social enterprises and sustainable development

•• BRITISH•• COUNCIL

Table of Contentslist of facts and figures

LIST OFFIGURES ANDTABLES6 30

The Role of Social Enterprise in SocietyStatutory Laws and Regulatory Frameworksrelevant to SEs

3Overview of Pakistan's Economic andSocial Structure

Laws/Guidelines for Social EnterpriseRegistration

23 32Gaps in Pakistan's Social EnterpriseEcosystem

Intellectual Property Laws Relevantto Social Enterprises

National Policy Frameworks, Policiesand Programmes Relevant to SEs

SOPI - Social Enterprise Landscape in Pakistan

ACRONYMSA GAIM Agensi Inovasi Malaysia GAIN Global Alliance for Improved

AKRSP Aga Khan Rural SupportNutrition

GAVI Global Alliance for Vaccines

B and Immunisation

GDP Gross Domestic ProductBC British Council GIZ Deutsche Gesellschaft fOrBIC Business Incubation Centre Internationale Zusammenarbeit

CGoP Government of Pakistan

GVEP Global Village Energy

CBO Community BasedPartnership

Organisation HCCI Council of Common Interests HEC Higher Education CommissionCCP Competition Commission of

IPakistan

CED Centre for Entrepreneurial IBA Institute of Business AdministrationDevelopment

CFI Conventional FinancialICT Information and Communications

InstitutionsTechnology

CGAP Consultative Group to AssistINGO International Non Governmental

Organisationthe Poor

CSO Community ServiceIP Intellectual Property

Organisation IPO Intellectual Property Organisation

CSE Centre for Social KEntrepreneurship

CSR Corporate Social KP Khyber PakhtunkhwaResponsibility

E KPls Key Performance Indicators

ECC Economic Coordination LCommittee

EELY Enhanced Employability and LFN Locally Funded NGOsLeadership for Youth LUMS Lahore University of Management

EIU Economic Intelligence Unit Sciences

F MMDGs Millennium Development

FATA Federally Administered Tribal Areas Goals

FBR Federal Board of Revenue MFB Micro Finance Banks

FIND Foundation for Innovative MFI Microfinance InstitutionNew Diagnostics MIT Massachusetts Institute of

FMCG Fast moving consumer Technologygoods MMV Medicines for Malaria

FIT Fund for Innovative Training Venture

MSE Micro and Small Enterprises

MSME Micro, Small and MediumEnterprises

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SDPI - Social Enterprise Landscape in Pakistan

EXECUTIVESUMMARYSocial enterprises (SEs) in Pakistan have evolvedout of societal imperatives, based on the unmetdemands of the local communities. The country'sSE ecosystem is in its nascent stages but withrapid expansion and growth in recent years.This sector, among other roles, offers the potentialto fill the gap between public services which donot currently reach the entire population andservices provided by the private sector whichare often unaffordable for vulnerable andmarginalised communities. SEs can offer viablemodels of service delivery, with the potential toassist Pakistan towards the achievement of thesustainable development goals (SDGs).SEs can also offer economic empowerment.innovation and access to new markets at thebottom of the pyramid. 1

This study attempts to provide a broadunderstanding of the emerging SE sector inPakistan, alongside the policy and regulatoryenvironment. It has been informed by interviews,focus group discussions and an extensiveliterature review of international and nationalresearch studies. It reviews the context in whichSEs have evolved in Pakistan, their ways ofaddressing different economic, social andenvironmental needs, the key barriers andenablers to SE development. and exploresopportunities on how various stakeholders mighteffectively engage and develop the regulatoryand policy framework for SEs in Pakistan.

There is no specific policy directed at SEs inPakistan. However, there are policies from anumber of government bodies that are relevant toSEs. Policies relating to NGOs, SMEs and smallscale industries for example, all potentially havean impact on SEs.

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Neither is there a bespoke legal form specificallyfor SEs in Pakistan. Today, SEs in Pakistan take ona variety of legal forms, which in turn influencetheir character and ability to achieve impact.

A consensus around our proposedrecommendations has emerged from consultativesessions hosted by SDPI and the British Council.Our set of recommendations Includes

• the need to recognise and Identify the vibrantand growing SE sector.

• effort required to put SEs on policymakers'radar and a targeted set of policies as part ofthe annual federal and provincial budgets,trade, industrial and investment policies.

• building the research and evidence basevis-a-vis the scale and scope of socialenterprises in Pakistan

• capacity building for social enterprises interms of scalability, legal and statutorycompliance, financial management. andhuman resource, for example

• ensuring a fair taxation playing field for socialenterprises

• measures to ensure improved access tofinance and access to public procurement

1 The Bottom of the Pyramid (BOP) refers to the four billion world's poorest people. Most social entrepreneurs believe that03 BOP is an unserved market.


• The Centre for Social Entrepreneurship (CSE)established by the Planning Commissionneeds to formulate, through consensus, abroad definition of SE that is easy to interpretwithin the Pakistan context. This definition maybe communicated to SECPso that SE-specificcompany rules can be framed.

• The CSE should develop a comprehensive andcohesive SE policy strategy

• The CSE should work with SECPto develop animproved legal framework for SEs, giving thema (legal) identity,

• The CSE should work with variouspolicymakers at e.g. trade policy at Ministry ofCommerce, sectoral policies at Ministry ofIndustries and Production, investmentframework at Board of Investment etc. and onthe country's development agenda (PakistanVision 2025).

• CSE should work with provincial Planning& Development Departments to embedthe inclusion of SEs in province-specificgrowth strategies.

• The CSE should develop its research capacityto regularly monitor, evaluate and providefeedback on the performance of SEs, and toimprove data and the evidence base on SEs .

• CSE should collaborate with the FBR to devisean effective and fair tax regime for SEs.Werecommend a joint Planning Commission -FBR working group in which representativesof SEs may be co-opted.As part of this proposed working group,provincial revenue authorities may be invitedin order to resolve any double taxation issuesfaced by SEs.

• SECP's legal framework should include SEsin procurement competitions by the publicsector. PPRA should be approached byCSEto amend the rules and introduce aminimum quota for SEs, at least for projectswith social impact..

