AN APPRAISAL OF CONCEPTUAL FRAMEWORKS OF SOCIAL ENTERPRISES: FOCUS ON THE CASE OF

ETHIOPIADesalegn Deresso Disassa

Assosa University, Ethiopia

Abstract

Nowadays, in Ethiopia, the private business sector and the non-profit sector are becoming more intertwined with one another. The distinction between the for-profit and non-profit sectors has become highly blurred. Social enterprise which may be set up in forms of non-profit and for-profit is one manifestation of this overall pattern. A social enterprise can be broadly defined as businesses that trade for social purposes or addressing socio-economic and environmental problems. Such a socially conscious business is a new horizon of hope for destitute Ethiopian. Such a business needs to be nurtured. Unfortunately, in Ethiopia, social enterprises (SEs) is subjected to the existing legal regimes designed for conventional for-profit and non-profit organizations. In this context, this article tries to examine conceptual frameworks of social enterprise in Ethiopia and set a foundation for further researcher through qualitative analysis of existing literatures and the primary source of data. As the finding has revealed, the meaning of SEs is yet unsettled. Ethiopia lack any formal definition or characterization of SE. As a result, the British Council and the Association of Social Enterprise Ethiopia have tried to fill the gap through their operational description of Social enterprise. Because of its idea of doing charity by doing trade and doing charity while doing trade, social enterprise share features of both conventional for-profit and non-profit, but distinct. The birth of SEs is the result of private and not a government initiative. It is the result of the commercialization of non-profit and socialization of for-profit. The need for SE is highly justified by the shortcoming of the traditional sectors, the existence of severe social problems, its positive contribution to development, the existence of huge market needs and interests, and the constitutional right of everyone to trade for the social end. As of today, in Ethiopia, SEs are subjected to the existing legal regimes designed for traditional for-profit and non-profit. Indeed, the existing legal regimes do not prohibit the operation of both non-profit organizations and for-profit organizations as social enterprises lacks a system of recognition. Based on this, the researcher called for further research in the area of adequacy and suitability of existing legal regimes to address the special regulatory concern of SEs, adequacy of the existing policy frameworks of support for SEs, and practical challenges suffered by SEs.

Keywords

Social enterprise, social business, commercial nonprofit, social economy, and social entrepreneurship

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Introduction

Globally, social enterprise (SE) is an emerging concept in the for-profit and non-profit sectors of the economy. Nationally, this concept gets its first look within literatures in this decade. A study conducted by the British Council in 2016 show the existence of more than fifty thousand SEs in Ethiopia. Despite this fact, the concept of SEs is not known to most academicians and policy-makers. It is also not uncommon to see a confusion of SEs with other related concepts like association and for-profit firms. As a result, there is a need to examine and introduce the concept of SEs in Ethiopia to set a landmark for further researches. In this article, the author examines the conceptual frameworks of SEs in Ethiopia by exploring the existing literatures, legal instruments, and practices. In this context, the first section explores the debated definitions and characteristics of SEs in answering the question ‘what SEs is’. The second section explores the origin, development of SEs as well as the reason for the birth of SE as a distinct business model. The philosophical discourse among scholars of right-wing and left-wing regarding the issue of whether SEs is capitalist, socialist, or new ideology with the capacity to reshape or replace capitalism and socialism is also examined. After firmly establishing the philosophical foundation of SEs, the article, discusses the similarities and differences of SEs with related concepts. The advantage and disadvantages of SEs is also addressed. The article also tries to show a general overview of the legal regime for SEs. Finally, the article provides a concluding remark.

1. What is Social Enterprises

Answering the question of what is SEs is fundamental in designing a legal and institutional framework for it. When the government wants to create a legal and institutional framework for SEs, the first issue it faces is should it seeks to define or characterize SE or leave it to academicians, practitioners, and other commentators.1 In describing SEs, defining and characterizing are two widely used approaches. Those who adopted the first approach describe SEs with a general statement of its nature. In contrast, those who have adopted the second approach set criteria used as a means of distinguishing SEs from conventional business or charity. The issue of which approach is better remains controversial. Against this backdrop, the way SE was described under two approaches is briefly examined as follows.

1.1. Definition

The SE is a much fluid and contentious issue lacking a universally accepted definition.2 Whilst the term SEs has been rapidly gaining currency in recent years, there is still significant divergence on its meaning.3 There is no single concept of SE in the world. The divergence in the definition of SEs has resulted in a great deal of conceptual confusion. Despite this, when

1Anna Triponel & Natalia Agapitova, Legal Framework For Social Enterprises Lesson From Comparative Study Of Italy, Malaysia, South Korea, United Kingdom, And United States, 6 (World Bank Group Working Paper. No 114405, 2017). 2 Moga Tano Jilenga, Social Enterprises and Economic Growth: A Theoretical Approach and Policy Recommendations, 7:1 INT’L J. ACAD. RES. IN ACCT. FIN. & MGMT. SCI.,41, 42 (2017); Andrew Rogerson, et al., Mixing business and social What is a Social Enterprises and How Can We Recognize One?, 1(Shaping Policy for Dev. Odi.Org, Working Paper, 2013).

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policymakers want to create a tailored legal framework, the first issue it faces is should the government seeks to define SE or leave the definition to be filled by academicians, practitioners, and other commentators.4 Regarding this issue, some states left the issue of defining SE for academicians and practitioners, while others adopt the definition of SE either by law or the executive branch.5 Concerning this, the stand of Ethiopia is yet unknown as SE has not received government attention.

The framer of the concept of SE, Freer Spreckley described SEs as ‘an enterprise that is owned by those who work in it and/or reside in a given locality, is governed by registered social as well as commercial aims and objectives and run cooperatively.’ This definition and description is historic and brainstorming one to indicate blended social and commercial objectives, but limited to SE owned by workers. The other celebrated definition of SE is mounted by the Nobel Prize Winner, Muhammed Yunus. Professor Yunus described his SEs model-“social business” as a non-loss, and non-dividend companies dedicated entirely to achieving a social goal.6This model of SE is a selfless business whose purpose is to bring an end to multifaceted social problems. In this kind of business, the company makes a profit but no one [shareholder/owner] takes the profit. The owner can take back over a while only the amount invested. In doing so, Yunus’s type of SE is limited SEs to not-for-profit SEs excluding for-profit SEs which distributes limited profit to shareholders, and non-profit SEs in which member lack the right to take back their initial contribution. In social business, creating social impact is the sole purpose of the business. In other words, it is not the aim of social business to promote the profit motive of shareholders or owners of the business. In such a business, the owner owns only corps whiles the society or community owns the soul of the business. Besides, Robert A. Katz and Antony Page have defined SE as an organization or venture that achieves its primary social or environmental mission using business methods, typically by operating a revenue-generating business.7So defined, a SE may be organized as either a nonprofit or for-profit entity. It can also be set up using an organizational form specifically designed for SEs that seeks to “hybridize” or blend components of both nonprofit and for-profit endeavors. This definition is broad enough to cover both non-profit and for-profit SEs. Here, non-profit SEs imply organization or venture that works only to create social impact (attain social and environmental mission) whereas for-profit SEs have both profit and social maximizing goals.

Besides academicians, some countries have tried to define SE by their law or executive organ. The best examples are South Korea and the United Kingdom (UK). Under the South Korean Social Enterprises Promotion Act, SE is defined as ‘an organization which is engaged in business activities of producing and selling goods and services while pursuing a social purpose of enhancing the quality of local residents' life by means of providing social services and creating jobs for the disadvantaged.8 The term “producing and selling” show that SE may be an investor 3 Jim Brown, Defining Social Enterprises, U. of Bristol, http://www.huckfield.com/wp-content/uploads/2014/05/02-Brown-Defining-Social-Enterprise.pdf; Lanisia Rhoden, The Capacity of NGOs to Become Sustainable by Creating Social Enterprises, 2:2J. OF SMALL BUS. & ENTRE. DEV. 1, 11 (2014); Jilenga, supra note 38, at 42; François Brouard & Sophie Larivet, Essay of Clarifications and Definitions of the Related Concepts of Social Enterprise, Social Entrepreneur and Social Entrepreneurship, in HANDBOOK OF RESEARCH ON SOCIAL ENTREPRENEURSHIP 29, 29(Alain Fayolle & Harry Matlay eds., 2010).4Triponel & Agapitova, supra note 1 at 8.5 Triponel & Agapitova, supra note 1 at 8, 9, and 38.6 Triponel & Agapitova, supra note 1 at 16.7 Robert A. Katz & Antony Page, The Role of Social Enterprise, 35VERMONT L. REV, 59, 59(2010).8The South Korea Social Enterprises Promotion Act. No. 8217, art.2 (2007).

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and/or trader who engage in the production and distribution stage of the economy. In South Korea, SE is limited to certified organizations (non-profit or for-profit) that provide services and create a job for disadvantaged. As a result, an organization without a certificate that engages in business activities while pursuing social purpose are excluded from the ambit of SE. The concept of SE is broad enough to include social services and employment opportunity suppliers for disadvantaged who is unable to compete in the market to get the services and/or jobs. In the UK (country seen as the birthplace of SEs), the Government defines SEs as a business with primarily social objectives, whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximize profit for shareholders and owners.9The word “principally” shows the primacy of social mission over financial goals in its business. The UK Government clarified SEs’ social mission stating that ‘SEs tackles a wide range of social and environmental issues and operate in all part of the economy. By using a business solution to achieve public goods, the government believes that SEs have a distinct and valuable role to play in helping to create a strong, sustainable, and socially inclusive economy.

In countries where the government is latent to define SE, civil society plays a big role. The best example here is Canada and Ethiopia. In Canada, SE Council defined SEs as businesses owned by nonprofit organizations that are directly involved in the production and/or selling of goods and services for the blended purpose of generating income and achieving social, cultural, and/or environmental aims.10This definition limits SEs to non-profit (commercial nonprofit) excluding for-profit SEs which may adopt the for-profit or hybrid legal form. Ethiopia lacks both legal (law) and working (government) definition of SEs. Yet, SE has not get government attention. As a result, the Association of Social Enterprise (SEE) has taken a big step in defining SE as a business that has a social impact and economic profit to scale up the social impact.11The term “business” differentiates SEs from a conventional charity. Besides, the SEs has a double-bottom line or purposes (missions) i.e. creating social impact and generating economic benefits. The term “…economic profit to scale up the social impact” indicate that economic gain is used to increase social impact. It is less clear as to the issue of whether creating social impact is the primary or sole objective of SEs. The members of SEE and other firms who declare themselves as SEs informal declare the primacy (at least) of social objective over the commercial objective. However, this cannot prove the genuine primacy of social mission.

To conclude, SE is a business model to solve social problems, and not legal form as it may be set in different forms. The social missions must be exclusive, at least primary goals, and profits made by SEs must be chiefly reinvested for a social purpose not distributed for the owner. It may engage in a different sector of the economy.

1.2. Characterization

The use of the general statement in defining SEs is difficult to make it operational.12Besides, incorporating all qualities of SEs within a single general statement is difficult and thereby makes

9The United Kingdom Department of Trade and Industry, Social Enterprise: A Strategy for Success, 7 (2002); Rhoden, supra note 3, at 12; Community Southwark, An Introduction to Social Enterprises, 1, (2016); Jacques Defourny, Concepts and Realities of Social Enterprises: A European Perspective, in HANDBOOK OF RESEARCH ON SOCIAL ENTREPRENEURSHIP 57, 65 (Alain Fayolle & Harry Matlay eds., 2010).10 Moga Tano Jilenga, Social Enterprises and Economic Growth: A Theoretical Approach and Policy Recommendations, 7:1 INT’L J. ACAD. RES. IN ACCT. FIN. & MGMT. SCI.,41, 43 (2017).11 Memorandum of Association of Social Enterprise Ethiopia, Art. 4(g) (Unpublished Internal Document).

