LONDON: A new form of hybrid business is fast emerging in Pakistan, perhaps unknowingly even by those who are involved in developing it. For ease of reference, this may be called the Social Private Partnership (SPP).
In this form of business, a private business is developed around a not-for-profit activity, or vice versa. According to the Aga Khan Foundation, the total number of registered and unregistered Non-Governmental Organisations (NGOs) in Pakistan is 45,000, out of which only a few hundreds are effective in achieving their objectives; others are either bogus or ineffective.
Amongst those playing a significant role in the social sector of the country, many have developed commercial businesses around not-for-profit activities. Perhaps the most powerful NGO in Pakistan is Fauji Foundation, directly or indirectly benefitting almost 7% of the country’s population.
Although a not-for-profit organisation, it derives about 80% of its revenue from commercial activities like production of cement, electricity, healthcare, education and banking and finance, among others.
Islamic Finance interlinking with SPP
In most cases for SPP to emerge, it is a pre-requisite that a credible not-for-profit venture is already developed or has been in existence. For example, Akhuwat - the largest provider of interest-free micro loans to the underprivileged in Pakistan - is stepping up its operations. It has entered into a partnership with a leading Islamic bank in the country and another international Islamic financial advisory group to start a Mudaraba company exclusively focusing on agriculture financing in the rural areas.
Mudaraba is a contract whereby one side, the investor contributes money, and the other side, the manager does the work. The investor bears all losses, and the manager earns a profit share.
Unlike Akhuwat’s existing focus — interest-free micro loans — it is now entering into the domain of Shariah-compliant agriculture financing, which is purely a commercial activity for Akhuwat’s partners. It must be clarified that Akhuwat remains within its remit of being a not-for-profit organisation, focusing on the welfare of the underprivileged classes in the society.
The new Mudaraba company, to which Akhuwat is a partner, will, however, be a commercial enterprise. The partnering Islamic bank will also introduce branchless banking through this Mudaraba to increase its outreach to the financially excluded.
There are numerous other NGOs in the country which have combined or extended not-for-profit businesses to the commercial activities. For example, Kawish – an NGO with 120 schools offering free/affordable education to the poor – also offers Shariah-compliant microfinance for the purchase of fertilisers by small farmers. The microfinance is offered through the local teachers working in the Kawish-run schools. Kawish offers competitive returns to the private investors who look for Shariah-compliant and welfare-oriented business opportunities.
According to Akhuwat’s founding member of the Board of Directors, Muhammad Saleem Ranjha, “There are scores of wonderful projects up and running in the country, and there was a need to connect them.
“This connectivity has started emerging not only between NGOs, but also NGOs and private businesses. This is expected to improve the socio-economic impact through a joint and coherent effort by the NGOs.”
“We are in the process of developing a joint platform for NGOs to consolidate their efforts to create an impact rather than creating unnoticeable small changes here and there,” says Pakistan Institute of ICT’s for Development’s Chief Executive Officer Ammar Jaffri.
Given the potential size of the social enterprise in Pakistan, it is expected that this new form of SPP may become a model for replication by governments who are looking for privatisation through the Public Private Partnerships (PPP). According to some analysts, this has already started emerging.
A number of public sector programmes, including the prime minister’s Youth Programme, are partially being offered through NGOs that have proven to be more cost-effective than the government bodies.
“In case of social loan disbursement, for example, the cost of delivery by a government body could be four to five times more than what Akhuwat’s loan disbursement may cost,” says Ranjha.
This is indeed an interesting phenomenon that should attract the attention of a number of multilateral organisations that are looking for deploying funds for socio-economic development in the countries like Pakistan.
The writer is a PhD in economics from Cambridge University and is the chairman of Edbiz Corporation, a London-based Islamic financial advisory group
Published in The Express Tribune, July 21st, 2014.
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