• Community-benefit or social value clausesshould be included as performance conditions.

In all our recommendations there is an overarching advice to engage with civil society, private sector, local communitiesetc. in the consultation processes.

05 In the UK, questions around the SE sector have been added to the annual survey of SMEs.

CAPACITYBUILDING

• PPAFand SMEDA should lead thecapacity building for SEs in areas such asR&D, business planning, sustainability,scalability, legal and statutory compliance,financial management and humanresource development

• The Trade Development Authority of Pakistanin collaboration with provincial industriesdepartments should support SEs toparticipate in regional and global value chains

• The Ministry of National Food Security &Research should support capacity building inthe case of agricultural SEs in collaborationwith provincial business development armsof the government e.q. Punjab Agriculture& Meat Company and Sindh AgricultureGrowth Project

Summary of Recommendations

ACCESS TOFINANCE• CSE should work with SBP to develop a

financial framework and prudentialregulations that are geared towards meetingthe specific funding needs of SEs.SBPshouldhelp to develop a financial marketplace thatallows MFls to offer tailored financingsolutions to SEs.

• CSEshould make recommendations toSBP to encourage the participation ofinnovative financing models and impactinvestment from business angels, venturecapital, crowdfunding and public privatepartnerships (PPPs)

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• In line with Vision 2025, establish a competitive R&D fund for innovativeproducts and services, particularly in start-up and early-stage SEs

• Convene a working group between government, financial institutions and theprivate sector that seek blended social and financial returns on investments.The group's recommendations should feed into the SBP prudentialregulations proposed for SEs suggested above.

• Convene an inter-provincial co-ordination group for subsidised infrastructuresupport (e.g. land, building and ICT services)

• The inclusion of SEs in public sector procurement competitions andcustomised training programmes through organizations such as SMEDAand PPAF.

• • Work with the Planning Commission's CSEand the SE community to providea set of company rules that group together various organisation models andbusiness structures under which SEs operate.

• Directives to the FBR and provincial revenue authorities regarding the taxregistration of SEs.

• Measures to rationalise costs and minimise time of registration for SEs.

, • Work with the Planning Commission's CSEto introduce SE-specific tax lawsand incentives to help build and grow SEs. SEs contributing to capacitybuilding or export receipts should be allowed sales tax rebates similar tothe terms awarded to other mainstream export-oriented sectors.

• CSE should form a tax working group comprising representatives from theFBR and provincial authorities to reduce the tax related transaction andcompliance costs and remove any double taxation.

• A one-time customs duty exemption on any plant and machinery importby SEs.

• The provincial revenue authorities should consider a reduction in generalsales tax on services provided by SEs.

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••• • Develop a financial framework including prudential regulations gearedtowards meeting specific needs of SEs.

• Work with the Planning Commission's CSEto improve access to finance bymaking microfinance laws more conducive for SEs.

• Ensure a financial marketplace that allows MFls to offer tailored financingsolutions to SEs.A minimum lending quota for SEs may be established.

• Through appropriate amendment in banking regulations, encouragemainstream financial institutions to participate in innovative financing modelsand impact investing, including business angels, venture capital,crowdfunding and PPPs

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• Conduct a detailed regulatory impact assessment focusing on key barriersthat hinder the expansion of SEs. prevent them from exporting and stifleproduct sophistication and diversification.

• Regulation to remove unhealthy and anticompetitive behaviour that harmsproducer and consumer welfare.

• Give directions to relevant government institutions regarding harmonisationof policy and regulatory regimes faced by SEs across the provinces.

• Conduct a detailed study on how the export competitiveness of SEs can beenhanced and on how SEs in other countries were enabled to grow andbecome part of regional and global value chains

• Develop and enhance market access for SEs. including their inclusion invarious trade-related facilitation measures and support services. suchas through the Strategic Trade Policy Framework. formulated by the Ministryof Commerce .

• Host foreign exhibitions showcasing products and services of SEs. TheMinistry of Commerce may access Export Development Fund to allowsubsidized rates to the interested SEs (for logistics and stall costs).

• Create linkages between national and provincial youth programmes with SEsto enhance employment potential of young people. particularly women.

• Increase the size and number of grants for scalable SE initiatives that havethe potential to provide long term jobs.

• Make detailed data of BISP beneficiaries open and available to SEsand a pool for identifying innovative projects that can be funded to grow intoSEs themselves.

• Identify areas where SEs can partner with BISP to offer solutions. such aswhen introducing the Benazir Smart Card and Mobile Phone Banking.

• Provide support to the Planning Commission and provincial planning anddevelopment departments to develop SE support systems

• Provide support to social entrepreneurs and SEs to develop. grow and scalethrough training. mentoring. consultancy and access to investment. throughPPAFand SMEDA.

• British Council and public sector TVET institutions can also help in the designand implementation training. and training of trainers.

• Support social entrepreneurship to become embedded in the curricula andethos of higher education institutions-promote strategic research andcollaboration opportunities as well in schools.

• Embed SE approaches in local civil society organisations. such as throughtrainings to CSOs.

• Persuade other multilateral and bilateral donors to streamline medium tolonger term support for SEs.

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• Make resources available to faculty members in public sector universities fordeveloping SE initiatives at local level.Support the diffusion and scale up of formal and informal innovations inuniversities. such as through funding in rural areas.

• Business schools should be host an annual conference of SEs to shareexperience and showcase their work.

• Support, through financial and technical assistance. public sector universitiesto formally initiate an undergraduate major in SEs

• Integrate university-level volunteering. internship and work placementprogrammes with local SEs.

• Host orientation and job fairs to give students greater awareness of SEs.• Broaden the existing ORIC and business incubation programmes to include

SE start up initiatives.• Conduct research and evaluation on the work of local SEs. for example.

documenting success determinants.

• The Federation of Chambers of Commerce and Industries should develop aprivate sector manifesto for the promotion of SEs.Offer creative forms of support and sponsorship for SEs within their ownbusiness mandate (i.e. exhibitions. marketing and advertising campaigns)

• Share executive talent and provide mentoring to social enterprises• Encourage executive leadership to provide expert advice and stewardship

to SEs.• Purchase products and services of SEs in their business operations and

value chain

• Partner with SEs to deliver innovative solutions to meet societal needs;allowing SEs to use existing networks to provide market access and enhanceoutreach and help SEs identify gaps in public sector service delivery.

