In the last two years, the US Agency for International Development (USAID) has increasingly focused on supporting social entrepreneurship in the Middle East and North Africa region as a way of tackling the region’s socio-economic challenges that cause poverty. This approach has compelled Arab non-profits to reorient and present themselves as social enterprises based on U.S strategic interest rather than their own local needs. As one local activist notes, social entrepreneurship has become the latest “buzzword to attract funding projects” that are not actually oriented towards poverty alleviation in the region. He argues that local organizations increasingly promote themselves as social enterprises in the hope of procuring funding. 

USAID’s latest poverty alleviation strategy problematizes the realities on the ground—inducing identity crises among local organizations and diluting their original missions as they prioritize short-term funding over long-term sustainability. Furthermore, the financial sustainability challenge illustrates how organizations become trapped between being a non-profit and a social enterprise because they have not incorporated a revenue-generating stream into their business models and therefore fail to operate as actual enterprises. In pursuing this approach, USAID fails to heed lessons from previously unsuccessful attempts to reduce poverty in the region and overstates its ability to develop sustainable, homegrown models by focusing more on the “social” aspect and less on the “entrepreneurship” of empowering self-sustainability.

According to the World Bank and the Organization of Economic Cooperation and Development (OECD) good governance and strong institutions would reduce poverty—leading to the emergence of these two as cure-all-strategies for the alleviation of poverty a decade ago. Before that, the solution appeared to lie in entrepreneurship and small business through micro-credit programs to the very poor. Soon after, government aid agencies and multi-lateral donor institutions followed the trend and supported micro-credit programs financially and technically. As a result, low-income countries in the region (like Egypt and Morocco) represented the most participation in terms of active borrowers by 2009. Yet, in hindsight, sustainable economic development specialists concluded that micro-credit programs represent one strategy but require supplementary support—like skills training and education —since the challenges of alleviating poverty still persist. In terms of good governance programs, some argue that it might be too early to assess their impact on poverty—particularly in countries undergoing political reform, which operate as a subset of good governance, as in Jordan.

As in its previous experiences, USAID has embraced the social entrepreneurship trend and argues that this variation of entrepreneurship is what will address the challenges of development in the Arab world. Social enterprise is identified as an entity that resolves a specific social problem by following a market-oriented model to implement an innovative solution. But the definitions of social entrepreneurship have become too inclusive, and its widespread application has become problematic; the international development community identifies a new idea, but implements it holistically without regard to the social and organizational environment. As a result, any local group that can describes itself in the latest terminology asserts a stronger presence to the international community—and thereby receives funding. In the Arab world, disadvantages lie within the concept of social enterprise per se—where many entities begin as non-profits but do not grow to be self-sustaining. 

In the region, USAID considers applications with American nonprofits with social entrepreneurship mandates like the Synergos Institute, Ashoka, and the Schwab Foundation for Social Entrepreneurship—in a partnership dubbed the Alliance for Social Entrepreneurship. Applications are to come from a variety of organizations—some of which adopt the broadest definition of a social enterprise—to award funding. The alliance is to concentrate on four to five countries in the Middle East, and the program’s launch will initially focus on Egypt and Lebanon, leveraging entrepreneurship motivation through Development Innovations Ventures (DIV). Founded in 2010, DIV holds competitions for candidates to compete for incremental funding rather than a lump sum of venture capital. The advantage is that budding social enterprises will encounter checkpoints to prove that they can implement their ideas. If successful, then enterprises must prove they are ready to take their projects to scale. A disadvantage, however, is that USAID may invest in local social enterprises that are unlikely to sustain themselves. 

On 16 November, USAID convened a panel in Washington, DC to review the prospects of social entrepreneurship in promoting sustainable development in the region through the Alliance for Social Entrepreneurship (which is U.S.-based, and had formed from Synergos’s earlier USAID-funded Arab World Social Innovators project in 2008).  The partnership means that USAID will co-invest with the Synergos Institute in Egypt and Lebanon. USAID believes that it may lend its development experience to ensure sustainability. However, one of the partners, Synergos, has over 20 years of experience identifying social entrepreneurs, and it remains unclear why American government support is necessary—apart from the financial assistance. With USAID co-funding, for example, Ramy Mehdawi founded the Palestinian Non-Governmental Organizations’ Forum which operates as an umbrella to coordinate 135 local organizations within the disjointed territories. Although PNGOF provides a needed platform, it remains unclear how it generates significant funds apart from donations. Ironically, the broader definition of social enterprise also meant that DC organizations—which operate more as nonprofits than enterprises—participated in the November 16 panel. Hence, little revenue-generating discussions to advance the sustainability mission ensued because nonprofits’ have not innovated in the area of generating profits to ensure sustainability. 

Building on the donor institutional memory of micro-credit may inform lessons to be learned with the current trend. If social enterprises are to operate as the latest tool in poverty alleviation programs, then a major concern emerges regarding the role of the public sector and its direct impact on reducing poverty by the fostering of sustainable entrepreneurship. How can the public sector—which may participate as a grant-making institution—advise and know how to invest in a social enterprise when it functions within a different paradigm? Social enterprises represent a newer body of institutions that do not fit into the public sector or the traditional private sector; additionally, they do not rely primarily on fundraising—they are providing a good or a service that transforms the social value of the good or service into monetary value. Essentially, social enterprises embody both economic and social criteria. By definition, fundraising cannot be the main driver of the social enterprise because its good or service has a cost.

 The notion of success goes back to sustainability. Yorgui Teyrouz in Lebanon addresses a health service gap by compiling a database of about 11,000 blood donors through his organization “Donner Sang Compter” (roughly “giving freely,” or DSC).  To support blood donation and collection efforts, DSC organizes events and sells tickets to raise funds. Yet DSC is not entirely a for-profit entity: they still request financial donations. Thus, the quest to be financially independent continues, which limits how DSC and others may expand—a key facet of entrepreneurship.   

Hopefully, USAID has strategy in place to assist nascent enterprises in generating their own revenue. One idea is to utilize the talent base hidden within the region’s informal economies and use the invested candidate as a formalizing vehicle. Egypt and Jordan include large informal economies; in Jordan, the informal sector contributes 26 percent to the national economy. Given this significant factor, labor in the informal economy may serve as a potential partner with social entrepreneurs in selling goods and services through a creative collaboration.

USAID’s strengths are that it brings financial resources and has access to excellent technical expertise, as its recent alliance demonstrates. Yet, its access relies more on American institutional expertise rather than the local non-profits driving the mission in their own country. This was the criticism of the governance-oriented approaches. The overuse and misapplication of the international community’s understanding of social enterprise revisits previous missteps that grew out of the micro-credit trend back in the late 1990s—when donor and government funds heavily invested in micro-credit institutions and expected high returns. If USAID is to learn from the micro-credit approach, any poverty alleviation strategy must factor in the labor and local talent of the informal economy. Without marrying the local informal economy to the local non-profit structures in the Middle East and North Africa, the “social” and “entrepreneurship” aspects are divorced from the concept of applying innovative, market-driven solutions as a means of solving social problems. 

Mehrunisa Qayyum is an international development consultant and founder of PITAPOLICY Consulting.