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the definition non-descriptive. Following this, characterizing SEs has been seen as the best alternative to describe what social enterprise is.13 As of today, organizations including the European Commission and European Research Network on Social Enterprises (EMES) have formulated their characterization of social enterprise.

As part of its Social Business Initiative (SBI) (2011-2014), the European Commission characterized SEs as: ‘an operator in the social economy whose main objective is to have a social impact rather than make a profit for their owners or shareholders. It operates by providing goods and services for the market in an entrepreneurial and innovative fashion and uses its profits primarily to achieve social objectives. It is managed in an open and responsible manner and, in particular, involves employees, consumers, and stakeholders affected by its commercial activities.’14 Based on this, SE is a business: the social objective is the reason for the commercial activity; profits are mainly reinvested for social objective; operate in entrepreneurial and innovative ways; the method of organization or ownership system reflects its mission. In doing so, SE includes businesses providing social services and/or goods and services to vulnerable persons; and/or businesses that create a job for disadvantaged.

The EMES developed locating (not qualification) criteria that enable researchers to locate the position of entities relative to others.15Those criteria of SE are: (a) a continuous activity producing goods and/or selling services; (b) a significant level of economic risk; (c) a minimum amount of paid work; (d) an explicit aim to benefit the community; (e) an initiative launched by a group of citizens or civil society organizations; (f) a limited profit distribution; (g) a high degree of autonomy; (h) a decision-making power not based on capital ownership; and (i) a participatory nature, which involves various parties affected by the activity’.16These indicators were presented in three subsets: economic, social, and governance indicators.17 Accordingly, the first three are classified under economic and entrepreneurial dimensions; the next three criteria indicate the social dimensions whereas the last three criteria indicate the participatory governance model of SEs.

In Ethiopia, there is no formal characterization of SEs by the government. However, the British Council and SEE have formulated their operational characterization. To study the state of SEs in Ethiopia, the British Council developed SE inclusion criteria met by organizations or individuals to be identified as SEs.18The inclusion criteria were classified into two-primary and secondary criteria. The first primary criteria of SEs are the core mission of an organization (social and environmental mission). There is no business without a social impact. What makes the social impact of SEs distinct is that it neither incidental nor secondary; instead, it is a core objective which constitutes the purpose of establishment. There is no SEs without a social or

12Jacques Defourny, Concepts and Realities of Social Enterprises: A European Perspective, in HANDBOOK OF RESEARCH ON SOCIAL ENTREPRENEURSHIP 57, 65 (Alain Fayolle & Harry Matlay eds., 2010).13Defourny, supra note 12, 65.14European Commission, Social Bussiness Initative, supra note 13; Defourny, supra note 12, 65.15Defourny, supra note 12, 68; Jacques Defourny & Marthe Nyssens, The EMES Approach of Social Enterprises in a Comparative Perspective, 12 (EMES WP no. 12/03, 2012).16 Jacques Defourny, From Third Sector to Social Enterprises, 20 (2001); Jacques Defourny & Marthe Nyssens, The EMES Approach of Social Enterprises in a Comparative Perspective, 8&9 (EMES WP no. 12/03, 2012).17Jacques Defourny & Marthe Nyssens, The EMES Approach of Social Enterprises in a Comparative Perspective, 8 (EMES WP no. 12/03, 2012).18 BRITISH COUNCIL, THE STATE OF SOCIAL ENTERPRISES IN ETHIOPIA 6&7 (2017). .

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environmental mission. Hence, an organization with the core mission of only profit-making or profit first was excluded from being considered as SEs. The social and environmental missions are the core mission of SEs either independently or jointly with profit-making. The mission differentiates SEs from a traditional for-profit business. The second primary criterion is the source of income-earned income contribution. To be considered as SEs at least, 25% of the income of an organization should be generated from commercial activities.19A minimum of 25% earned an income is low relative to foreign experiences (> 50% or 75%) as it not sufficient to maintain financial independence and sustainability of SEs. In Ethiopia, almost all CSO the generate majority of their income from a source other than trade. Income from trade accounts for only a minimal portion of their income. For example, the contribution of income from the trade of the Elilita Woman at Risk (Elilita Product),20 and Jerusalem Children and Community Development Organization (JeCCDO) who consider themselves as SEs are less than 10% of their total income.21 In contrast, founders (which are Private Limited Company (PLC)) of SEE who declare themselves as SEs generate the majority of their income from trade. The third but secondary criteria are the purpose for which an organization uses its profit or surplus. The reinvestment of profits in social mission is a clear indicator that an organization is not set up primarily for owner or shareholder value. The matter for which profit is used distinguishes SEs from ordinary business. British Council excluded an organization that uses their profit for only profit-sharing from being SEs if its mission is profit first. Based on criteria developed by the British Council, profit distribution alone does not exclude the organization or individual unless its core mission is only profit maximization. An organization whose core mission is only social or both social and profit mission may not be excluded because it uses the profit only to distribute to the owner. This indicates the possibility for an organization to be considered as SEs even in case it distributes the whole profit among owners. This is a fundamental flaw since it is difficult to claim to have a social mission without principally reinvesting the profit for a social purpose. Organizations that use the profit or surplus for growth and development activities, rewards to staff and beneficiaries, cross-subsidizing, reserves, funding the third party social or environmental activities, and other activities may also be considered as SEs pursuant of criteria adopted by British Council.22

The second characterization of SEs is developed by SEE under its draft SEs Eligibility Guideline (SEEG). The SEEG contains lists of redundant criteria used to assess membership applications.23The eligibility criteria can broadly be classified into two: entrepreneurial and social criteria. The social criteria include (1) clear social and/or environmental missions to address social needs and service gaps;(2) clear allocation of resource to fulfill missions;(3) clear intention of management or founder to make social and/or environmental goals the core objectives of the business;(4) reinvestment of majority of profits back into the SEs; and (5) 19In other word, organizations which collect 75% and above of its income from non-trade sources (grant, donation, government subsidies, and other) are excluded.20 Business wing of Elilita Woman at Risk operate with business license under using sub-TIN. 21Interview with Chief Executive Officer, Elilita Woman at Risk, Elilita Product, in Addis Ababa(March 29, 2019); Interview with Chief Executive Officer, Jerusalem Children and Community Development Organization, in Addis Ababa (2019).22 BRITISH COUNCIL, supra note 18 at 7.23The Association of Social Enterprises Ethiopia Bylaws Membership Term and Conditions, Social Enterprises Eligibility Guideline (unpublished), (2018).

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majority of [income] controlled in the interests of the social mission rather than shareholders. The entrepreneurial criteria include a clear business plan to achieve financial sustainability and profitability; and generation of revenue through trade.

As easily surmise from the above characterizations, the major features of SEs can be inferred from the terms “social” and “enterprise” which constitute “Social Enterprises”. The term social indicates social dimension whereas the term enterprise indicates enterprise dimension. Consequently, SEs is organizations that have adopted an earned-income strategy to pursue and finance its social mission as its primary or sole goal. Afar, participatory, and democratic is emerging as a governance model for SEs. It is businesses that do more than make money.

2. Genesis and Development of Social Enterprises

The concept of integrating social aims with profit-making has been an emerging trend in the world today.24Social Enterprise is at the very core of this new movement to integrate social aims with profits. SEs have a long history around the world, though under different names and with different characteristics.25Social enterprises have been in existence for many centuries but only came into prominence in recent decades when the name has been used to identify them. The SEs is relatively a recent phenomenon developed as a distinct concept in 1978 by Freer Spreckley in the UK.26At that time, the concept of SEs had five main principles: common ownership where every member have one voting share and different forms of investment; democratic governance where member have one vote; trading and financially viable independence; creating social wealth, and operating in environmentally responsible ways.

The emergence of SE sectors has taken different paths in different regions. In Western Europe, the emergence of SE is attributed to the economic downturn of the 1970s which led to decreased economic growth and increased unemployment.27 To cope with the social problems, they created SE which provides social goods and services and employs disadvantaged (worker integration SE). The SE sector receives strong support from governments. The Government saw SEs as partners through which they could address the socio-economic problems brought about by the economic circumstances that their welfare states were unable to effectively address. In Eastern Europe, the emergence of a SE was brought about by the withdrawal of the state’s roles in the economy, due to the fall of communism that led massive dislocations in the economy and high levels of unemployment, while also simultaneously reducing the role played by the state in addressing these various socio-economic issues.28 Foreign actors played an important role in catalyzing the development of the SE sector as a viable tool for addressing socio-economic problems. Nonetheless, a relatively underdeveloped sector, due to legal and institutional constraints as many East European countries does not permit the conduct of economic activity as a primary operation by the third sector. In the USA, SE emerged as a result of a shift toward 24Daryl Poon, The Emergence and Development of Social Enterprise Sectors, 8SOC. IMPACT RES. EXPERIENCE, 8 (2011). 25 Aiken, M., Taking the Long View: Conceptualizing the Challenges Facing UK Third Sector Organizations in the Social and Welfare Field, in Evers, (2010).26Michelle Therese Hackett, The ‘Everyday’ Political Economy of Social Enterprises Lessons from Grameen Shakti in Bangladesh, 25 (July 2012) (PhD desertion, University of Adelaide).27Poon, supra note 24, at 18 &19.28Poon, supra note 24, at 19.

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commercial revenue generation because of cuts in government funding for NPOs which increased competition for funds due to the growing number of non-profits and rising social needs.29NPOs saw commercial revenue as a means of replacing government funding. This thus paved the way for the emergence of SE as a widely accepted tool toward addressing social problems due to a necessity resulting from the withdrawn role of the state. The shift toward SEs was strongly supported and reinforced by private foundations and academic institutions. In Africa, like the US, the emergence of SE has highly attributed to the reduction of state funding, and increasing social problems and support provided by foreign aid led many NPOs to incorporate SE models to enable sustainability in delivering goods and services to the public.30 The concept of SEs was introduced by organizations such as US Ashoka Foundation, British Council, and Reach for Change Africa.31

For many years, SE was associated mainly with NPOs who embraced earned income strategies as a means to reduce their dependence on donations and grants and to advance their missions. 32 Relatively, it is more recently that the term or concept of “SE” has been applied to some for-profit business ventures with social missions.33These entities are for-profit SEs. Nowadays, social entrepreneurs are shifting their focus away from charity towards SEs. As interest in SE grows, so does interest in legal and regulatory strategies to encourage the creation and flourishment of the sector. In response, legislators, practitioners, and scholars are working on exploring organizational forms and public policies to promote SEs. In recent years, many countries have enacted a variety of legal forms intended to foster the creation of non-profit SEs and for-profit SEs. The concept of SEs made its first formal appearance in Italy (1991) following the creation of a specific legal form named ‘social cooperatives’ at the very heart of the third sector.34 Other European countries followed the footstep. Nowadays, over eighteen European states have some form of legislation that recognizes and regulates SE. Some of the legal form created in Europe includes “Community Interest Company”, “Social Purpose Company”, “Social Cooperative”, “ESUS enterprise” “Social Enterprise ex-Lege”, “Social Initiative Cooperative”, “Limited Liability Social Co-operative.” Beyond Europe, the quest for special legal form for SE has received positive feedback in every corner of the world.35 In the USA, different states have adopted different legal forms including “Low-Profit Limited Liability Company”, “Social Purpose Corporation”, “Flexible Purpose Corporation”, “Benefit Corporation”, “Public Benefit Corporation”, “Benefit Limited Liability Company”, and “B-Lab Certified Corporation”.36 In Asia, the SEs is a growing sector accompanied by special law, legal forms, and status in countries such as South Korea, Japan, Taiwan, and Vietnam. In Africa, SEs is a growing sector. However, as compared to the rest of the world the legal regime of SE is lagging. Up to date, no single African countries created special legal form or status for SEs.

