Arab Startup Competition or the MIT Global Startup Workshop to accelerators and incubators such as Oasis500 in Jordan, Flat6Labs in Egypt and international networks like Endeavor and Ashoka expanding their MENA footprint. However, the amount and diversity of funding still lags behind other emerging markets and there is a significant opportunity for high-quality MENA social enterprises to tap into international networks and funding sources, which rarely have access to such investment opportunities. In parallel, philanthropic capital in the region should be used in a more strategic way and provide early stage funding for social businesses. There is an opportunity for large philanthropic organizations and corporates to act as pioneers in providing this type of capital.”