- Local people best understand the problems affecting their communities and the solutions too.
- Yet, most impact investors invest through international NGOs or UN agencies that implement programs developed in the West.
- A new model encouraging local investment that mitigates the concerns of impact investors could change funding for local social entrepreneurs.
The goal for impact investors is, of course, impact. But real change does not happen overnight, it takes time and, more importantly, has to be sustainable. This kind of change can only happen if we invest locally, because local people best understand the problems and, therefore, the solutions.
If local people develop solutions they will have ownership and pride in their work. This helps to foster responsible citizens who not only tackle the issues at hand but then see themselves as changemakers and problem-solvers for other issues in their communities. This will ultimately help us achieve the SDGs.
Most impact investors, however, invest in international NGOs (INGOs) or UN agencies that typically implement a program developed in the West that is, therefore, not local or sustainable and does not change mindsets nor build capacity. Funding local entities directly may be seen as a high-risk strategy. Catalyst2030 has produced a report to address this issue.
Social entrepreneurs start small because they are solving a problem in their community. They are focused and, through trial and error (human-centered design or what I like to call evolution), figure out a strategy and approach that is sustainable and addresses the root cause, which can lead to systemic change.
Yet they face a funding challenge: traditional funding models are based on grants, which is not sustainable in the long run and can distract the social entrepreneur from their mission. Funders often have their own strategy and criteria that can limit what social entrepreneurs can apply for or are likely to receive. For example, funders do not provide long-term grants or unrestricted funding and, most importantly, have a problem with funding small, local non-profits.
Creative ways to tackle funding challenges
Our non-profit based in Jordan, We Love Reading, changes mindsets through reading to create changemakers. The program has spread to 63 countries around the world and won a Schwab Foundation award for social entrepreneurship in 2022, but we have experienced the same type of challenges in terms of funding.
To address this, with support from IDEO.org, we explored alternative funding models that would eradicate the problems that arise from typical funding models. We came up with an innovative model that invites the funder to fund a small, non-profit, local organization through a third party – this could be a UN agency or INGO – while specifying that the funding goes to this local partner.
In this model, the fears of the funder are removed and the needs of the non-profit are achieved with the added advantage of introducing the UN or INGO to the local partner and enabling the local social enterprise to scale and flourish. This approach is not only about money: the INGO / UN agency has to build the capacity of the local entity, scale its solutions and give it visibility. Such an approach leads to the sustainability of the solution and long-term impact.
Initially, this new model struggled to gain traction, but with COVID-19 the impossible became possible. We were approached by the Big Heart Foundation (TBHF) in UAE who wanted to support us through UNICEF in Jordan. We were over the moon, not only for the funding but because this was a new approach, a bold step by TBHF as an impact investor and created a precedent for others to follow.
The funding model works as follows: the impact investor, in our case TBHF, identifies a successful local entity (We Love Reading). The investor then identifies a UN agency, INGO or government to work with the local entity (UNICEF in this case). The agency or INGO signs a contract with the local entity to help it scale and increase its visibility in the region and globally while building the capacity of the local organization to be able to receive big grants and fulfill the criteria of the funder in the future.
The COVID Response Alliance to Social Entrepreneurs – soon to continue its work as the Global Alliance for Social Entrepreneurship – was launched in April 2020 in response to the devastating effects of the pandemic. Co-founded by the Schwab Foundation for Social Entrepreneurship together with Ashoka, Echoing Green, GHR Foundation, Skoll Foundation, and Yunus Social Business.
The Alliance provides a trusted community for the world’s leading corporations, investors, governments, intermediaries, academics, and media who share a commitment to social entrepreneurship and innovation.
Since its inception, it has since grown to become the largest multi-stakeholder coalition in the social enterprise sector: its 90+ members collectively support over 100,000 social entrepreneurs across the world. These entrepreneurs, in turn, have a direct or indirect impact on the lives of an estimated 2 billion people.
Together, they work to (i) mobilize support for social entrepreneurs and their agendas; (ii) take action on urgent global agendas using the power of social entrepreneurship, and (iii) share insights from the sector so that social entrepreneurs can flourish and lead the way in shaping an inclusive, just and sustainable world.
The Alliance works closely with member organizations Echoing Green and GHR Foundation, as well as the Center for the New Economy and Society on the roll out of its 2022 roadmap (soon to be announced).
Using this model, the risk associated with funding the local entity directly is reduced. It also allows impact investors to be weaned from funding INGOs and instead fund local entities in the long run. Ultimately, the goal of INGOs is to remove the need for their existence because people are empowered and can take responsibility on their own. This new approach supports this idea, which is more efficient in the long run as it reduces the very high overhead of INGOs. The underlying basis of this new approach is building trust through equal partnerships where the mindset is how can we work and collaborate to achieve the SDGs.
Funders can learn from this example to think creatively about how to develop new funding models to enable local social entrepreneurs to work expedite progress on achieving the SDGs in a sustainable fashion. If local social entrepreneurs do not fit the criteria of the funders this becomes an opportunity for funders to build the capacity of the local non-profit until they fit the criteria, with support from the UN and INGOs. This way we truly create systemic change from the grassroots up, enabling local social entrepreneurs to be the changemakers in their community.