29Poon, supra note 24, at 15.30Poon, supra note 24, at 16.31David Littlewood & Diane Holt, Social Enterprises in South Africa, 4 (Intl Comp. Social Enterprises Model Working Papers No. 02, 2015).32 Katz & Page, supra note 7, at 60.33 Katz & Page, supra note 7, at 60.34 Defourny, supra note 12, at 57.35Defourny, supra note 12, at 57.36B-Lab is private-sector accreditation scheme which provides standards for “social enterprises” and that certifies businesses for compliances with its standards. J. Haskell Murray, The Social Enterprises Law Market, 75:2:6 MARYLAND L. REV. 541, 543 & 544 (2016).

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SEs is established and driven by a selfless (at least not selfish) person dedicated to solving social, economic, and environmental problems that have long plagued humankind.37Serving needy is the culture of Ethiopian people. The notable example is Gursha. Though the exact time is unknown, SEs has a long history in Ethiopia, most probably since the days of private business and charity. Besides, there is a claim that SEs has a long history in Ethiopia in the form of traditional self-help associations (SHAs) such as Equb, Mahiber, Senbete, and Iddir. However, this assertion lacks plausibility as they were member-centric and non-commercial. Exceptionally, in recent years, some traditional SHAs have been operating as SEs to solve the pressing problem of their community through earned income strategies. In this regard, JeCCDO is supporting traditional SHAs engagement in commercial activities to promote integrated community-based development.

As a concept, SEs introduced to Ethiopia in the 2010s through Western-funded organizations such as the British Council and Reach for Change. A social enterprise is not the result of a government initiative. Instead, it is the result of a private initiative born in for-profit and non-profit sectors by entrepreneurs. In the for-profit sector, SEs is developed by dedicated social-minded entrepreneurs who have the passion to solve social problems. SE emerged in the nonprofit sector by business-minded entrepreneurs as a response to financial constraints to improve society and the environment in financially sustainable ways. Even if SE is not expressly recognized, the entitlement of NPOs to engage in business activities played a big role in the birth and development of non-profit SEs in the third sector. The government allowed engagement of NPOs in business and investment activities to ensure their financial and mission sustainability. In the for-profit sector, the non-prohibition of FPOs to engage in creating positive social and the environment as their primary mission paved the way for the birth of for-profit SEs in the private for-profit sector. As of 2017, based on inclusion criteria developed by the British Council over fifty thousand SEs exist in Ethiopia. This shows SE is the growing sector in the absence of formal recognition.38 Surprisingly, the term “Social Enterprises” has not been mentioned in any legal documents. A social enterprise is alien to Ethiopia's legal system as a distinct legal form or business model.39 Because of this, SEs are organized using legal forms designed for conventional for-profit and non-profit.40So far, no entity is formally recognized or registered as SEs.41No special support, legal, and institutional framework is available for SEs. As a result, they are subjected to the existing legal regime designed for for-profit and non-profit organizations. Despite this, there are organizations in both for-profit and non-profit sectors who declare themselves as SEs. Some of the firms that declare themselves as SEs are Tebita Ambulance Per Hospital Emergency Medical Services PLC,42 Timert Lehiwot Ethiopia, 43Beautiful Mind Community Work PLC,44 Maisha ICT Technologies, Vitae Bite Nutrition PLC, Whiz Kids Workshop PLC45 Rehobot Home Nursing Services, and Yenetta Code.46

37MUHAMMAD YUNUS, BUILDING SOCIAL BUSINESS-THE NEW KIND OF CAPITALISM THAT SERVES HUMANITY’S MOST PRESSING NEEDS 11 (2010).38BRITISH COUNCIL, supra note 18, at 7 & 8.39 Id. at 23.40 Id. at 12 & 23.41Id. at 12 & 23.42TEBITA AMBULANCE PLC http://tebitaambulance.com/, (last visited on, Jan, 30, 2019).43 TIMERT LEHIWOT ETHIOPIA, http://www.tlhethiopia.org/, (last visited on Jan. 30, 2019).44BEAUTIFUL MIND ETHIOPIA, http://www.beautifulmindsethiopia.org/, (last visited on Jan. 30, 2019).45WHIZ KIDS WORKSHOP, http://www.whizkidsworkshop.com/, (last visited Jan. 30, 2019).

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3. Schools of Thought on Social Enterprises

The emergence and conceptualization of SEs are shaped by two major schools of thought, namely, the "earned income" and “social innovation” school of thought.47

The "earned income" school of thought sets the grounds for conceptions of SEs mainly defined by earned-income strategies. The earned income school of thought is also called a social business school of thought. This school of thought emphasizes the business strategy to earn income for the organization the purpose of social missions. Under this school, social enterprises are financially independent and free from any philanthropy, and subsidies from the government finance their operation and social missions. Concerning its scope, the early and late version of this school of thought is different. Initially, as per this school of thought, SEs is NPO who earn income to finance their social mission.48 In the late 1990s, the SEs Alliance (USA) defined SEs as any earned-income business or strategy undertaken by a non-profit to generate revenue in support of its charitable mission. This early version of earned school limited the scope of SEs to non-profit SEs. Hence, it is called the "commercial non-profit approach". Later on the broader version of earned income school of thought developed. The broader version embraces all forms of business initiatives, and which could be named the "mission-driven business approach". This latter approach refers to the field of social purpose venture as encompassing all organizations that trade for a social purpose, including FPOs. In so doing, the school of thought has broadened the concept of SEs to cover for-profit SEs which use for-profit and hybrid forms. To a large extent, the concept of social business developed by Muhammad Yunus is related to the mission-driven business approach. However, social business involves stronger conditions: a non-loss, Non-dividend Company designed to address a social objective. Because of that, investor neither loses their initial contribution nor gain profit. Social business was mainly developed to describe a business that focuses on the provision of goods or services to destitute customers. Such businesses cover all their costs through market resources. It is owned by (often large) investors who, at least in Yunus’ version, do not receive any dividend, profits being fully reinvested to support the social mission.

The second school of thought is the "social innovation" school of thought who emphasizes the profile and behavior of social entrepreneurs from a Schumpeterian perspective.49This school focuses on the innovation approach engaging by social entrepreneurs and their impact on society. Under this school, social entrepreneur is defined as an individual who innovatively performs the pattern of production to transform economic resources from lower to higher yield of the society. Dee and Andrson believed that social innovation should focus on creating new and better ways to overcome social problems, therefore a business venture is not a necessary element of entrepreneurship but innovation is the most important one. In the context, Zappala defined social enterprise as a means for non-profit agencies to maximize their mission-related performances through the development of new ventures or by reorganizing activities to improve operational

46 Yenetta Code is a SEs founded by Nathan Damtew. Nathan develops simple and fun application to teach children the basic semantics of programming. This help kids develop new ways of thinking and advance them in problem solving techniques.47Defourny & Nyssens, supra note 17 at 4.48Defourny & Nyssens, supra note 17 at 7.49Defourny & Nyssens, supra note 17 at 6.

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efficiency. This show within the innovation approach, social innovation proposed that social enterprise might exist in various forms between three sectors, government, community, and private in the same interest for a social mission. To this end, Nicholas’s suggested that social enterprise is a new concept that crosses the type of organizations. Accordingly, it may establish in with the various contexts such as the public sector, which applies entrepreneurship skill, FPOs with a social purpose and NPOs engages with entrepreneurship approach. This proves that the concept of the social enterprise under the social innovation school of thought is broad which exists in various forms to include FPOs engaged in socially beneficial activities to NPOs engaged in commercial innovation to support or finance their mission.

Along such lines, entrepreneurs in the non-profit sector are change-makers as they carry out new combinations in at least one of the following ways: new services, new quality of services, new methods of production, new production factors, new forms of organizations, or new markets. Social entrepreneurship may, therefore, be a question of outcomes rather than just a question of income. Moreover, the systemic nature of innovation brought about and its impact at a broad societal level are often underlined. Dees has proposed the best-known definition of the social entrepreneur in that school of thought. He sees the latter as "playing the role of change agents in the social sector by adopting a mission to create and sustain social value, recognizing and relentlessly pursuing new opportunities to serve that mission, engaging in a process of continuous innovation, adaptation, and learning, acting boldly without being limited by resources currently in hand, and finally exhibiting a heightened sense of accountability to the constituencies served and for the outcomes created". Although many initiatives of social entrepreneurs result in the setting-up of NPOs, various recent works of the social innovation school of thought tend to underline blurred frontiers and the existence of opportunities for entrepreneurial social innovation within the private for-profit sector and the public sphere as well.

The divergences between the "social innovation" school and the "earned income" school should not be overstated. Viewing social entrepreneurship as a mission-driven business is increasingly common among business schools and foundations, which now foster more broadly business methods, not just earned-income strategies, as a path towards social innovation. Various works stress a "double (or triple) bottom line" vision, which can be adopted by all types of enterprise, as well as the creation of a "blended value" to balance and better integrate economic and social purposes and strategies.

Now the question is which school of thought applies to social enterprise in Ethiopia. In Ethiopia, SE has adopted different form designed for for-profit and non-profit businesses. This happens mainly through commercialization or enterprising of NPOs and socialization of FPOs. The commercialization of NPOs refers to the adoption of business strategy by NPOs to finance their social missions. Socialization of FPOs means the incorporation of social purpose as their primary missions. This show the concept of SE in Ethiopia is derived from the social business school of thought.

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4. Social Enterprises as a Synergy

The market economy has three separate spheres, namely the market, the third sector, and the state.50 In the neoclassical economic model, the primary actors in each of these spheres, respectively, are business, NPOs, and government. The business is driven only by financial motivation; nonprofit entity is motivated only by social maximization, and the government is expected to maintain only minimal control over or assistance to business and NPOs.51 Despite the theoretical separation, there are hybrid organizations like SEs which operate between the spheres, blurring the theoretical boundary lines.52 Social Enterprise is not novel but is born as a synergy of the social mission (of the non-profit) and business mission (of for-profit). As a blended enterprise, the SEs merged the sphere of the non-profit and for-profit sector by combining social mission and commercial income generation.