• Bring in knowledge and experience to shape the plans of SEs and partnerwith SEs when rolling out new plans and programmes at the grass root level.

• Provide education. training. and networking opportunities to SEs.• Amplify the voice of SEs especially on forums which are usually inaccessible

to SEs• Hold the government, private sector and SEs accountable for actions to

support SEs.• Raise awareness of solutions offered by SEs within the community; provide

credibility and overcome public scepticism.


• Organize through a national association that can be a voice for the sector,for example in with the government.

• Work with electronic, print and social media leaders to seek ways in whichSEs can secure greater public awareness.

• Work with business schools to embed SE in the curriculum and anundergraduate major in SEs.

•••NEWS

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1. Introduction

PAKISTAN STANDS AT A CRITICALJUNCTURE ALONG ITS JOURNEY TOWARDSOCIO·ECONOMIC AND POLITICALTRANSFORMATION.The Government remains committed tocontinuing reforms and the public sectorcontinues to playa critical role in creating anenabling environment for strong and sustainedeconomic growth and poverty reduction. PakistanVision 2025 envisages the private sectorbecoming the engine of economic growthinnovation over the coming years.

Although recent economic advances have beensignificant, 53 million Pakistanis are still classifiedas living in poverty" Unemployment continues toblight the country's labour force of 61.4 million 5

and is a particular issue for young peoplebetween the ages of 20-346 Additionaldemographic challenges, such as high populationgrowth and rising rural-urban migration, as well asgender inequality and human-made and naturaldisasters are putting increasing pressure on thecountry's labour market. Compounding thesechallenges is the fluid security situation as well asenvironmental challenges

The growth of civil society organizations (CSOs),including SEs, in Pakistan has helped support thelimited capacity of the public sector.' Theseorganisations are often providing market-basedsolutions to social problems and can bring lowertransactions costs than the public sector) 8

Focusing on social impact rather than the need tomaximise profits, SEs in Pakistan base their

businesses on principles of mutualism andparticipation, targeting the well-being and needsof their users, local communities and theenvironment in which they operates SEs inPakistan operate across a range of economicsectors, engaging in activities as diverse ashealth, education, energy, housing, retail, trade,and light manufacturing

SEs can help realise the 'demographic dividend'and support local economic and socialdevelopment. SEs have the potential to be a keypart of the solution to the challenges whichPakistan faces, by offering sustainableopportunities for the economic engagement ofPakistan's youth, connecting them with society inmeaningful and innovative ways. SEs can helpcreate assets in deprived and marginalisedcommunities, whilst building the skills andconfidence of young people and empoweringthem to lead independent lives.

We believe that the potential of SEs calls forfurther bespoke support for this sector throughpolicy and legislation, through greaterunderstanding and by removing barriers to thedevelopment of SEs. Engaging the governmentand other institutional stakeholders can helpincrease the recognition, and the positivecontribution of SEs to the socio-economiclandscape of the country

4 Ahmed, A. (2016) Govt's new poverty line to classify up to 59m as poor Planning Commission report Daily DAWN. May31, 2016. http://www.dawn.com/news/1261693 accessed on August 20, 2016.

5 Pakistan Bureau of Statistics, Government of Pakistan, "Labour Force Survey 2014-15 (Annual Report)" (2015)<http://www.pbs.gov.pk/contentllabour-force-survey-2014-15-annual-report> accessed 22 February 2016. Abbasi, A.(2016) states 'As such, by the end of 2014-15, the number of unemployed workers was 3.6 million. However, If thenumber of discouraged workers is Included and the normal Increase In labour force allowed for, the total number ofunemployed rises to 5.3 million'

6 Pakistan Bureau of Statistics, Government of Pakistan (2015)7 See Ahmed (2015b)8 Ahmed, V (20169 Jon Woolfson, "HM Government Consultation On The Regional Growth Fund" (Social Enterprise UK 2010)

<http://www.socialenterprise.org.uk/uploads/editor/flles/Poll-cy IConsu ltat.ons/reqiona I_g rowth _fu nd_consultation _ sec _response _ sept_ 201Opdf> accessed 22 February 2016 12

This research sets out to map the SE policylandscape in Pakistan and assist the Governmentin developing a SE legislative, regulatory andpolicy framework.

WE DEVELOPED AMULTI·METHODRESEARCH STRATEGY.THE FIRST STEP WASAN EXTENSIVELITERATURE REVIEWOF INTERNATIONALAND NATIONALPUBLICATIONS ON SEs,THEORETICALFRAMEWORKS ANDMODELS IN PRACTICE.THIS PROVIDEDSUPPORT FOREXPANDING THETEAM'S CONCEPTUALUNDERSTANDING OFSEs AND THEIR WORKIN PAKISTAN.This was followed by interviews with experts andanalysts in the SE sector. These in-depthinterviews confirmed the need for greater dataand evidence and identified research questionsfor further exploration, key challenges and policygaps at federal: provincial and local level.

2. Methodology

In our initial round, almost a dozen key informantinterviews were conducted. Respondents wereChief Executive Officers or the ManagingDirectors of social enterprises who providedinsight from various perspectives to identifycommon themes and patterns within Pakistan's SElandscape.

In our second round, 235 semi-structuredinterviews were conducted with seniormanagement at SEs.A hundred of these SEs werefrom the informal sector. The cities in which theseinterviews were conducted included Faisalabad,Lahore, Karachi, Peshawar, Quetta and Rawalpindi.A long list was initially generated from records ofSEs held by NRSP,PPAF,SECPand SMEDA Wethen focused on respondents which met ourcriteria, largely relying on the management's owncharacterisation of their work and if they stronglyfelt that their work could be classified as a socialenterprise This information was usually availablefrom the description of their work in registrationdocuments, prospectus, brochures and websites."

