The accreditation would also allow eligible social enterprises to provide tax deduction receipts to people—be it individuals or companies—who’ve donated to them. This would, in turn, encourage donation. The accredited enterprises also get added to the Ministry of Entrepreneur Development and Cooperatives’ (MEDAC) public directory, enhancing their visibility.
“I would say the SE ecosystem is currently at the point where the startup ecosystem was seven years ago. We see a win-win solution in using social enterprises to drive entrepreneurs with innovative solutions to commercialise their ideas, and at the same time, help alleviate social and/or environmental issues,” says Dzuleira Abu Bakar, MaGIC CEO.
For KitaFund, gaining the accreditation would be a huge plus. Co-founder and CEO Tengku Syamil said the tax incentive will be a major draw for the public to donate to ongoing fundraising campaigns on KitaFund.
A middle-child country
The main hurdle for social enterprises is still…funding.
The platform is Syamil’s second, as he previously founded Skolafund in 2015, when he was still a university student. Skolafund is a crowdfunding platform that helps low to middle-income families fundraise for education fees. It was fully acquired by an unidentified regional donation crowdfunding platform in October 2019 for an undisclosed amount. It was “very close” to breaking even when it was sold, says Syamil.
Biji-Biji tried the conventional venture funding route two years ago when it wanted to expand the offerings of its alternative education arm Me.reka, but alas, expectations between the social enterprise and VCs were quite unmet.
“They [the VCs] were pursuing fast growth businesses like 5x to 10x in a few years and were looking to exit between five to seven years’ time. But for a social enterprise model, it requires patient capital where investors may be looking at a timeline of at least 10-12 years,” says Rashvin Pal Singh, Biji-Biji’s co-founder and CEO.
Exploring the alternative
Me.reka then turned to equity crowdfunding, which helped it to raise US$380,000 (or RM1.6 million) across 121 investors, exceeding its initial funding target of RM1 million.
Jeremy Loh, co-founder and managing partner of Singapore-based venture debt firm Genesis Alternative Ventures, however, argues that the investment holding period depends on the scalability of a business. “If your business can scale across the region and have received VC or private equity money to accelerate the business growth, then fund managers will definitely come for the returns and stay for the impact,” he says.
Southeast Asia has a very diverse set of countries with different problems across the region that requires a tailored approach. This results in the impact investment sector developing on a slower space compared to India, Sub-Saharan Africa or Latin America as they’re similar to each other economically, notes Adi Sudewa, a Jakarta-based senior investment manager for India-headquartered impact investment firm Aavishkaar.
The startup ecosystem in the region is skewed towards tech and digital consumer sectors, hence, driving a tech-focused industry to working with low-income groups will require the combined efforts of investors from different asset class (eg. family offices, VCs, institutionals) and regulators or the government.