The interest in SEs has come from sides of both the for-profit and non-profit sectors. Antonio Fici described such interest from the for-profit capitalist sector as an attempt to “invade the field” of the non-profit sector or social economy to guard the capitalist economy against risk. In other words, the attempt is not to establish virtuous relationships of collaboration with social economy entities, but to “capture” the sector and “control” it, thereby extending its capitalist paradigms, which may result in a de facto annulment of the peculiarities of the social economy sector. This logic seems plausible from the perspectives of flourishing hybrid SEs. However, it is not convincing. Because, on the other side, the interest of the non-profit sector on SE seems an attempt to invade the field of the for-profit sector.53SE is a result of the adoption of market strategies by NPOs and the incorporation of social and environmental missions by FPOs as their primary goal. In other words, SE emerges from the adoption of market strategies and social purpose as their primary source of income and primary mission by NPOs and FPOs respectively. This show the interest of SEs emerges in both the for-profit and non-profit sectors. Nowadays, the NPOs are tilting towards market-based solutions. Concurrently, there has also been increasing interest from the for-profit to contribute to social goals.54 This show SE is a blending sphere blend social and environmental of non-profit with the economic value of for-profit within a single entity. SEs takes a variety of legal forms designed for-profit and non-profit; which makes the task of defining SE difficult.55 SEs are commonly visualized on a hybrid spectrum between traditional for-profit and nonprofit. As indicated herein under SE share the social purpose of non-profit organizations and earned income strategies of a for-profit organization. Hence, NPOs which carry on trade and investment to attain mission are non-profit SEs while FPOs which have social mission are for-profit SEs. As today SEs is broadly defined to include non-profit and for-profit private entities. Besides, the issue of whether the public sector such as public enterprise could fall within the scope of SE left unanswered.

50BRUCE R. SCOTT, THE POLITICAL ECONOMY OF CAPITALISM 17 (2006).51 Hackett, supra note 26 at 26.52 Kim Alter, Social Enterprise Typology, 2 (2007), https://www.globalcube.net/clients/philippson/content/medias/download/SE_typology.pdf, (last visited, Aug 26, 2019)53 Id.54 Hackett, supra note 26, at 27.55 Hackett, supra note 26, at 30.

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Figure 1: Location of social enterprises relative to other sectors

5. Distinguishing Social Enterprise from Related Concepts

Social enterprises have social and enterprise elements. As a result, there is a confusion of SEs with traditional FPOs, NPOs, social business, social impact investing, corporate social responsibility, corporate charity, social economy, third sector, and other related concepts. To avoid such confusion, there is a need to distinguish SE from such related concepts. To this end, the similarities and differences between SEs and those related concepts are examined as follows.56

5.1. Social Enterprises versus For-profit Organizations and Related Concepts

The common and broad definition of SE as organizations that combine profit and social missions is misleading. Even profit maximizing FPOs pursue social purposes and create social impact, albeit indirectly. Such a firm may be maximizing its profits by making its products more attractive to customers. So, what makes SE conceptually different from FPOs is a big question. The enterprise aspect of SEs enables it to share some features of traditional FPOs. Like FPOs, SEs carries on commercial activities to generate income. However, the way they handle the income and their point of focus is different. For-profit organizations focus on maximization of profit or shareholder value, while SEs focuses on social maximization or improvement of the society and environment. SEs uses all or at least the majority of their profit to address social problems. In contrast, FPOs use all or the majority of their profit to distribute among shareholders. The FPOs may have a social impact like SEs. However, the difference is for FPOs, social impact is incidental, but for SEs creating social impact are a commitment and its purpose of establishment. Even though, it is incidental the social impact created by FPOs may be greater than or equal to the social impact created by SEs. SEs is different from FPOs, which does not mean it does not operate as FPOs. Instead, FPOs may operate as SEs. Instead, SEs is entitled to

56 François Brouard & Sophie Larivet, Essay of Clarifications and Definitions of the Related Concepts of Social Enterprise, Social Entrepreneur and Social Entrepreneurship, in HANDBOOK OF RESEARCH ON SOCIAL ENTREPRENEURSHIP 29, 29&33(Alain Fayolle & Harry Matlay eds., 2010).

For-Profit Sector

Non-Profit Sector

Public Sector

Social Enterprise

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take legal form designed for-profit businesses including companies, partnerships, and cooperatives. Regarding the difference between SEs and traditional FPOs Greyston said, SEs don't hire people to bake brownies, instead [they] bake brownies to hire people. 57

It is not uncommon to see a confusion of SEs with Corporate Charity. Corporate charity is FPOs that donate a portion of their profits to charity.58 Often such donations are made to NPOs. The major difference between corporate charity and SEs is that the former lacks the commitment to transact with beneficiaries.59Social enterprises commit to transact with beneficiaries, whereas corporate charity gives subsidy or support to beneficiaries-disadvantaged groups.60 Social enterprise is also different from Social Responsible Investing (SRI) which refers to investment strategies that consider both financial return and some social good.61The social good issue which ranges from environmental efficiency, through human rights and diversity, to corporate governance.62 SRI does not transact with their beneficiaries. The commitment is also weak. As a result, the social mission may be expropriated or change at any time.63

It is not uncommon to see a confusion of SEs with FPOs who discharges its Corporate Social Responsibility (CSR) properly. Both SEs and socially responsible businesses blend social responsible business and environmental missions with profit-making objectives, but different.64The major difference between organization discharging its CSR and SEs is that the former does not involve a commitment to transacting with beneficiaries.65In most cases, CSR involves the transfer of a subsidy to an external beneficiary (not patron beneficiaries).66As observed by Antony Page and Robert A. Katz CSR and the SE look like fruits of the same tree, but not.67The SE is significantly more substantive than CSR.68Corporate social responsibility policies try to encourage companies to consider external stakeholder’s interests when making decisions.69 The CSR rule may serve the interest of external stakeholders through restricting governance to be representative and entitling external stakeholders with the right of standing to sue.70The SEs do not subordinate mission to profits.71 Usually, discharging CSR or pursuing social missions is voluntary.72 SEs has a social purpose as their primary purpose.73 The business discharging its CSR treats the contribution to the public good as incidental to the profitmaking

57Antonio Fici, Recognition and legal Forms of Social Enterprises in Europe: A Critical Analysis from a Comparative Law Perspective, 3 (Euricse Working Paper No. 82, 2015); Greyston Bakery: Combatting Poverty by Making a Profit, 1 (the Apsen Institute Business and Society Program, 2013).58Ofer Eldar, The Role of Social Enterprise and Hybrid Organizations, 1:92 COLUM. BUS. L. 92, 121 (2017)59Id.60Id. at 122.61Id. at 163.62Id. at 163.63Id. at 16364Karsten E. Sørensen & Mette Neville, Social Enterprises: How Should Company Law Balance Flexibility and Credibility?, 15EUROPEAN BUS. ORG. L. REV, 267, 271 (2014); Antony Page & Robert A. Katz, Is Social Enterprise the New Corporate Social Responsibility? 34SEATTLE U. L. REV. 1355, 1388(2011).65 Eldar, supra note 58, at 121. 66Eldar, supra note 58, at 121.67 Page & Katz, supra note 64, at 1355 & 1357.68 Page & Katz, supra note 64, at 1355 and 1380.69 Page & Katz, supra note 64, at 1381.70 Page & Katz, supra note 64, at 1381(2011).71 Page & Katz, supra note 64, at 1382.72Sørensen & Neville, supra note 64, at 271.73Sørensen & Neville, supra note 64, at 271.

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activity.74 Social enterprises run a business for social purpose whereas socially responsible business carries on business in social and environmentally friendly ways. Usually, CSR rule imposes a negative obligation not to harm society and environments. It may also impose a duty to create social value by addressing social problems. The SEs commit to working on improving the society and environment. It also has a duty not to harm the society and environment. The business undertaking its CSR did so based on the perception that in the long run, the business will benefit from performing its CSR. The SEs undertakes activities to improve the society and environment as its commitment or purpose of establishment. Social enterprises carry on improving society and environment mainly not to generate personal benefit, but to benefit society. CSR is a secondary objective to the profit-making mission of a business. Contrary to this, profit-making is secondary to the social mission of SEs. FPOs discharge their CSR based on the perception that it will make them profitable in the future. Usually (not always) for-profit businesses practice CSR, not with a truly conscious of solving social problems, but as a means of building a brand to their business.

Finally, it is worth noting the marked differences between the SE and ethical business. A SE centers itself on a social mission and uses commerce as a tool to maximize sustainability and impact. An ethical business centers itself on creating profit for its shareholders but takes an ethics-based approach to issues like the environment, trade practices, and community development. The activities of ethical business are almost the same.

5.2. Social Enterprises versus Non-Profit Organizations

There is a confusion of SEs as NPOs.75 Nowadays, NPOs are entitled to undertake commercial activities. This led to the birth of the dichotomy of Non-Profit SEs (commercial nonprofit) and donative or traditional non-profit.76 Non-profit SEs generates the majority of its income from trade i.e. selling of products and services.77 The SE may receive donations or grants. The critical point, however, is that the financial viability of SEs is primarily dependent on earned income rather than donations.78 In contrast, traditional or donative nonprofits receive all or the majority of their income from a source other than trade (grants or donations). Traditional NPOs engaged primarily in allocating subsidies to “external” beneficiaries.79 In contrast, SEs requires their beneficiaries to provide a nontrivial consideration (e.g., return of a loan with interest).80The traditional NPOs work on distribution, while SE focuses on the production of goods and services.81 In spite, such differences, traditional NPOs, and non-profit SE shared features. Accordingly, both have a social mission at the center of their activities. Besides, they are prohibited to directly distribute profit to members since they are subject to non-distribution constraint.82

74 Aurélien Loric, Designing a Legal Vehicle for Social Enterprises: An Issue Spotting Exercise , 5COLUM. J. OF TAX L. 100, 102 (2013).75 Defourny, supra note 12, at 66.76Henry B. Hansmann, The Role of Nonprofit Enterprise, 89YALE L. J. 840, (1980).77Eldar, supra note 58, at 118; Fici, supra note 10, at 3.78Eldar, supra note 58, at 118.79Eldar, supra note 58, at 119.80Eldar, supra note 58, at 119.81Fici, supra note 57, at 3.82Eldar, supra note 58, at 118.

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5.3. Social Enterprises versus Social Business

The term SEs and social business are usually confusing terms that are used interchangeably.83However, they are different in their scope. Originally, the name “social business” is framed by Muhammed Yunus. He defined social business as a non-loss; Non-dividend Company dedicated entirely to achieving a social goal or brings an end to social problems.84 For it to sustain as a business it must generate enough income to cover its costs.85Part of the economic surplus the social business creates is invested in expanding the business, and a part is kept in reserve to cover uncertainties.86In a social business, an investor aims to help others without making any financial gain.87The company makes a profit but no one takes the profit as it is dedicated entirely to the social cause.88 The owner can take back over a while only the amount invested.89 Simply, social business is a non-loss and non-dividend business in the sense that the investor receives only its initial investment or contribution, but not a dividend. As a result, rather than being passed on to investors, the surplus generated by the social business would be reinvested for a social purpose.90 Ultimately, it is passed on to the target group of beneficiaries in such forms as lower prices, better service, and greater accessibility.91

Yunus introduced two kinds of social business: (1) Companies that focus on providing a social benefit rather than on maximizing profit for the owners, and that are owned by investors who seek social benefits such as poverty reduction, health care for the poor, social justice, global sustainability, and so on, seeking psychological, emotional, and spiritual satisfaction rather than financial reward; and (2) Profit-maximizing businesses that are owned by the poor or disadvantaged.92 In the second type, the social benefit is derived from the fact that the dividends and equity growth produced by the profit-maximizing business will go to benefit the poor, to reduce their poverty or even escape it altogether.93 The social business described by Yunus is similar to not-for-profit SEs and SE for-profit of poor and disadvantaged groups. Social business does not include hybrid SEs in which the investor receives a portion of profit in the form of a dividend. Besides, it does not include non-profit SE in which the owner may not receive initial contribution or investment. In conclusion, SEs is a broader concept that includes social business. As a result, social business is the sub-set of SEs.