In the final phase of this study, a two-day nationalpolicy symposium was organised by SDPI, thePlanning Commission and the British Council todiscuss our initial findings and to hear from awider spectrum of stakeholders. The responsesfrom the symposium were helpful in validating ourqualitative results. The symposium was attendedby the senior political leaders, members ofparliament, relevant civil servants, sector experts,academia and media representatives. The findingsof our survey were corroborated with variousexperts and stakeholders. This final report hasbenefited from the valuable comments anddeliberations from the symposium.

10 In the idenfication of informal SEs, we relied on the UK government's definition i.e. SE may be 'a business withprimarily social objectives whose surpluses are principally reinvested for that purpose in the business or in thecommunity, rather than being driven by the need to rnaxirnise profit for shareholders and owners'. 14-

DEFINING SOCIALENTERPRISESThis study avoided being prescriptive in itsdefinition of SEs. The sector is emerging and formany, it is important that in its nascent stages aninclusive and open approach is taken. Theresearch team focused on observing how SE inPakistan is understood by various stakeholders.Figure 1 suggests the role that social enterprisesplay in society

Where we found respondents or stakeholders tobe less clear regarding their understanding of SEs,the team used the UK Government's definition asa starting point for our discussion. The UKGovernment states that a social enterprise is 'abusiness with primarily social objectives whosesurpluses are principally reinvested for thatpurpose in the business or in the community,rather than being driven by the need to maximiseprofit for shareholders and owners'.

3. SE Landscape in PakistanCountry Overview

Defining Social EnterprisesUnderstanding the Social Enterprise Ecosystem

FIGURE 1: ROLE OF SOCIAL ENTERPRISE IN SOCIETYFor more on social enterprise, the British Council provide a useful starting point here - https://www.britishcouncii.org/society/soclal-enterprlse

UNDERSTANDING THE SOCIALENTERPRISE ECOSYSTEM'Social Enterprise' as an identifiable sector inPakistan is in nascent stages. However, individualorganisations that work primarily for the publicinterest through commercial activities have existedfor a long time across the country, often servingunderserved markets. There is a diverse spectrumof SEs in Pakistan with different legal forms,differing degrees of market orientation andworking towards various social - or environmental- missions. They range from dairy farms toeducational hubs to micro drip irrigation. Somehave potential to achieve sustainable growth andsocial impact, with a few already attracting impactinvestors and business anqels.w The SE ecosystemin Pakistan consists of various actors includingsocial entrepreneurs, NGOs, government bodies,academic institutions, financial institutions,

capacity building organisations, think tanksand others.

The SE ecosystem in Pakistan comprises anumber of domains, each explored below

• Government bodies, namely the CSE and theSmall and Medium, Enterprise DevelopmentAuthority

• Microfinance institutions• Civil society organisations• Local and international support organisations• The private sector• Investors, such as angels and venture

capitalists• Business incubators and accelerators

20 Priya Shah and Shailabh Shubhisham, "Social Enterpreneurship In Pakistan Unlocking Innovation Through EnterpriseIncubation" (EPG Economic and Strategy Consulting 2013)<http://www.eeonomiepoiieygroup.eom/wp-eontentiuploads/down-loadsI20l3/02/EPG-SoClaI-Entrepreneurshlp-ln-Paklstan-Unloeklng-Innovatlon-February- 20131pdf> accessed 22 February 2016. 16

While MFls can serve as an important tool fornurturing and fostering SEs, their ownsustainability issues can limit their risk appetiteand they may tend to lend to less poor segmentsof society. If microfinance is to support SE,mechanisms may be required to focus more onthe promotion of innovation and competitivenessand less on debt repayment.

Branchless banking in Pakistan is one of thefastest developing markets contributingsignificantly to the achievement of universalfinancial inclusion" With the launch of theBranchless Banking Regulation in April 2008,the State Bank of Pakistan has been trying tobring innovative banking solutions to theotherwise 'unbanked' lower income groups andrural population 26

3. SE Landscape in PakistanGovernment

Operating outside the conventional banks,branchless banking relies on information andcommunication technology for transactions thatare carried out via mobile or through nearby retailagents. These services cover deposits,withdrawals, inward and outward remittances,utility bill payments and payments forproducts/services to vendors. The marketdominated primarily by Easypaisa (by TameerMicrofinance Bank and Telenor) and Omni (byUBU, has made it easier to undertake economicactivity in otherwise untapped segments ofsociety. Despite security concerns, includingmoney laundering and terrorism financing, themarket has potential for SEs to capitalise on, as issuggested by the early user adoption and userates 27

25 State Bank of Pakistan, Government of Pakistan, "Quarterly Branchless Banking Newsletter" (Agricultural Credit &Microflnance Department 2015).

26 Muhammad Add Mulki and Syed Adnan Rizvi, "Branchless Banking: Branching Out" DAWN (2014)27 Chris Bold, "Branchless Banking In Pakistan A Laboratory For Innovation" (CGAP 2011)

<http://www.cga p.org/sites/ defa uItlfi les/CGAP-Brief -Bra nchless- Banklng-I n-Pakista n-A-Laboratory-for -Innovaton-Oct -2011.pdf>accessed 22 February 2016 18

SOPI- Social Enterprise Landscape in Pakistan

SMALL AND MEDIUMENTERPRISE DEVELOPMENTAUTHORITY:Established in 1998 by the Government ofPakistan, SMEDA has played a pivotal role inidentifying, mobilising and capacity building ofSMEs across the country. The primary role ofSMEDA is to create an enabling environment forthe growth of the SME sector in Pakistan throughinformed policy making, business developmentservices, facilitation in acquiring finance,knowledge sharing, training, industry supportprogrammes and technical services. It is alsoinvolved in helping SMEs obtain variouscertifications for their products and processes toenhance the competitiveness of the sector. Thewide range of services offered by SMEDA couldplay an important part in building the capacity ofSEs, provided that these can be aligned with SE'sunique need to blend commercial and socialmissions.

THE WOMEN BUSINESSINCUBATION CENTRE(WBIC), ESTABLISHEDBYSMEDASPECIFICALLYTARGETS WOMENENTREPRENEURS BYPROVIDING TRAININGPROGRAMMES TOEXISTING AND NEWBUSINESSES OWNEDAND MANAGED BYWOMEN.

