Social enterprise for development: a new tool for global poverty reduction

July 8, 2014 at 10:06 AM - by Mariam Dao Gabala - 0 comments

Tags: Social performance

In Africa and other developing economies in the world, microfinance has been the traditional tool for financial inclusion and poverty reduction. This has been delivered through microloans to millions of individual borrowers for small business or household purposes.

Increasingly, though, social enterprise is becoming the focus of responsible investment in the developing world. Co-operatives, small scale agriculture, fair trade organizations and renewable energy initiatives are commanding attention from lenders like Oikocredit.

In Africa, this trend is becoming impossible to ignore. Sub-Saharan Africa has six of the world’s 10 fastest growing economies over the last decade. Private investment in Africa has become such a hotbed of activity that it has even coined its own moniker “Africapitalism.” According to the Tony Elumelu Foundation, Africapitalism is about long-term investment for the creation of social wealth, not just private profit.

Lenders like Oikocredit are taking up the call. In our last annual Social Performance Report, we reported loans or investments valued at more the €100 million to about 250 production and service partners, with an emphasis on agriculture. Of these, about 80 were fair trade organizations. These investments have bolstered small-scale agriculture to support food production and reduce rural poverty. Many also helped to create value chains so that producers aren’t locked into cheap commodity production and have the opportunity to add value to the products they produce.

Social enterprise for development has the power to transform Africa and other developing regions through long-term investments, creating both economic prosperity and social wealth. It also puts the power of development into the hands of local people, rather than external forces.

One of the best examples of this is the Kuapa Kokoo Co-operative in Ghana.

Cocoa farmers in Ghana came together in 1993 to form the Kuapa Kokoo Farmers’ Union, and founded their own buying company to secure a fair price for their product. By taking the buying of cocoa out of the hands of dealers, and by forming their own market power, they turned cocoa farming into a sustainable livelihood.

Attracted by its co-op structure, Oikocredit co-funded a series of loans to Kuapa Kokoo to bolster its production. Oikocredit also supported the creation of a cocoa value chain by financing Kuapa Kokoo’s distribution company, as well as Divine Chocolate, which buys Kuapa’s cocoa and manufactures chocolate products under the Divine Chocolate label.

Kuapa Kokoo supports its communities with more than market access, offering agricultural and health education. The cooperative provides training to assist farmers in producing items in the off-season, including soap. The cooperative also takes a strong stand on the issues of children’s education and child labour in the cocoa sector.

In 2011, Kuapa Kokoo teamed up with the International Labour Organization (ILO) to identify, prevent and create awareness on child labour. The cooperative has already highlighted the need for education by building schools where children can prepare for their future while parents work their farms.

Oikocredit and other social investors are learning from their experience with Kuapa Kokoo and other social enterprises in developing countries. While microfinance will continue to provide much of the mainstay of financial inclusion for poor individuals, social enterprise holds potential to lift the prospects for entire communities. We believe that investment in social enterprise will be a key tool in the future for building economic prosperity through social wealth.

This post was originally published at SocialFinance.ca.