5.4. Social Enterprises versus Self-Help Associations

At glance, SEs seems self-help associations (SHAs) including cooperatives, Iddir, Mahiber, and other traditional SHAs. As a result, some commentators confuse SEs with SHAs which is 83European Commission, Social Business Initiative: Creating a Favourable Climate for Social Enterprises, Key Stakeholders in the Social Economy and Innovation, see footnote ‘6’ (2011).84Muhammad Yunus, Creating a World Without Poverty: Social Business and the Future of Capitalism , 4:2GLOBAL URB. DEV. 10 (2008).85MUHAMMAD YUNUS, BUILDING SOCIAL BUSINESS-THE NEW KIND OF CAPITALISM THAT SERVES HUMANITY’S MOST PRESSING NEEDS 16 (2010).86Id.87Id.88Id.89Id.90 Yunus, supra note 84, at 10. 91Id.92 Yunus, supra note 84, at 13.93 Yunus, supra note 84, at 13.

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designed to solve problems of members.94 Conventionally, the cooperative applies the market approach to solve the socio-economic problems of the members. Likewise, traditional SHAs like Iddir and Mahiber are member-centered. Unlike cooperatives, traditional SHAs use only members’ contributions. Traditional SHAs do not undertake commercial acts to generate income. SHAs are member-oriented with little or no consideration for others. In contrast to SHAs which focus on members, SEs mainly focus on the maximization of interest of the wider community. The social business model formulated by Yunus i.e. SE for-profit of poor and disadvantaged groups is an exception. Primarily, SEs is social-help and not self-help organizations. Despite this fact, in recent years, there is an emergence of SEs within SHAs. In many countries, SEs by itself was the result of the cooperative movement and adopted a special type of cooperative form for SEs.95 This indicates the emergence of SE in cooperative and its development as such. In Ethiopia, SE is emerging in the cooperative sector. In recent years, the trend of commercialization is also emerging in some traditional SHAs to solve problems of the wider community beyond their self-serving interests. The best example is Medanalem Iddir in Bushofitu.

5.5. Social Enterprises versus Social Economy

It is not uncommon to see a confusion of SEs with the social economy.96In fact, they are different in their scope. The issue of whether or not SEs is the constituent element of the social economy answered differently in Europe and North America based on their notion of social economy.97 In Europe, the concept of social economy is broader to cover all economic activities conducted by actors in third sectors such as SE, cooperatives, associations, and mutual benefit societies.98 What constitutes a decisive criterion in defining social economy is not the ban of the distribution on profits, but rather the fact that the material interest of investors is subject to limits.99 François Brouard and Sophie Larivet defined the social economy as a fairly new label for a diverse and evolving combination that have common or public interests.100 Based on this, in Europe, SEs is the sub-set of the social economy. In North America, the social economy includes only the “non-profit sector” which is subject to non-distribution constraint. Here, the decisive criterion in defining the social economy is a ban on the distribution of profits.101In so doing, the social economy is limited only to the non-profit sector excluding cooperative, mutual societies, and SEs which distribute part of their profit to shareholders. As a result, based on North American Approach, non-profit SEs is an element of the social economy while for-profit SEs which is not subject to non-distribution constraint is out of the ambit of social economy. As a result, in the USA, for-profit SEs is part of the fourth sector.102 In Ethiopia, the scope of the social economy is less clear.

94Jim Brown, supra note 3, at 5.95Carlo Borzaga, et.al. Cooperatives: The Italian Experience, Euricse, 1-12; Antonio Thomas, The Rise of Social Cooperatives in Italy, 15:3INT’L. J. OF VOLUNTARY & NONPROFIT ORG., 244-250 (2004).96 Simon LI & Thomas Wong, Social Enterprises Policies of the United Kingdom, Spain and Hong Kong, 1 (2017).97Sørensen & Neville, supra note 90, at 270; Jean-Louis Laville, What is the Third Sector? From the Non-Profit Sector to the Social and Solidarity Economy Theoretical Debate and European Reality, 6&7 (EMES European Research Network, WP No. 11/01, 2011).98 Laville, supra note 97, at 4.99Jacques Defourny, From Third Sector to Social Enterprises, 1 (2001).100 Brouard & Larivet, supra note 3 at 29 & 31.101 Laville, supra note 97, at 6.102 Laville, supra note 97, 4.

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5.6. Social Enterprises versus Social Entrepreneurship

The SE, social entrepreneur, and social entrepreneurship are related concepts that are called “SE Flags”.103 They represent different meaning, but related notions.104 Social entrepreneurship is the process through which social entrepreneurs created SEs.105 At the start-up stage, social entrepreneur engages in social entrepreneurship process to create SE. Then, SEs does not necessarily or permanently engage in a social entrepreneurship process.106 Social entrepreneur is the initiator of SEs who is not necessarily the owners of the enterprise.107 Social entrepreneurship is a very broad idea referring to any innovative initiative (for-profit or non-profit) to help people.108Distributing free medicine to the sick, setting up a for-profit health-care center in a village where no health facility exists, and launching a SE are social entrepreneurship. 109 Martin and Osberg concluded that ‘social entrepreneurship has become so inclusive that it now has an immense tent into which all manner of socially beneficial activities fit’.110 Hence, the SEs is a subset of social entrepreneurship.111

6. Social Enterprises: Third Sector or Fourth Sector?

In the free-market economic system, the for-profit private sector and public sector account for the “first” and “second” sectors of the economy. The for-profit private sector is the main actor who provides goods and services at the market price. The public sector (government) has minimum control over the private sector and provides public goods and services which cannot be provided for-profit private sector. As indicated above, SEs neither for-profit private sector nor the public sector. It is not the public sector as it is owned by private organizations or individuals. SE does not fall within the conventional for-profit private sector as its primary goal is social maximization. SE share market approach is a conventional for-profit private sector. Accordingly, SE falls neither under the first sector nor under the second one. Now, the question is does SE falls under the third sector or not? The third sector refers to the sector other than the for-profit private sector and public sector. In this sense, the term “third sector” refers to economic initiatives of a "third type” or “third way” of solving social problems that belong neither to the for-profit private sector nor to the public sector. The scope and conception or approach of the third sector differs in Europe- the “social economy” approach and the USA-“non-profit sector” approach.112 As per the social economy approach, the third sector refers to all actors in the social

103Jacques Defourny, supra note 12, at 57; Brouard & Larivet, supra note 3, at 29.104Alain Fayolle & Harry Matlay, Social Entrepreneurship: A Multicultural and Multidimensional Perspective in HANDBOOK OF RESEARCH ON SOCIAL ENTREPRENEURSHIP 4 (2010).105 Defourny, J. & M. Nyssens, Social Enterprises in Europe: Recent Trends and Developments, 4 (EMES European Research Network, WP no. 08/01 2008); Defourny, supra note 45, at 58.106Brouard and Larivet, supra note 3, at 29 & 31.107Defourny, supra note 12, at 61.108Yunus, supra note 84, at 14.109Yunus, supra note 84, at 14.110 Martin, R.L. & S. Osberg, Social entrepreneurship: The case for Definition, STAN. SOC. INNOVATION REV., 29, 30(2007).111Yunus, supra note 84, at 4; NICHOLLS, A. SOCIAL ENTREPRENEURSHIP: NEW MODELS OF SUSTAINABLE SOCIAL CHANGE, 23 (2006); Alter, K., Social Enterprises Typology, (2006); Dees, G., The Meaning of Social Entrepreneurship, 5 (1998).112 Defourny, supra note 16, at 1-5.

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economy i.e. all entities which do not fall under traditional for-profit and public sector. These include NPOs, cooperatives, mutual organizations, and SEs which put a limit on the private appropriation of profits and the power of investors.113 Based on this, it possible to conclude that SEs in Europe fall within the third sector. In contrast, as per “non-profit sector approach”, the third sector indicates only the non-profit sector which cannot distribute profit to their members or shareholders.114 Based on this, non-profit SEs fall within the third sector, while for-profit SEs cannot fall within the traditional for-profit private sector, non-profit and public sector. Instead, for-profit SEs falls within the new “fourth sector” which covers Hybrid Organizations.

The existence of these two approaches in locating SEs raises the issue of which approach is suitable in designing legal and institutional frameworks for SEs. Social enterprises is neither conventional for-profit nor non-profit, but share the features of both. It an intermediate space in which the different poles (for-profit and non-profit) can combine. SEs does not standalone concepts independent from for-profit and non-profit businesses. However, for the purpose legal regime, it is better to design a special legal and institutional framework for SEs as the fourth sector. Treatment of SE as the fourth sector is essential to avoid confusion of SE with conventional business and charity. Besides, it helps to secure government and other stakeholder's attention.

7. Social Enterprises: Capitalist or Socialist Conception?

The for-profit private firms as the main actor in the free-market economy do many things extraordinarily well.115 But not everyone is benefiting. The existence of severe social problems suffered by the majority of people in the world tells the story.116 In this scenario, the government and non-profit sector is expected to solve social problem fails to be solved by the market, but not effective.117The defect of the traditional for-profit sector, public sector, and non-profit led to the birth of SEs as an alternative business model blending social and business goals. The birth of SEs triggered the issue of whether SE is capitalist or socialist conception. 118 There is no consensus among scholars in this regard. Scholars influenced by left-wing ideology argue that SEs is a socialist conception rooted in left-wing socialist ideology. The term SEs migrated to Western charity from socialist law.119 Social enterprises as a term associated with blended value did not originate from capitalism, and its identification with commercial business & venture capital came rather late in the game.120 In socialist jurisprudence, SEs was a term designed to replace the capitalist notion of businesses dedicated to the pursuit of profit. The SEs making a profit was not the goal of socialist business; rather, its fundamental purpose was to serve collective benefit. Moreover, the SEs were owned & controlled not by private shareholders but by workers for the greater social good. In contrast, Scholars in right-wing including Muhammad Yunus, Jed Emerson, and Bill Drayton who advocate for improved, sustainable, and socially 113Defourny, supra note 16, at 5 & 7; Laville, supra note 97, at 6.114 Laville, supra note 97, at 6; Defourny, supra note 16, at 7.115Yunus, supra note 84, at 1.116Yunus, supra note 84, at 1.117Yunus, supra note 84, at 1.118YUNUS, supra note 85, at 35.119Just means, Socialism and Social Enterprise, http://www.justmeans.com/blogs/socialism-and-social-enterprise , (last visited Jan., 30, 2019). 120Id.

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conscious capitalism consider SE as typical capitalism. Specifically, Muhammed Yunus argues SEs is a capitalist conception but transformed one which considers social and environmental value. Hence, SE is a new form of capitalism that serves humanity’s most pressing need through operation in the capitalist system.121 A social enterprise is a capitalist conception but is different from the standard capitalist form of business. The existing capitalism which misrepresents human being as one-dimensional selfish beings whose only mission is to maximize profit.122 In other words, human beings do nothing in their economic lives besides pursuing selfish interests. Accordingly, human being contributes to society and the world in the best possible manner if he just concentrates on getting the most for himself.123 In contrast, SEs lies based on the assumption that a human being is an excitingly multi-dimensional person who has both selfish and selfless interests at the same time.124The urge to do good exists in all human beings right along with self-interest. Hence, unlike traditional capitalism, SEs is created to make the structure of capitalism complete by recognizing the multidimensional nature of human beings.125

8. Raison d'être of Social Enterprises

In the capitalist system, the whole economy of the nation is composed of three sectors: for-profit private sector (market); public sector (government); and third sector (non-profit sector). In liberal capitalism, markets presume to allocate resources efficiently and in this way increase social welfare whereas the other sectors (government and NPOs) help the system to counter any market shortcomings.126Unfortunately, all sectors come with their defects in addressing social problems. Hence, gross inequalities in resources among people have been perpetuating. It is the failures of these three sectors of the economy in addressing social problems that mainly triggered and justified the emergence of SEs as a new business approach.