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SOPI- Social Enterprise Landscape in Pakistan

CHALLENGES ANDBARRIERS TO THEDEVELOPMENT OF SOCIALENTERPRISE SECTOROur extensive interviews provided us with a series of challenges and barriers faced by social enterprises.These include a range of policy, finance, capacity and market related challenges. We have set these outin the table below:

Table 2 Gap analysis of social enterprise ecosystem in Pakistan

DOMAIN IDENTIFIED GAPS44

Culture • Lack of a formal association representing SEs• Limited social impact measurement

Finance • Difficulty in accessing finance, particularly loans from the formal sector,accompanied by cumbersome documentation requirements

• Personal credentials of entrepreneurs not considered creditworthy• Impact investors have limited investment capacity and risk appetite

Support • Limited incubator activity, concentrated within universities• Focus on creating and nurturing SEs, less emphasis on the

commercialisation and sustainability of business• Very few accelerators and small in size• Limited complementarity between support organisations

Market • Limited SE networks and no co-ordinated effort to build networks.• Absence of an established platforms for regular conferences or online

communities• Low public awareness of SEs• For export of services of SEs there are no marketing channels at the

government level

Education • Weak formal training and qualifications around SEand almost no SE/socialentrepreneurship courses, university modules or vocational training

• No mechanisms or initiatives to translate skills into employment• Lack of student-led SEs outside of few elite universities and institutes• Negligible research on SEs within the context of Pakistan

Legislation andPolicy

• SE is not an identified sector of legislation and policy priority.• No Standing Committee in the parliament• Laws that promote competition not covering SEs, particularly in case of

intellectual property .• No current thinking on providing legislative and regulatory cover to SEs• No assessment of business rules and regulations faced by SEs• Lack of understanding of SE within public sector

Issues of trust regarding work conducted by SEs particularly thoseregistered as NGOs

44 A majority of the gaps faced by SEs are the same which Small and Medium Enterprises have already been facing In23 Pakistan.

4. Policy Environment for SEs

THERE IS CURRENTLY NO SE·SPECIFICLEGISLATION IN PAKISTAN. HOWEVER,VARIOUS NATIONAL POLICIES ANDPROGRAMMES DIRECTLY AND INDIRECTLYIMPACT SEs. THESE INCLUDE:

1 Any legislation, policy or programme that targets SMEs or MSEs directly or indirectly and is• likely to include SEs

2 Any statutory law, regulatory requirement and procedure that has an influence on the nature• or structure of the SEs

3 Any policy or programme that is targeted at the socio-economic wellbeing of the low income• and marginalised population and focuses on employment generation or livelihood

4 Any policy, strategy or framework that supports economic growth and development, with a• particular focus on small scale industries that have the potential to influence SEs

5 Any initiatives taken by the private sector, NGOs, civil society, government bodies and other• stakeholders that may have relevance to SEs in Pakistan

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SOCIAL ENTERPRI EINDUSTRIAL POLICY


SEs operate in a wide range of industries inPakistan. Historically, the federal and provincialindustrial development policies have focused onlarge scale industries with little or no mention ofsmall scale enterprises. The 1990s witnessed aslight shift in government's priorities toward SMEs,with the growing realisation of the sector'scontribution to the national economy.

Subsequently, SMEs were made an integral part ofvarious economic policies such as the PovertyReduction Strategy Paper (PRSP),the Micro FinanceSector Development Programme, the SME SectorDevelopment Programme, the Education SectorReforms 2001-05, the Reform of the Financial

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Sector and the Reforms in Tax Administration.This inclusion however has not been sufficient tocreate an ideal enabling environment for SMEs ,which would in turn impact on social enterprises

The National Industrial Policy 2011 was drafted toachieve rapid growth in industrialcompetitiveness and value addition. Its executionhas been somewhat limited. . The policy makesa passing mention of SMEs, the formation ofIndustrial Clusters and Science Parks, subsidiesand tax incentives but falls short of focusing onentrepreneurial activities and social innovation.

Nadeem UI Haque, "Entrepreneurship In Pakistan" (2007) Pakistan Institute of Development Economics:Working Papers: 29Matthieu Chemin, "Entrepreneurship In Pakistan: Government Policy On Smes, Environment For Entrepreneurship,Internationalisation Of Entrepreneurs And Smes" (2008) 5 International Journal of Business and Globalisation.Government of Pakistan: SME Issues Paper for Deliberation, "Developing SME Policy In Pakistan" (SMEDA 2007)DAWN, "Industrial Policy" (2012) <http://www.dawn.com/newsI705502/industrial-policy> accessed 22 February 2016.

Hussain and Ahmed (2012)Ministry of Industries and Production, "National Industrial Policy 2011. Implementation Framework" (Government of

29 Pakistan)

4. Policy Environment for SEsSocial Enterprise and Industrial Policy

Statutory and Regulatory Laws

STATUTORY ANDEGULATORY LAWS

Table 4 and Table 5 provide the key statutory laws relevant to SEs in Pakistan. These laws are mostlyfocusing on formalising business operations, the provision of a competitive environment and enablingmarkets to provide finance and the regulation of microfinance.

Table 4 Statutory Laws and Regulatory Frameworks relevant to Social Enterprises

MicrofinanceInstitutionsOrdinance 2001

Issued by State Bank of Pakistan to regulate the establishment, business andoperations of MFls.

Prudential Regulationsfor Microfinance Banks,2014

Issued by State Bank of Pakistan focusing on maximum loan size, eligibilityrequirements for borrowers, and limitations to exposure.

Private Equity &Venture Capital FundRules, 2006

Rules drafted by SECPfor establishing and operating private equity andventure capital funds.

Income Tax Ordinance2001 and Income TaxRules 2002

The Ordinance and Rules that govern the application of taxation to variousorganisations and the exemptions thereof.

Competition Act2010

Issued by the Competition Commission of Pakistan with the purpose ofengendering free competition including the prohibition of abuse of dominantposition, prohibited agreements, deceptive marketing etc.

