Proposals for the 2018 budget from the social enterprise community

Social Enterprises are becoming a prominent economic and social force in both the developed and developing world. They are considered as alternative ways of generating wealth, creating employment, promoting economic development, tackling poverty and social exclusion, sustaining vital community services, and addressing environmental issues. Social enterprises take different forms of ventures, each attempting to find innovative market-based approaches to make a positive impact by addressing social and environmental challenges.

What is a social enterprise?

Typically, social enterprises operate as self-sustaining, profit-making businesses, they use their profits to achieve social or environmental goals rather than for private reward alone. They are active in a diverse range of sectors, including the environment, care, information and communications technology, agriculture, food, tourism, the arts and media, transport, childcare, housing, fair trade and access to finance. Creation of social capital is another significant contribution of social enterprises. Many social enterprises are run by their members and such collective and reciprocal governance systems help ensure a democratic decision making process in a social enterprise.

Although the term ‘social enterprise’ is new to Sri Lanka, the concept of social enterprise has existed for over a century. In recent times, social entrepreneurship in Sri Lanka has grown rapidly and many forms of social enterprises are seen springing up - focusing on social, environmental and economic returns. Alongside, a few social and private sector led initiatives and support networks have emerged and beginning to make significant impact on emerging social enterprise sector.

With ethical and social objectives, social enterprises in Sri Lanka are becoming key players in the effort to promote social inclusion, economic integration and in contributing to the country’s development. The lessons from successful social enterprises show that partnership working and organising mutual support increase people’s self-confidence and their belief that they can change the circumstance of their own lives. Yet, social enterprises have been operating below the public radar and disappointingly, there is very little or no attention from the government to the social enterprise sector.

Social enterprises operated by individuals, community groups, non-profits, co-operatives, and micro and small enterprises dedicated to supporting marginalised individuals and communities create wealth and respond to the needs of rural and urban communities. Social enterprises have the ability to create social and environmental impact better than traditional SMEs while offering a positive financial and social return on investment.

We, a support group of social entrepreneurs in Sri Lanka, welcome the opportunity to present our recommendations to the Government Budget 2018, on how the government can support the development of the social enterprise sector in order to maximise their impact and value for communities.


1. Policy recognition for social enterprises / impact enterprises that address social and environmental issues

a. Establish a social enterprise focal point at ministerial level (under the Ministry of Industry and Commerce or Ministry of Finance).

b. Government to a make available lands, buildings and under/unutilised assets for the use of and development of social enterprises.

2. Provide a supportive regulatory framework giving social enterprises more flexibility to pursue social business models that generate both social and financial impacts.

a. Currently there is no supportive legal framework that recognises social enterprises and protects their social impact purposes. This lack of legal recognition has resulted in almost all social enterprises in Sri Lanka struggling with raising private investor finance or debt finance in order to expand and grow their businesses. We recommend that Government introduce special legal provision for the incorporation and establishment of social enterprises in Sri Lanka. These laws can be similar to the Community Interest Company ("CIC") model of the United Kingdom. A CIC is a type of company introduced by the United Kingdom designed for social enterprises that want to use their profits and assets for the public good. CICs are established similar to any other private limited company and shares all the flexibility and certainty of being a private limited company. However, as CICs will also have social purpose, they will have special features to ensure they are working towards that social purpose they were established for. Key features of a CIC that sets it apart from other private limited companies are its (1) ‘community interest statement’, which explains the business plan of the CIC and its community/social purpose; and (2) the creation of an ‘asset lock’ which is a legal promise that states that the company’s assets will only be used for its social objectives, and which sets limits to the money a CIC can pay to its shareholders. This ensures that shareholders cannot overturn the social purpose of the CIC by diverting all the company’s profits to shareholder dividends.

b. To expand legal aid to include social enterprises in their start up phase or to set up a separate free or subsidised legal assistance programme for new social enterprises.

3. Fostering social entrepreneurship / enterprises through public policy and government-led support initiatives delivered by public, private and voluntary sectors.

a. Raising awareness of social enterprises at all levels – policy making, commissioning and local service delivery levels.

b. Expand the capacity and access to existing enterprise development services delivered by various Ministries, Government agencies and Provincial Councils to enhance business support and readiness for investment by social enterprises. This should be coupled with awareness-raising efforts for government officials and encourage collaborative programmes across Ministries and agencies.

c. Special support interventions to encourage youth and women social entrepreneurs.

d. Foster social innovations at secondary and tertiary education levels and community level and support for commercialising successful innovations.

e. Support the creation and operation of innovation incubators and labs on priority social and environmental problems (such as community renewable energy, social inclusion, women and children, disability, food security, environmental issues & pollution) to accelerate social innovation and the creation of social enterprises focused on social impact across Sri Lanka.

f. Support private sector and social enterprise sector led business support initiatives and programmes (e.g. business incubators, coaching and mentoring services, access to market initiatives, human resource development / skills and capacity development services etc.)

g. Support for social enterprises and community economic development initiatives to provide tailored job and training opportunities to people facing barriers to employment, especially to increase labour market participation for most vulnerable people in the country.

4. Access to markets and capital - Increasing the supply of finance (including social finance) and intermediary tools and initiatives to facilitate access to markets and capital as any other for-profit business would.

a. Grants and concessionary loans through state and private banks on relaxed collateral (consider social or environmental impact when assessing loan proposals).

b. Government bank guarantees for social enterprises without financial track records and sufficient collateral demanded by lending institutions.

c. Allow or encourage the capitalisation of tailored, demand-designed impact investment funds by private and non-profit sectors. Investment funds should be tailored to the specific needs of each.

d. Establish an impact investment fund managed by Public-Private-Social Enterprise partnership (PPSP) to provide equity for social enterprises.

e. Preferential tax incentives for social profit making social enterprises, and tax rebates on machinery and equipment purchases.

f. Fast-tracking the approval of international payment gateways like PayPal or Stripe to improve access to ethical consumer markets.

5. Social purchasing

a. Priority / preferential treatments for social enterprises when bidding public service contracts (based on social value weighting).

b. Initiative to bring together socially driven purchasers and social enterprise suppliers together by building business relationships that generate social and environmental benefits (e.g. "Buy Social Sri Lanka" )

Submitted by:

Dr. Lalith Welamedage, Co-Founder and Managing Director/CEO - Lanka Social Ventures

Dr. Amanda Kiessel, Co-­‐Founder – Good Market GTE Ltd

Achala Samaradivakara, Co – Founder and MD, Good Market GTE Ltd

Selyna Peiris (Attorney-­‐at-­‐Law), Director – Business Development, Selyn Exporters (Pvt) Ltd

Aritha Wickremasinghe, (Solicitor, England and Wales) – Sri Lanka Country Representative, iProbono

Vikum Rajapakse, Co-Founder and MD, Kantala (Pvt) Ltd

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