The entrepreneur support model of social enterprise sells business support and financial services to its target population or "clients," self-employed individuals or firms. Social enterprise clients then sell their products and services in the open market.
The entrepreneur support model is usually embedded: the social program is the business, its mission centers on facilitating the financial security of its clients by supporting their entrepreneurial activities. The social enterprise achieves financial self sufficiency through the sales of its services to clients, and uses this income to cover costs associated with delivering entrepreneur support services as well as the business' operating expenses.
Economic development organizations, including microfinance institutions, small and medium enterprise (SME) and business development service (BDS) programs use the entrepreneur support model. Common types of businesses that apply this model are: financial institutions, management consulting, professional services (accounting, legal, and market information), technology and products that support entrepreneurs.
Theoretical example: a manufacturer and distributor of low-cost irrigation pumps sells its pumps and agriculture extension services to low-income rural farmers. The capital asset enables farmers to dramatically increase the productivity and profitability of their land. Income earned by the social enterprise is used to cover operating costs, including the high costs of marketing to rural, small scale farmers, investing in new product R&D, and educational marketing campaigns. (For the real story behind this example, see KickStart).
Pro Mujer, an example of Entrepreneur Support Model
Pro Mujer an international women's development organization, was founded in 1990 to empower women to improve their social and economic status. The organization accomplishes its mission by establishing microfinance institutions that provide small working capital loans ($50-$300) to low income women who invest the capital in productive activities such as retail trade or small-scale production then sell their products in the open marketplace. Due to the perceived risk and high transaction costs to serve Pro Mujer's target population, these poor women have no access to credit and saving services from formal financial institutions, and are consequently easy targets of money lenders' usury practices. Training in business development and management augments Pro Mujer's financial services by helping women to improve their small businesses and increase their incomes, thus economic security for their families. Pro Mujer also provides health education, and links women and their families to health services.
Pro Mujer operates in four countries: Bolivia, Nicaragua, Peru and Mexico. As of June 2002, the organization provided training and credit to over 66,000 clients, almost all of which are low income women, and had total loan portfolio of $5.3 million. The organization's financial model is similar to a bank's, interest is charged on each loan and savings deposits are leveraged for on-lending. The interest spread over significant volume creates a financially sustainable social enterprise model: income covers operating and financial costs, and loan loss (default). Interest rates are set by factoring operational and capital costs, regulations, and competitors' prices. Because its clients are so poor, Pro Mujer's goal is to provide financial services as inexpensively as possible without compromising its viability.
Results of an impact evaluation demonstrated that Pro Mujer's clients are able to double their income after two years in the program. They are also more likely to seek healthcare for themselves, and their children are more likely to go to school. Moreover, clients tend to increase their community leadership and participation and expand their decision-making abilities.