Social Business: Sustainable Economic Model

Social business as well as other ordinary enterprises organizes business activities to provide services and products. However, unlike ordinary business, social business is established with an ultimate goal to solve one or more social or environmental problems through sustainable business model, rather than to maximize profits for owners or investors.

 

According to the report of research on “Social businesses in Vietnam – Definition, Context, and Policy” in a conference jointly organised by the British Council, the Centre Institute for Economic Management (CIEM) and the Centre for Social Initiatives Promotion (CSIP) in Hanoi, currently, social business model is still a new concept and is not yet officially recognized by the state. Not only that, for many related sides, from people, mass media to traditional businesses, social business approach as well as its role in Vietnam socio-economic life has not been understood and accepted thoroughly. This will lead to a frequent consequence of the doubts about the nature and purpose of social business. For years, there has been a distinction between profit and non-profit business activities in public awareness.

In addition, at present, there is not yet any legal document regulating social enterprises’ activities, as well as any type of enterprise or legal status for social businesses. Social enterprises themselves are very confused and face many problems in operating a model combining social objectives and business activities in an uncompleted legal environment like Vietnam. It is evident that there are a lot of financial problems such as receiving aid regulations, funding, tax and financial management policies, incentive access capability and state regulation on special objects in the society.

 

On the other hand, specific characteristics of social enterprises are non-profit business, operating in a high-risky market, low financial interest rate they don’t appear attractive to commercial investors. Thus, their capability to access to commercial capital, even start-up capital or business development capital is very limited. Capital market for Vietnam social enterprises has not yet developed, reflected in capital shortage lack of funding forms and sources in compliant with different social enterprise development levels and areas. Until 2012, there are only two NGOs which are the Centre for Social Initiatives Promotion (CSIP) and Spark Vietnam-Centre for Social Entrepreneurship Development having capital investment program for social enterprises with total investment capital about US$200.000/year in cash. These funds are still too small compared to the needs of current social enterprises and just the start-up investment capital to activate ideas and improve capability, not a sufficient capital for business development.

 

According to Mr Robin Rickard, Director of British Council Vietnam, being a new field of business, social enterprises need nurturing and supporting to develop their full potential in order to have wide spread effective impact on Vietnamese economy and society. We will continue to cooperate closely with Government agencies, VCCI, social enterprise community, international donors and relevant partners to mobilize for the forming of favorable conditions for social enterprises to develop in a society where their achievements are highly recognized and appreciated,” said Mr Robin Rickard.

 

According to the report, social business should be regarded as a concept, an organizational model that can be applied to many types of organizations from NGO to ordinary businesses. It should be aware that the state helps social business to develop and the social business helps the state to reach social goals.

 

The report showed that Vietnam should issue a decree on social business. At the initial stage, it is suitable to issue a legal document in the form of Government decree. It is not only the first ground in the process of institutionalization social business but also a step of exploration preparing for codifying ability in the next step when social business community grow strongly and provide abundant practice. The decree also needs to offer specific incentives, and support for social enterprises as well as methods and responsibility in realizing this policy.

 

To encourage and impulse the development of social business in Vietnam in both quantity and scale, the report recommends Vietnam to boost communication in many different forms, give awards and honor successful social entrepreneurs, develop social business in a large scale, and organize competitions to seek innovative aimed at finding potential social entrepreneurs and projects that would be funded start-up capital in the first step.

 

The report also said that Vietnam should provide financial support directly to social enterprises to expand social impact through a process of selection, classification, monitoring and evaluation. Financial instruments here can be non-refundable grants or low interest loans, but they should be implemented in a certain period of time (from 3-5 years) to enhance viable ability and to dependence of social enterprises. The financial assistance should be tied to the effectiveness of social impacts. For example, supporting 50 percent of the salary of disabled people employed by social enterprises and then reducing in 5 years, assisting 50 percent of the house rent price and basic living costs for teachers who involve in vocational training projects of social enterprises for street children and expired-term prisoners.

 

In particular, to develop sustainable financial sources to support social businesses, it’s necessary to establish social business development fund. The fund will be financed by state budget on the basis of extracting a certain percentage (e.g. 10 percent) from special sales tax revenues. Not only limited by state budget, the fund also widens cooperative capability, receives sponsor from voluntary organizations and social investors at home and abroad. In addition, it should apply tax exemption or reduction for social businesses in some areas that the state needs to encourage and support improving capability, training business management skills, finance, human resources and market for social business, etc.