30


Table 5: Laws/Guidelines for Social Enterprise Registration

CompaniesOrdinance 1984

A broad piece of legislation encompassing all legal rules and regulations forregistration and operations of business, enforced by SECP.Section 42, allowsa company to be incorporated for objectives such as Charity, Commerce,Sport, Religion, Education, Culture, Arts and any other socially useful

Guide on SingleMember Company(SMC)OO

Relevant laws and procedure for establishing SMCs; subject to lower taxrates, and are autonomous in making business decisions.

The Voluntary SocialWelfare Agencies (VSWA)Ordinance, 1961

Registration and control of social welfare agencies, and their associatedmatters with the respective Department of Social Welfare

The Trusts Act, 1882 Public Charitable Trusts may be set up under this Act by executing atrust deed

The SocietiesRegistration Act of1860

Act for the registration of Societies, Associations, Clubs etc. Fine Arts,Science, Museums, Libraries, educational endeavours, think tanks etc

Cooperative SocietiesAct 1925

Act for the registration and establishment of a cooperative.

31

The lack of trust in the judicial system in Pakistan coupled with a relatively weak legal framework canstifle business innovation alongside the weak enforcement of intellectual property rights. Pakistan. asignatory to the TRIPs under WTO. has legislation (Table 6) around the integrated and efficientmanagement of IP in Pakistan. administered by IPO Pakistan. However. Pakistan's rank of 151 out of 189in enforcing contracts still draws a gloomy picture.

A more knowledge-based economy requires that intellectual property laws are properly enforced.

4. Policy Environment for SEsStatutory and Regulatory Laws

LAWSTable 6 Intellectual Property Laws Relevant to Social Enterprises

Intellectual PropertyOrganisation ofPakistan Act. 2012

Patents Ordinance2000. Patents Rules2003

Copyright Ordinance1962. Copyright Rules1967

Trademarks Rules2004. TrademarksOrdinance 2001

Design Ordinance2000. RegisteredLayout-Designs ofIntegrated CircuitsOrdinance. 2000

CONTENT

All subject matters of Intellectual Property i.e Patents. Copyrights.Trademarks. Designs. etc .. and the registries related to these functions

Grant of exclusive rights for an inventor to make. use and sell the inventionfor a limited period of 20 years. Excludes others from making. using. orselling the invention.

Provides the creator of a work of art or literature. or a work that conveysinformation or ideas. the right to control how the work is used.

Registration of Trades and Services Marks with the Trade Marks Registry(TMR)

The ornamental or aesthetic aspect of an article. The design may consist ofthree-dimensional features. such as the shape or surface of an article. or oftwo dimensional features. such as patterns. lines or colour.

In Pakistan. the federal and the provincialgovernments have the authority to enactlegislation in their respective jurisdictions. As aresult. businesses are sometimes unsure of theframeworks in which they are operating. It isestimated that there are around 56 laws thatgovern labour in Pakistan. with some beingindustry specific.

The procedure for registration also differs acrossvarious laws depending on the nature. capitalthreshold. annual turnover. size and geographiclocation of the business. At the same time. manybusinesses who work outside the formal sectorhave dim prospects of growth. low productivityand poor working conditions.

MSMES ALONG WITH MEDIUMENTERPRISES CONTRIBUTE TO30% OF GDP AND EMPLOY 80%OF THE NON-AGRICULTURALLABOUR FORCE IN PAKISTAN.SO A MORE CONDUCIVEREGULATORY AND POLICYENVIRONMENT SHOULD AIM TOSTRIKE A BALANCE BETWEENMINIMISING THE REGULATORYBURDEN, THUS ENHANCINGGROWTH AND COMPETITIVENESS,WITH THE PROTECTION OFTHOSE WHO WORK.

The World Bank. "Doing Business 2016: Measuring Regulatory Quality And Efficiency. Economy Profile Pakistan" (2016)Shahab Khawaja. "Unleashing The Growth Potential Of Smes In Pakistan Through Productivity Enhancement". PakistanDevelopment Forum (SMEDA 2006)Amal Aslam, "Moving Towards Micro And Small Enterprise Lending: Opportunities & Challenges" (Pakistan MicrofinanceNetwork 2013) <http://www.pmn.org.pkiassets/articles/Moving%20Towards%2OMSEL%200pportunities%20and%20Challenges.pdf>accessed 22 February 2016. 32


I

4. Policy Environment for SEsPublic Private Partnerships (PPP)

PUBLIC PRIVATEPARTNERSHIPS (PPP)While there has been a growing recognition of PPPsin Pakistan, the arrangements have primarily beenrestricted to large scale public projects such astransport. logistics, mass urban public transport.energy and industrial projects. Pakistan's Policy onPPPs identifies local government services(including water supply and sanitation, solid wastemanagement. low cost housing, andhealthcare/education and skills developmentfacilities) and social infrastructure (includingeducation, health, culture etc)

The National Commission for Human Development(NCHD) is one example of PPP in Pakistan that aimsto fill in implementation gaps and improve thedelivery of public services within the broaderobjective of achieving education for all. Despitecriticism on the Commission's performance, therehas been some contribution in the areas of health,

Commission has also been entrusted to devise anaction plan for achieving 90% literacy by 2025 inline with first pillar of Vision 2025-humanresource development.

Extending the PPP-model to include greaterinvolvement of the SE sector may requiresupporting legislation. Legislative reforms mayalso be accompanied by a dedicated governmentunit that supports new public service deliverymodels. This task could be performed, in part. bythe CSEwhich would develop rescources andguidelines for ministries and communicate thegovernment's intentions to the public andpotential investors.

---

....

34

'4 Planning Cornrniss.on (2011)5', Infrastructure Project Development Facility, "Pakistan Policy On Public Private Partnerships" (Government of

Pakistan 2010),6 National Commission on Human Development, "How NCHD Is Unique?"

<http://www.nchd.org.pklws/index.php?optlon=com_content&vlew=article&id=SI &ltemld=SS> accessed 23 February 2016.