The free market economy which is mainly fueled and lead by the self-interested profit maximization objective of the private sector has resulted in extraordinary triumphs. However, everyone is not benefited. The market economy is centered on the assumption that the hidden force of the market makes everything right. In other words, free-market results in an efficient allocation of resources. However, it is fallacious to assume that always market results in an efficient allocation of resources. In fact, in many occasions locate resource in the hand of the capitalist who gives great value or price to it, but the market does not locate resource at the hand of one to whom it have great value in term of benefits. Nowadays, the world is suffering from multifaceted social problems including environmental pollution, poverty and its effect, unemployment, social exclusion, and others. Mainly, the market is failed to provide public goods which is characterized as non-rivalry and non-exclusive (cannot be limited to those who pay) 127Second, markets have difficulty in reducing the human misery that results from inequalities of wealth and other resources. According to the neoclassical capitalist view, the market locates the resource (goods and services) in the hand of the capitalist who willing and capable to pay more.

121YUNUS, supra note 85, at 37.122 Yunus, supra note 84, at 8; YUNUS, supra note 85, at, 15.123 Yunus, supra note 84, at 115.124YUNUS, supra note 85, at 16.125Yunus, supra note 84, at 4.126 Katz & Page, supra note 7, at 65.127 Katz & Page, supra note 7, at 66.

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In doing so, market value resources based on willingness to pay, not happiness it offers to the buyer. In this view, the market does not directly consider the suffering of persons whose limited income puts life’s necessities beyond their reach. Indirectly, for-profit private entities may donate money to NPOs to address social problems but not enough. The severe social problems the world is suffering and the presence of a few rich capitalists tell the story of market failure or failure in the self-interested private sector. The market neglects disadvantaged groups that lack the capacity to pay the market price. This triggers the need for SEs that addresses ‘social’ market failure and solves social problems. Social enterprises, provide employment opportunities, goods, and services for marginalized groups, and tackle social exclusion. In so doing, SEs bridge the separation of the economy and society.

To address market failure, the government comes into pictures. The government intervenes in the market either as a regulator or trader. As a regulator, the government enacts policy and law which facilitates the operation of the private sector while trying correct market failures. The regulation of government make the business ethical, beyond it does not make the business a social-centered one. The government has enacted different laws to protect the public from the abuse of capitalist. Among other labor law, environmental law, and customer protection laws were enacted by the government, but they have not brought change required. This is mainly true because of the trader bias and enforcement problem of the law. As a trader via public enterprise government intervenes in the market through direct engagement in the economic activities. The public enterprise is almost similar to the conventional for-profit sector which focuses on profit maximization. As a result, the defect of FPOs mutatis mutandis applies to public enterprise. This show, the weakness of government to correct market failure and thereby social problems. Instead, the government adds another failure. Expecting different outcomes doing the same thing which private trader does show the foolishness of government. Government failure mainly happens because of bureaucracy, budget deficit, and structural incompetence.

The market and government failure to address social problems triggered the need for the third way that is called the third sector or non-profit sector. In contrast to the traditional for-profit private sector and public enterprise, the non-profit sector emphasis on solving social problems. NPOs did many things extraordinary in addressing social problems. However, yet, many social problems left unresolved because of financial constraints. The financial constraint mainly happens because of their dependence on aid and donation. The financial dependence of NPOs on aid, donation, and grant has highly limited their social impact, mission sustainability, and operational flexibility. This is the failure of the third sector. This triggered the need for NPOs that have sustainable finance by getting involved in income generation activities to finance their social mission. To this end, in recent years, NPOs were granted operational freedom to carry on commercial activity related or unrelated to their social mission. This leads to the birth of non-profit SEs (commercial nonprofit). For example, in Ethiopia, under the repealed charities and society’s law, NPOs are entitled to carry on IGA which is incidental to the achievement of their purpose.128In contrast, under the new CSO law, CSO are entitled to carry on any commercial or business or investment activity.129

In conclusion, the failure of all traditional three sectors: for-profit private sector; public sector; and non-profit sector to address multifaceted social problems lead to the quest for the emergence

128Charities and Societies Proclamation No.621/2009, Art. 103.129Organizations of Civil Societies Proclamation No.1113/2019, Art. 63& 64.

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of business which blends and balances business against social and environmental value. The business which blends business and social missions within a single entity is SEs.

9. Justifying Social Enterprises in Ethiopia

Globally, as indicated above, the birth and development of SE is necessitated by failures of traditional sectors of the economy to address social problems. This triggers the issue of whether SE is justified in Ethiopia or not. In Ethiopia, there is suspicion about the need and market of SEs as a separate business model. This is supported by the low use and development of existing traditional for-profit and NPOs.130 Despite this fact, in the author's view, four factors justify the need for SEs.

A. The Shortcoming of Traditional Sectors

The first is justification for SEs is the weakness of conventional for-profit, non-profit, and public sectors. In the 1990s, Ethiopia adopted a capitalist ideology with the presumption market to make everything good. The adoption of a free-market economy has resulted in many social and economic improvements. Despite this fact, the majority of Ethiopian lives under the yolk of poverty and costs thereof. This happens because of self-centered neoliberalist conception which have influenced capitalist to trade only for their self-interests profit maximization without or little consideration for the wider community and environment. This informally obliged society to carry the negative costs of private business. The investment and land lease regime which expropriate the property of the public for the benefit of a few self-centered capitalists exaggerated the problems. The public sector which is expected to correct market failure is also inefficient because of financial constraints, structural problems, and bureaucracy. For example, Commercial Bank of Ethiopia which is one of the public enterprises does not provide loan for the poor majority which lack (pledge and mortgage) like all other private commercial banks. The same is true for the Development Bank of Ethiopia. As a result, the public enterprise in Ethiopia operates in the same fashion with private business organizations as profit maximizers neglecting their social missions. The third sector (non-profits sector) which is developed as the third way to address social problems left unresolved by the private and public sector is also failed as it is suffered from financial constraints to finance its blessed social and environmental mission.131This is because they are too dependent on donations, grants, and government subsidies which are too competitive, bureaucratic, conditional, and non-sustainable. This is why many laudable projects of CSOs have gone the way of “pilot burials.”132Besides, NPOs impart cultural of dependency to the generation, instead of independence and entrepreneurship. In conclusion, the weakness of conventional for-profit, public, and non-profit sectors urge for the need for social and environmental centered and financially sustainable and independent business model i.e. SEs to bring inclusive, equitable, and sustainable development.

B. Existence of Severe Problems

130 As of 2016 there are: 490,000 Micro and Small Enterprise; 75,000 cooperatives; 15,000 individual entrepreneurs; 3400 NGOs in. See BRITISH COUNCIL, supra note, 16 at 8.131Gbenga Sesan, Social Enterprises in Africa: An Emerging Concept in an Emerging Economy, 1:1 INT’L NGO J. 5 & 6 (2006).132 Id.

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The second reason is the existence of severe socio-economic, cultural, and environmental problems. As the study conducted by World Bank in 2018 show Ethiopia is one of five countries in the world where great numbers of world poor lives.133This is why Ethiopia has been considered as a symbol of poverty for a long time. The severe social problems (high unemployment rate, poverty, harmful traditional practices, illiteracy, and other) in Ethiopia need to be addressed by social entrepreneurs under the umbrella of SEs to make Ethiopia suitable for everyone to live. Otherwise, the upward movement of few capitalists to control and manipulate the resource of the nation and downward movement of the majority of people to live in poverty continue at alarmingly speed. As the official Ethiopian Government implementation report on Growth and Transformation Plan (GTP) I shows, the poverty severity has increased during the period. This may cause a class struggle between the poor majority and the capitalist in the future.

C. Positive Contribution to Development

The third reason justifying the need for SEs in Ethiopia is its positive contribution to ensure inclusive, equitable, and sustainable development. Following the adoption of an ambitious plan called Sustainable Development Goals (SDGs) to fulfill by the year 2030,134 Ethiopia have adopted Plan for Accelerated and Sustained Development to End Poverty (PASDEP)135 followed by the First Growth and Transformation Plan (GTP I) (2010/11 to 2014/15), currently, the Second Growth and Transformation Plan (GTP II) is in its last year of implementation.136 These plans have resulted in great improvements though many problems left unresolved. Social enterprises have huge potential to solve problems left unresolved through job creation, support underserved populations to access social protection, health, education, improving quality of life for the local people, and provision of valuable social services.137 This can be easily inferred from objectives of SEs in Ethiopia: creating employment opportunities; selling a good or a product; supporting vulnerable people; improving health and well-being; protecting the environment; promoting education and literacy; improving a particular community; supporting vulnerable children and young people; supporting other SEs; addressing social exclusion; and/or addressing financial exclusion.138In so doing, SEs contribute to inclusive, equitable, and sustainable development. In this regard, the UK is the best example, in 2018, over 100,000 SEs employ two million employees and contribute £60 billion to GDP.139 The SEs sector is three times bigger than agriculture. What a miracle it is!

133World Bank Blogs Half of the world’s Poor Live in just 5 Countries, https://blogs.worldbank.org/opendata/half-world-s-poor-live-just-5-countries, (last visited on Aug. 26, 2019). The 5 countries with the highest number of extreme poor are (in descending order): India, Nigeria, Democratic Republic of Congo, Ethiopia, and Bangladesh.134 UN. G.A, Transforming Our World: The 2030 Agendas for Sustainable Development, A/Res/70/1 (), https://sustainabledevelopment.un.org/content/documents/21252030%20Agenda%20for%20Sustainable%20Development%20web.pdf, 3-36 (last visited on August 26, 2019).135 The Government of Ethiopia: Building on Progress A Plan for Accelerated and Sustained Development to End Poverty (2005/06-2009/10),(2006).136United Nation Development Program, Ethiopia’s Progress Towards Eradicating Poverty, Paper to be presented to the Inter-Agency Group Meeting On the “Implementation of the Third United Nations Decade for the Eradication of Poverty (2018 – 2027)”April 18 -20, 2018, Addis Ababa Ethiopia.137 Jilenga, supra note 2, at 49.138 BRITISH COUNCIL, supra note 16, at 24.139 THE SOCIAL ENTERPRISE UK, HIDDEN REVOLUTION: SIZE AND SCALE OF SOCIAL ENTERPRISE IN 2018, 3 (2019), https://www.socialenterprise.org.uk/wp-content/uploads/2019/05/The_Hidden_Revolution_-_FINAL-1.pdf, (last visited on August 26, 2019).

