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Social enterprise and the poor

| Updated: December 27, 2019 22:14:59

Social enterprise and poor

The BRAC 2015 Annual Report contains, inter alia, a case study on how a social enterprise imparts immense social and economic impacts on poor households in rural Bangladesh. The social enterprise theory suggests that, as opposed to philanthropic philosophy, the poor could be made entrepreneurs themselves given that the mismatch between endowments and opportunities - called binding constraints -  are removed or eased. Of late, Executive Director of BRAC Dr Muhammhad Musa has been championing social enterprise system in the wake of dwindling aid and grants, and rising demand for quality products. And in recent years, there is an increasing urgency among developing economies to promote market-based initiatives that offer sustainable business and consumer solutions to disadvantaged groups.
We reckon that a new perspective on the phenomenon of chronic poverty, offered by eminent economist S.R. Osmani of Ulster University, could be relevant in the context of social enterprise and poverty reduction in Bangladesh. Osmani's theory is based on the notion of a mismatch between the structure of endowments possessed by the poor and the structure of opportunities open to them. It is a certain departure from the traditional view of 'poverty trap' that adduces poverty mainly to the lack of endowment of assets rather than to the composition and structure of those assets. In other words, as Osmani opines, what matters for poverty reduction is the pattern of growth rather than the growth itself.
Aarong Dairy (henceforth AD) is a case in point. It was born to connect farmers with markets -possibly to match endowments of the poor with opportunities available in the market. Started in 1978 with the motto of linking artisans with the market, AD expanded with the passage of time taking up dairy development in the country and thus helping the poor. The economics is quite clear. On average, a household owns cattle in rural areas. For many households, it is the only non-land assets under possession. But due to the lack of a market link or shortage of knowledge about how to turn it into a stream of incomes, the output from the cattle (say milk), can do no good to the poor household.
At the moment, AD accounts for one-fifths of the Bangladesh's total dairy market share. Milk is being collected from poor households, 101 chilling stations keep milk fresh and strict method of maintaining quality is ensured.  Unlike private enterprise's lust for profit only, the cattle development fund of AD provided, in 2015, subsidised artificial insemination services to 6,500 farmers, vaccinated 25,600 heads of cattle, delivered 8,000 kg of free fodder seed and trained 2,000 farmers on animal husbandry methods. In 2015, Aarong collected over 16 Olympic-sized swimming pools or 42 million litres of milk through an extensive network of rural dairy farmers. The social enterprise processes the milk to produce a wide range of dairy products which are sold through retail and modern trade channels across Bangladesh. Reportedly, 50,000 dairy farmers produce best quality outputs. AD, one of the largest social enterprises, employs about 1,500 people and the farmers produce over 250,000 litres of milk per day. Any surplus goes to sustainability of projects and creation of new opportunities.
Take the case of yogurt made from milk. Bangladesh has been witnessing rising per capita income over time and, with that, an increase in the demand for income-elastic goods and services. While people grow in urban areas, they still remain rural in the sense that even highly income-elastic product such as yogurt comes from rural areas. Seeping through the cup of yogurt, the urban consumer hardly realises that the yogurt cup has changed the landscape of livelihoods of the hard-core rural poor.
A single yogurt that a mother in an urban area buys each day for her child is the reason that a mother, like say Afroza in rural Pabna, is able to send her children to school. As a life history review shows, Afroza's life was predictably unpredictable for many years in a sleepy village in Pabna in northern Bangladesh. Very low income of her husband - an irregular mason worker - and the need for next meal for family members or for children's education- used to keep her in a quagmire. Desperate as she was faced with extreme poverty, she decided to do something. She borrowed money to buy a calf and start a dairy farm. Initially, she had to rely on local milk buyers who fetched her feeble profit, but later partnered with AD to be on an even keel.
The take-home lesson is simple. First, with dwindling flow of aid and grants, philanthropic philosophy should pave the way for self-reliance mode where social enterprises can play a pivotal role in helping the poor live in a dignified way. Second, to prepare the poor for the market, endowments must be aligned with market demand. As in the case of AD, a team of veterinarians guided poor Afroza through initial stages, providing her with animal husbandry training, basic animal health care and artificial insemination services. Afroza followed the prescriptions in right earnest. Her small dairy farm soon turned to business. She supplied milk directly to local chilling centre. The milk was turned into milk products through processing in urban areas and sold out through Aarong's extensive network of retailers. As the farm grew, she continued to get support on cattle rearing and management. Soon, 15 other households in her own village as well as from nearby villages followed her footprints to start their own farms. Afroza became a 'consultant' to her poor comrades in and around the villages. All of them now have the most productive homestead dairy farms in Pabna.  Afroza's small farm now boasts of five cows and 11 cattle. She saves every month and purchases one cow every year by the savings. Thus, poor she entered, solvent she survives.
The writer is a former Professor of Economics at Jahangirnagar University.

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