Irfan Bukhari, "Audit Report Says NCHD Mostly A Failed Programme" Pakistan Today (2011)<http://www.pakistantodaY.com.pkl2011/06/21/national/audit-report-says-nchd-mostly-a-falled-programmel> accessed 23 February 2016.Daily Times, "Ahsan Advises NCHD To Achieve 90% Adult Literacy By 2025" (2015)<http://wwwdallytlmes.com.pklnatlonaI120-Aug-201S/ahsan-advlses-nchd-to-achieve-90-adult-llteracy-by-202S> accessed23 February 2016.


Currently there is no mechanism for co-ordinatingthe collection, analysis and dissemination ofinformation on SEs in Pakistan and onlyfragmented information exists within limitedresources. The information available is oftengeneral in nature and does not always stand upto scrutiny. Without a more evidence-basedunderstanding of the SEsector, it is likely toodifficult for policy makers to formulateappropriate policies and create an appropriateand responsive legal and regulatory framework.

There is an underlying need to develop researchcapacity on SE's contribution to the economy,society and national policies. The CSEat thePlanning Commission should undertakecomprehensive research annually, into the stateof the sector: identifying key growth patterns, thechanging operating environment, accompanyingchallenges and barriers. The State of SocialEnterprise Survey in the UK can serve as abenchmark for this exercise.

37

Mainstreaming SE in the development landscapeof Pakistan requires the creation of acomprehensive SE policy strategy thatsubsequently enables legal and fiscal frameworks.The CSEat the Planning Commission couldformulate such a strategic policy approach withinputs from an expert working group withrepresentation from all provinces and keyinstitutions (e.g. SECP,FBR.CCP etc.),

The policy's goal and objectives should be basedon a vision, prepared and documented inconsultation with representatives of SEs.Social enterprise could also be given greaterconsideration in existing policies, such as theFinance Act, Competition Act and trade policy, forexample. Provincial development strategies (e.g.Punjab Growth Strategy) could also be revisitedfor their consideration of social enterprise.

CSEcould also convene a specialinter-departmental and inter-governmentalcommittee comprising of officials from SECP,CCPand FBR to support this work, also with support ofprovincial Planning & Development Departmentsand revenue authorities.

Many of those consulted during our researchidentified a growing need for SEsto not onlymake the most from their existing skills but todevelop new expertise and capacity.Key areas of support that have been identifiedinclude: business planning, organisationaldevelopment, internal mentoring, legal andstatutory compliance, financial and humanresource management.

Appropriate support services would depend upona comprehensive organisational needsassessment of SEs, reinforcing therecommendation above with regard to evidence.While self-assessment tools are readily availablefor individual organisations, a wider sectoralassessment could be carried out by an externalautonomous organisation or institution. Thisprocess can be facilitated for the PlanningCommission by PPAFand SMEDA.

Academia and the corporate sector can act as away of facilitating collective responses to theneeds and opportunities of SEs.The HigherEducation Commission could take a lead inhosting such a platform to foster productivealliances, promote human resourcesdevelopment, leadership and knowledge sharing.The Social Enterprise Programme by BritishCouncil can help by drawing in experience fromthe UK to create opportunities for socialentrepreneurs, intermediary organisations andinvestors in Pakistan.

5. Findings and Policy RecommendationsBuilding the data and evidence base

Social Enterprise PolicyCapacity Building

Access to Finance and Supportin Taxation Issues

Pakistan's SEs, irrespective of their organisationalmodel or the sector in which they operate, mayseek external finance. Access to start-up financecan be difficult while SEs may be perceived to behigher risk lending propositions.

The SBP could help foster a stronger financialmarketplace through appropriate prudentialregulations that not only allow traditional MFls tooffer tailored financing solutions for SEs but alsoencourage participation of innovative financingmodels and impact investing from businessangels, venture capital, crowdfunding and publicprivate partnerships, for example. The SBP shouldwork together with different stakeholders in theSEsector (NGOs, INGOs, SEs, incubators etc.) todevelop financing options.

The FBR could consider tax-based incentives toencourage thematic investments in SEs, linkedwith improvements in service delivery and timebound, for example. This can be done throughappropriate changes in the Finance Act.

38


Unlike India, where the Public Procurement Bill2012 clearly demarcates the national requirementof 20% of procurement from MSMEs, 4% forMSMEs owned by scheduled castes andscheduled tribes, Pakistan's Public ProcurementRules 2004 and Public Procurement Regulations2011 do not provide any similar rules.

The Public Procurement Regulatory Authority'srules may be amended to allow a quota for SEs inpublic competitions. SEs could also competewith conventional organisations where relevant

and appropriate thereby developing theirtendering skills and building productive capacity.Community benefit - or social value - clauses canbe added as part of the performance conditions.

Procurement processes could be simplified forsocial enterprises to reduce administrativeburdens, guidelines provided for tenderparticipation and where appropriate, contractsreserved for SEs.

39

5. Findings and Policy RecommendationsAccess to Public Procurement

Inter-provincial Co-ordination

INTER-PROVINCIALCO-ORDINATIONA key aspect of a future policy framework for SEs should be the coordination of measures at various tiersof government. In line with the mandate provided by the 18th Amendment, Planning Commission's CSEcan play the role of policy coordination and reform planning for SEs.This could include

• The above mentioned SE policy should provide agovernance mechanism involving regulators andall tiers of the government. In developing such amechanism, inputs from the Ministry ofInter-provincial Coordination may be sought. Theapproval of this arrangement should be soughtfrom Council of Common Interests.

• Work with FBR to develop time bound andoutcome specific, tax-based solutions to helpbuild and grow SEs. Here, the UK's SocialInvestment Tax Relief (SITR)S9canserve as astarting point to encourage investment in SEsand improving access to finance.

• Provide inputs to SBP for revision to themicrofinance laws to create a combination ofgovernment incentives and private capitalinjection that can fuel the growth of SEs. It couldalso include the development of a revolving fundor specialised loan facility for SEs.

• Link and integrate national and provincial youthprogrammes with SEs.

• Provide infrastructural support (such as land,building, ICT services etc.) at discounted ratesincluding the formation of SE zones withstate-of-the-art facilities and support services.

• Work with SECP,CCP and the SE community toprovide a set of company rules that grouptogether various organisation models andbusiness structures under which SEs operate inPakistan. This will facilitate complete legalrecognition of SEs.