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D. Market Need and Interest

The fourth reason is the presence of market needs and interests. There are pieces of evidence for this. First, assessment and mapping of social entrepreneurship practices and social entrepreneurs in Ethiopia commissioned by Reach for Change has revealed enormous social needs in Ethiopia and existing potential entrepreneurs, geared towards the use of innovation and supporting social good.140 Consequently, Reach for Change launched its operation in Ethiopia in 2015 as the first organization to promote socio-economic development by empowering social entrepreneurs who are brave, smart, and passionate to solve pressing issues facing children, youth, and women in the country.141 In 2015, 175 social entrepreneurs have applied for an innovation competition. Second, the study conducted by the British Council in 2016 has estimated the existence of over 55,000 SEs in Ethiopia in the absence of any formal recognition. Thirdly, the Ethiopian Investment Commission has been receiving the applications of foreign investors requesting for investment permit to make a social investment as SEs. As Temesgen Tilahun said Dutch Company has requested permission and license to invest in Ethiopia produce and distribute panels at a lower cost.142 Likewise, the MTI have been receiving many applications (for license and registration) with MOA which included social mission as its main objective from social-minded traders who want to attain different social missions as their core mission by undertaking commercial activities. In addition, the huge flow of organization to be registered as a member of SEE indicate the existence of market demand and interest. Finally, the Reach for Change and British Council, are receiving hundreds of applications by social entrepreneurs and SEs in each announcement for competitions for the grant. All these indicate the existence of need and interest social entrepreneurs and enterprises in Ethiopia and need thereof.

E. Constitutional Rights

The last reason justifying the need of SEs is the constitutional right of every person to form an association and to engage freely in economic activity and to pursue a livelihood, occupation, and profession of his choice. In Ethiopia, every person has the right to freedom of association for any cause or purpose.143Besides, every Ethiopian has the right to engage freely in economic activity and to pursue a livelihood, occupation, and profession of his choice anywhere within the national territory.144The cumulative reading of these two articles shows the right and freedom of investor and entrepreneurs to organize themselves and operate as a SEs to trade for a social purpose. In this regard, the government has the duty to enforce the right its citizen to work as SEs.

In conclusion, the need for SEs in Ethiopia is beyond question. This is why the late Minster of Ministry of Trade said for Ethiopia “SEs is a matter of necessity and not a matter of choices.”

140 REACH FOR CHANGE AFRICA 3 INITIAL YEARS BUSINESS CASE, 14 (2013).141 REACH FOR CHANGE AFRICA, AFRICA SOCIAL IMPACT REPORT, 3 & 4 (2015).142Interview with Temesgen Tilahun, Deputy Commissioner, Industrial Parks Division Ethiopia Investment Commission, in Addis Ababa (March 29, 2019).143FDRE. CONST. Art. 31.144FDRE. CONST. Art. 41(1 &2).

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10.Social Enterprise: Pros and Cons

As indicated above, the emergence of SEs as alternative private business initiatives to address socio-economic problems is justified.145 SE solves socio-economic and environmental problems including poverty, unemployment, social exclusion, and environmental pollution.146In doing so, SE improves society by ensuring socio-economic development.147The SEs has also environmental benefits as it works on solving the environmental problem as its core mission.

SE has also an advantage for social entrepreneurs. The benefits of SEs to entrepreneurs can be broadly classified into two: economic benefit and non-economic benefit. The major benefit of SEs is not the financial benefit in the form dividend, but the social impact it creates, and the non-economic or non-financial benefit it gets from serving humanity. In SE, everything is mainly/only for the benefit of others and nothing (less) is for the owners except, the pleasure of serving humanity.148 In addition to non-economic benefits, SEs has economic benefits such as social branding, financial sustainability and independence, mission sustainability, and non-financial benefits for social entrepreneurs and SEs.

The social purpose of business or socially and environmentally beneficial activities undertaken by the organizations creates social branding. Social branding is the major benefit of SEs. The social brands of SE’s products and services have various benefits concerning the attraction of wider customer, investor, qualified employees, and donors. As the study shows, usually, the customers prefer socially responsible and environmentally sustainable products and services of SEs relative to products and services of a traditional for-profit business.149 The preference of customer for SEs has a positive impact on increasing the products and services to be produced and sold. The increase of customer of SEs products and services produced and sold in return increase social impact and economic benefit to the owner. Utilization of the benefit of social branding requires creating public awareness about the products and services of SEs. Nowadays, the “Buy Social” campaign is a common trend by SEs throughout the world. In Ethiopia, even it is not yet operative, the SEE have adopted “Buy Social” as a logo for products and services its members.150 The social mission of SEs attracts not only the customer but also qualified employee with fair salaries or voluntary. SEs is the number one choice for experts who have the dedication to serve society while at the same time benefiting their employer. Accesses to a qualified employee at a fair salary have a great contribution to the financial and mission sustainability of SEs. The “social brand” SEs have also the effect of attracting investors who have dedication and passion for social problems while trading and investing. The restriction on profit distribution by a shareholder may discourage self-interested investors and traders. However, for those who want to be part of a solution for the problem of community, the social brand of SEs is enough incentives. The branding of SE’s products and services has also the benefit of attracting donors 145 Carlo Borzaga et.al, Social Enterprises: A New Model for Poverty Reduction and Employment Generation An Examination of the Concept and Practice in Europe and the Commonwealth of Independent States , 4(European Research Network and United Nation Development Program, 2008)146 Id. at 6.147 Id. at 5&6.148YUNUS, supra note 85, at 16.149Alicia E. Plerhoples, Can an Old Dog Learn New Tricks? Applying Traditional Corporate Law Principles to New Social Enterprises Legislation, 13 TENN. J. BUS. L.221, 235 (2012).150The Association of Social Enterprises Ethiopia Bylaws Membership Term and Conditions, Social Enterprises Eligibility Guideline (unpublished),(2018).

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who are interested to support social entrepreneurs and social entrepreneurship. In recent years, donors are highly interested in financing SEs as compared to NPOs. This is because of the sustainability benefits SEs have. For example, in Ethiopia, Reach for Change and the British Council is much interested to support SEs than NPOs. This mainly true because of the financial and mission sustainability of SEs as compared to NPOs. The social brand has not only benefit but also risks. It may incentivize greedy investors who want to use social missions of SEs as window dressing or marketing. Besides, it has also risk of acquisitions by other buyers. As Professor Alicia E. Plerhoples said, the social brand may make the SEs face with a sale or a change in control transaction precisely because company earnings are not its only bottom line.151 The financial success of SEs may more likely to make SEs targeted by bidders or buyers, friendly or hostile.152 This is because it might just be cheaper to buy than build a social brand.

The other advantages of SEs are financial and mission sustainability. A social enterprise is carrying on commercial activity to generate income to finance its social missions. The generation of sufficient income from business activity makes SEs financially sustainable. Financial sustainability is necessary but not sufficient condition for the sustainability of missions.153 Even, in case the business is unfortunate, the SEs has an alternative source of finance from donors. The availability of sustainable and alternative finance helps to ensure or maintain continuity of missions of SEs. The sustainable finance secured by the profitability of SEs has not only benefit but also risk mission drift.

SE has not only advantages but also disadvantages.154 One of the fundamental disadvantages of SEs is the missions drift. Mission drift occurs when for-profit SEs gives primacy for profit or seeks profit at the expense of social missions. In doing so, mission drift reduces social impact or social and environmental benefits. The risk of the mission’s drifts arises in two scenarios. First, when SEs neglects transacting neglecting poor (destitute) beneficiaries.155 Second, when for-profit SE to exploit its beneficiaries by offering them unfavorable terms.156 The second disadvantage of SEs is difficulties in attracting capital.157This is mainly true for non-profit SEs. Although for-profit SEs is better at attracting capital, they face difficulties in attracting equity capital. In particular, SEs controlled by nonprofits and social investors have difficulty tapping equity capital markets since dispersed profit-seeking investors may fear that the firm will forego profits to pursue a social mission. There is a situation in which SEs are better able to attract capital primarily in two situations. First, where the support for beneficiaries is relatively small. 158 The second is where consumers, donors, or the government, rather than the investors, pay the subsidies.159 The third disadvantage is the lack of public exposure and recognition. Many people don’t have a clue about SEs. In this situation is difficult to expect them to support SEs. Whether it’s online or offline, very little can be found about SEs, and hence the unexposed public when coming across SEs may misunderstand it. Moreover, people don’t trust what they don’t know, and that causes misconceptions. The fourth disadvantage is the lack of support structure and

151Plerhoples, supra note 149, at 234.152Id. at 235-236.153 Rhoden, supra note 3, at 28.154Eldar, supra note 58, at 170.155Eldar, supra note 58, at 170.156Eldar, supra note 58, at 171.157Eldar, supra note 58, at 172.158Eldar, supra note 58, at 172.159Eldar, supra note 58, at 173.

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funding. At least, at the start-up stage, support is essential to ensure the development of SEs. Unluckily, due to a lack of regulations and recognition for SEs, the support and funding scheme is not available. Hence, the absence of a special support scheme is one disadvantage of SEs.

11.Social Enterprise and Its Relationship with Stakeholders

The difficult question the author encountered to answer is “what social enterprise is?” Ethiopia lacks the definition of SEs stipulated by the legal instruments. To fill the gap, the author define SE is as (a) a private enterprise taking a wide variety of legal forms i.e. for-profit or non-profit; (b) carry on commercial activities and generate a substantial part of the income thereof; (c) use majority or all of the income to create social benefits or impacts by solving social problems through the transaction with its beneficiaries; (d) have a clear social mission as its core; (d) financially autonomous and sustainable; and (e) make no or limited distribution of profit to owners. As indicated hereunder in the graphs, SE is a commercial enterprise (trader) that takes various forms with a commitment to transact with beneficiaries. The SEs may receive support or subsidy from donors, government, investors, or customers. A one-sided arrow is used to denote a subsidy. A two-sided arrow is used to denote a transactional relationship with a patron. Accordingly, the SEs transact with a customer (buyer at market or premium price), employee or manager, investor or owner, and beneficiaries. Beneficiaries are different from the customer. Beneficiaries are direct users of the social mission of the firms. Based on the legal form it has adopted, SEs in Ethiopia is broadly classified into two: for-profit SE and non-profit SEs. For-profit SE refers to the social business which operates using legal forms designed for conventional business.160 It may distribute a limited amount of profit for the owner. Thus, the enterprise’s founders, controllers, and investors may lawfully appropriate its surpluses for their private benefit. It is owned by equity investors. Non-profit SEs (commercial nonprofit) refers to SE which operates using non-profit form i.e. CSOs and receives substantial parts of its income from the price of the selling products or services.161They do not distribute profit to the owner. As a result, those who control the organization have limited incentives to compromise the mission of the organization. Both for-profit and non-profit SEs is commercial enterprises in the sense that they receive a significant portion of their income from prices charged for its products or services so that its viability or sustainability is dependent on such income. However, they may also receive some form of subsidy from government, donor, customer, or investor in the form of tax benefits and other, donation and grant, premium price, and low return respectively.

160Katz & Page, supra note 7, at 62.161Eldar, supra note 58, at 117.

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Figure 2: Relationship of Social Enterprise in Ethiopia with Stakeholders and the Sphere of Social Enterprise Relative to Conventional For-Profit and Non-Profit Organizations

12.Examples of Social Enterprise

A social enterprise is a mission or cause-driven business whose primary reason for being is to improve social objectives and serve the common good. The social mission of SEs includes providing healthcare or safe drinking water for the poor, providing access to finance for the poor at a discount rate, introducing renewable energy, creating jobs for the unemployed, advancing education initiatives, and others. The SEs which pursue mixed commercial and social mission is

Social EnterpriseCustomer

Government

Beneficaries Donor

Investor/Owner

Employee/Manager

Business Organizations includesSol Propriteorship,Share Company, Private Limited Company,General Partnership, Joint Venture, and Limited Partnership.