• Fund research and development for innovativeproducts and services, particularly in start-upcompanies and early stage technologicalenterprises Funding may take the form of taxcredits, grants, and technology collaborativeprogrammes with academia (including throughHEC) and industry. The government can launch aprogramme on the lines of US Small BusinessInnovation Research Programme (SBIR)6,owhich isa carefully structured competitive programme forfunding and encouraging R&D projects.

• Develop and enhance market access for SEs,including their inclusion in various supportservices, training programmes, educationalcurricula and exhibitions by the TradeDevelopment Authority of Pakistan. This could besupported by a nation-wide outreach campaign.

.•The success of the above initiatives would depend on how well the provincial Planning & Development(P&D) departments are engaged by the CSE.The policies developed by the centre can only serve thedesired purpose if the provincial and local governments are taken fully on board, as they are the keyactors for implementing the policy framework."

S9Government of UK, "Social Investment Tax Relief" (2015) <https://wwwgov.uklgovernmentlpubllcations/soclal-Invest-60 ment-tax-rellef-factsheetlsocial-investment-tax-rellef> accessed 22 February 2016.

United States Government, "Small Business Innovation Research" <https://www.sbir.gov/> accessed 22 February 201661 For details on the capacity to implement reforms at the local level see Ahmed et al (2014). 40


THE ROLEOF PRIVATESECTORThe private sector is well placed to support SEs,through CSR budgets, value chains and investingin mission-driven sustainable businesses. Theprivate sector can support SEs to enhance theirimpact by 64 :

• Collaborating directly or indirectly (via CSE,HEC, universities, and CSOs)

• Offering creative forms of support andsponsorship for SEs within their own businessmandate (i.e. marketing and advertisingcampaigns)

• Sharing executive talent and providingmentoring

• Encouraging executive leadership to provideadvice to SEs

• Using the products and services of SEs intheir business operations and value chain

THE ROLEOF CIVILSOCIETYSeveral CSOs in Pakistan have started promotingSEs, drawing on their local experience CSOs canplay an essential role in supporting andpromoting SEs in Pakistan, for example

• partnering with SEs to deliver innovativesolutions to meet the SDGs and allowing SEsto use existing networks to provide marketaccess bringing in experience to shape theplans of SEs

• partnering with SEs when rolling out newplans and programmes

• providing education, training, and networkingopportunities to build the capacity of SEs

• giving power to the voice of SEs• holding the government, private sector and

even SEs to accountraising awareness of solutions offered by SEs,providing credibility to SEs raising publicawareness.

THE ROLE OF SOCIALENTERPRISESGiven the recommendations for variousstakeholders, SEs may themselves want to thinkcarefully before advocating for greatergovernment involvement. Some organisationsdo not feel the need to engage with thegovernment for legislative, regulatory or policysupport; they felt that the lack of governmentsupport in the early stages of the developmentof a social enterprise culture may be beneficial,allowing them to operate in a more flexibleenvironment.

Others advocated a greater role for government,that recognition through appropriate regulatoryand legislative interventions which wouldeventually lead to greater support (e.g. fromfinancial institutions) and preferential treatment ofSEs (e.g. by revenue authorities) Socialenterprises could establish a national associationof SEs, registered with the Ministry of Commercethat may be regarded as an official body tonegotiate with the government on the needs ofsocial enterprises in Pakistan.

43 64 J. Mark Munoz, International Social Entrepreneurship (Business Expert Press 2010)

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SDPI - Social Enterprise Landscape In Pakistan

ANNEXURE AWE WOULD ALSO LIKE TO THANK ANDACKNOWLEDGE THE FOLLOWINGINDIVIDUALS FOR THEIR CONTRIBUTIONSTO THE REPORT:

Ahsan Iqbal, Federal Minister, Ministry of Planning, Development and ReformsMarvi Memon, Chairperson, Benazir Income Support ProgrammeJim Booth, Deputy Country Director, British Council PakistanAbid Q. Suleri, Executive Director, SDPIMalik Uzair Khan, Member National Assembly and Coordinator, Prime Minister'sYouth ProgrammeFaheem-ul-Islam, Member Private Sector Development, Ministry of Planning, Developmentand ReformsAsif Ali, Vice Chancellor, Muhammad Nawaz Sharif University of AgricultureNoshaba Awais, Deputy Director, Research and Development Department, Higher EducationCommissionNisar Ahmed, Deputy Chief (Incharge), Social Welfare Section, Ministry of Planning,Development and Reforms.Hamid Mehmood, Assistant Chief, Ministry of Planning Development and ReformsShazia Khawar, British Council PakistanSadia Rehman, British Council PakistanZeenia Faraz, British Council PakistanTristan Ace, British Council, United KingdomAhmed Qadir, Director General, Competition Commission of PakistanSaqib Siddiqui, General Manager Sector Development, Pakistan Poverty Alleviation FundSheharyar Tahir, Head, External Relations, Small and Medium EnterprisesDevelopment AuthoritySadaf Mahmood, Enterprise Development Strategist, Seed VenturesDan Gregory, Head of Policy, Social Enterprise UK, United KingdomMohini Bhatia, Development Finance Specialist, World Bank, IndiaEhon Chan, Executive Director, Social Entrepreneurship, Malaysian Global Innovation &Creativity CentreMaryam Mohiuddin Ahmed, Director, Social Innovation LabKamran Shams, Member Board of Directors, Akhuwat FoundationUmar Farooq, Founder, Tech ValleyMansoor Malik, Chairman, Kamyab PakistanMaria Umer, Chief Executive Officer, Women's Digital LeagueMeenah Tariq, Acceletor Lead, Invest21nnovateAzhar Qureshi, Chief Executive Officer, Eco-Conservation InitiativesBabar Zahoor, Founder, Open Source Foundation of PakistanWasim Hashmi Syed, GM Monitoring, National ICT, R&D FundsMavra Bari, Manager, WECREATEMusstanser Tinauli, CEO of Fori Mazdoori (Skill Bazaar)Faisal Khan, Founder, Peshawar2.0

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