Civil Soceity Organization includes Charitable Trust,

Chartiable Committee, Association,

Board Led Organization & Charitable Endowment

Cooperatives Traditional Self-Associations(Iddir and Mahibr)

Social Enterprise

For-

Prof

it SE

s

Non-Profit

SE

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not exclusively the domain of a small set of specialized legal forms. In recent years, there has been an increase in the number of organizations that combine profit-seeking with a social mission. The SEs in Ethiopia is diverse from the perspective of form and business strategies they have adopted and the sectors in which they are engaged (agriculture, manufacturing, technology, and service). The SEs adopts all traditional forms designed for conventional charity and business. The first example of SE in Ethiopia is the MFIs that provide credit (loan or lease) to low-income borrowers who are disadvantaged individuals or businesses that face difficulties in obtaining capital from commercial lenders at a discount rate. In so doing, they ensure access to capital which in turn increases investment and productivity and thereby reduces poverty. Commercial banks have avoided transacting with poor individuals because of a lack of credit history and collateral (pledge and mortgage).162 However, the problem in Ethiopia is that most of the MFIs provide loans to the poor at an interest rate greater than what is imposed by commercial banks. The second example is Fair Trade SEs which improves productivity through purchasing inputs directly from small producers. In so doing, they ensure market access for small producers at market or premium price. The third examples of SEs are those which address a social problem that directly addresses a social need through innovative products. The best example of SEs which has adopted an innovative model is Green Scene Energy PLC that is a company that brings clean energy technology off-grid Ethiopian communities. There are also other SEs that provides innovative products and services to solve a social issue. The fourth example of SEs is Work Integration SE which employ disadvantaged worker or those who could not able to get employment opportunities from labor market because of low quality, mental problem, old age, or disability. They employ them at a fair wage. In so doing, they reduce unemployment and break the cycle of poverty. The best example is Elilita Woman at Risk, Elilita Products who give training for the prostitute and thereby employ them. In doing so, it rehabilitates prostitutes in sustainable ways. Likewise, Muday Charity Association gives training for women living in poverty and thereby employs them or adjusts employment opportunities for them. The training is given to enhance the performance of workers. Besides, to training and employing them, the organization provides start-up finance for those who want to commence their own business. The fifth example is SEs which gets involved in enhancing consumer welfare through provisions of essential products and services with low or zero cost. Usually, such SEs has two customers: normal customers and beneficiaries. The former may be subsidizer through premium or market price while the later one is beneficiaries of social missions through low or zero cost it pays get products or services. Tebita Ambulance which provides ambulance services at low or zero cost, Beautiful Mind Community PLC which provide soap for a student at zero cost and train student about hand-washing, Rehobot Nursing Services which give home health care at low cost are the best examples. Here low cost mean blow market price. The sixth one is SEs which have adopted give back mode. Such SEs serves the common good by giving products or services for those in need for every purchase made.

13.Overview of the Legal Regime

The de facto SEs in Ethiopia adopted a for-profit and non-profit form designed for conventional business and charity. Consequently, they are treated as an ordinary business or charity under the existing legal regimes designed for two ends of the spectrum i.e. for-profit and non-profit. 162Eldar, supra note 58, at 132.

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Uniquely, SEs blends social mission and profit-making activities within a single entity. This hybrid nature of SEs makes the suitability and adequacy of the existing legal and institutional frameworks regulating SEs questionable. Answering the issue of adequacy and suitability require critical examination of the existing legal regimes to recognize and regulate fundamental special regulatory concerns of SEs. Despite this, it is clear that the traditional forms of doing business and its legal regimes are each designed for either end of the economic spectrum i.e. nonprofit and for-profit. Hence, the legal regimes of neither conventional for-profit nor non-profit offer much room for hybrid activities of SEs which typically have characteristics of both. Indeed, the existing legal regimes do not prohibit the operation of both for-profit and non-profit organizations as SEs but found inadequate and unsuitable in many respects, mainly lacks a system of recognition of social enterprise as a distinct organizational or business model. Besides, it is unsuitable and inadequate to ensure the social mission integrity of for-profit organizations and to facilitate earned income strategies of non-profit organizations.

14.Concluding Remarks

The concept of social enterprise which combines the social mission of the non-profit and market approach of the for-profit sector in the recent phenomena. As a result, the concept of SEs needs investigation. In this context, conceptual frameworks of SEs in Ethiopia such as definition, birth, development, school of thought, rational, difference, and similarities as well as the legal regime of SEs are briefly examined. As the finding has revealed, the meaning of SEs is yet unsettled. Because of its idea of doing charity by doing trade and doing charity while doing trade, SE share features for conventional for-profit and non-profit, but distinct. Besides, no formal definition or characterization of SEs is adopted by the government. The birth of SEs is the result of private and not a government initiative. Because is the result of enterprising non-profit and socializing for-profit. The SE in Ethiopia is highly influenced by the social business school of thought. The need for SE is highly justified by the shortcoming of the traditional sector (for-profit, public and non-profit), the existence of a severe socio-economic and environmental problem, its positive contribution in ensuring inclusive, equitable and sustainable development, the existence huge market need and interests, and constitutional right of everyone to trade for the social end. As of today, in Ethiopia, SEs are subjected to the existing legal regimes designed for traditional for-profit and non-profit. Indeed, the existing legal regimes do not prohibit the operation of both NPOs and FPOs as SEs but found inadequate and unsuitable in many respects, mainly lacks a system of recognition of social enterprise as a distinct organizational or business model. Besides, it is unsuitable and inadequate to ensure the social mission integrity of FPOs and to facilitate earned income strategies of NPOs as offering much room for hybrid activities of SEs.

Based on this, the researcher recommends further research in the area of adequacy and suitability of existing legal regimes to address the special regulatory concern of SEs, adequacy of the existing policy frameworks of support for SEs, and practical challenges suffered by SEs.

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3. References

A. Laws

FDRE CONSTITUTION, Proclamation No.1/1995, FED NEGARIT GAZETA, 1st Year No.1, 1995.

Commercial Code of the Empire of Ethiopia Proclamation No.166/1960, NEGARIT GAZETA Gazette Extraordinary, 19th Year No.3, 1960.

Commercial Registration and Licensing Proclamation. No. 980/2016. FED NEGARIT GAZETA, 22nd Year.No.101, 2016.

Cooperative Societies Proclamation.No.985/2016, FED NEGARIT GAZETA 23rd Year No. 7, 2016.

Federal Income Tax Proclamation No. 979/2016, FED NEGARIT GAZETA 22nd Year No.104, 2016.

Organizations of Civil Societies Proclamation No.1113/2019, FED NEGARIT GAZETA, 25th Year No.33, 2019.

Investment Proclamation No. 769/2012, FED NEGARIT GAZETA, 18th Year No. 63, 2012.

The Ethiopian Federal Government Procurement and Property Administration Proclamation No.649/2009, FED NEGARIT GAZETA, 15th Year No. 60, 2009.

Charities and Societies Proclamation No. 621/2009, FED NEGARIT GAZETA, 15th Year No.25, 2009.

Council of Ministers Federal Income Tax Regulation No.410/2017, FED NEGARIT GAZETA, 23rd Year No.82

B. Interviews

Interview with Director of Licensing and Registration Directorate of Ministry of Trade and Industry, in Addis Ababa (March 25, 2019).

Interview with Director of Licensing and Registration Directorate of Ministry of Trade and Industry, in Addis Ababa (March 25, 2019).

Interview with Legal Expert at Legal Service Directorate of Ministry of Trade and Industry,

in Addis Ababa (March 25, 2019).

Interview with Organizer Expert of Ministry of Trade and Industry, Federal Cooperative Agency, in Addis Ababa (March 29, 2019).

Interview with Director of Monitoring and Supporting Directorate of Civil Society Organization Agency, in Addis Ababa (March 29, 2019).

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Interview with, Deputy Director of Legal Study Drafting and Dissemination Directorate of Federal General Attorney, in Addis Ababa (March 26, 2019).

Interview with, Director of Legal Service Directorate of Ministry of Revenue, in Addis Ababa (March 28, 2019).

Interview with President of Association of Social Enterprise, in Addis Ababa (March 26, 2019).

Interview with Chief Executive Officer of Association of Social Enterprise, in Addis Ababa (March 26, 2019).

Telephone Interview with Founder and Chief Executive Officer of Beautiful Mind Community Work PLC, in Addis Ababa (March 27, 2019).

Interview with Owner and Manager of Rehobot Nursing Services, Sole proprietorship, in Addis Ababa (March 28, 2019).

Interview with Founder, and Chief Executive Officer Vitae Bite Nutrition Private Limited Company, in Addis Ababa( March 25, 2019).

Interview with Founder and Chief Executive Officer of Tebita Ambulance Private Limited Company, in Addis Ababa (March 26, 2019).

Interview with Founder and Chief Executive Officer of Fresh and Green Academy Private Limited Company, in Addis Ababa (March 27, 2019).

Interview with Founder and Chief Executive Officer of Muday Charity Association, in Addis Ababa (March 27, 2019).

Interview with Chief Executive Officer of Elilita Woman at Risk, Elilita Product, in Addis Ababa(March 29, 2019).

Interview with Startup Technical Expert of Reach for Change Ethiopia, in Addis Ababa (March 27, 2019).

Interview with Chief Executive Officer of Jerusalem Children and Community Development Organization, in Addis Ababa (2019).

Interview with Head of Entrepreneurship Development Center (EDC), in Addis Ababa (2019).

Interview with Instructor at College of Development Studies of Addis Ababa University, in Addis Ababa (2019).

Interview with Deputy Commissioner Industrial Parks Division Ethiopia Investment Commission, in Addis Ababa (2019).

C. Books and Reports

BRITISH COUNCIL, THE STATE OF SOCIAL ENTERPRISES IN ETHIOPIA, (2016).

FREER SPRECKLEY, SOCIAL AUDIT – A MANAGEMENT TOOL FOR COOPERATIVE WORKING, 13-17 (1981).

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MUHAMMAD YUNUS, BUILDING SOCIAL BUSINESS-THE NEW KIND OF CAPITALISM THAT SERVES HUMANITY’S MOST PRESSING NEEDS, (Public AffairsTM, 1st ed) (2010).

REACH FOR CHANGE, AFRICA SOCIAL IMPACT REPORT (2016).

REACH FOR CHANGE, AFRICA SOCIAL IMPACT REPORT (2017).

REACH FOR CHANGE, AFRICA SOCIAL IMPACT REPORT, (2015).

THOMAS WONG, SOCIAL ENTERPRISES POLICIES OF THE UNITED KINGDOM, SPAIN AND HONG KONG, (RP03/07-08, 2017).

D. Collected Documents

Alain Fayolle and Harry Matlay, Social Entrepreneurship: A Multicultural and Multidimensional Perspective in HANDBOOK OF RESEARCH ON SOCIAL ENTREPRENEURSHIP (2010).

François Brouard and Sophie Larivet, Essay of Clarifications and Definitions of the Related Concepts of Social Enterprise, Social Entrepreneur and Social Entrepreneurship, in HANDBOOK OF RESEARCH ON SOCIAL ENTREPRENEURSHIP: SOCIAL ENTREPRENEURSHIP, (2010).

Jacques Defourny, Concepts and Realities of Social Enterprises: A European Perspective, in HANDBOOK OF RESEARCH ON SOCIAL ENTREPRENEURSHIP, (, 2010).

E. Working Papers

Andrew Rogerson, et al., Mixing business and social What is a Social Enterprises and How Can We Recognize One?, (Shaping Policy for Development Odi.Org, Working Paper, 2013).

Anna Triponel and Natalia Agapitova, Legal Framework for Social Enterprises Lesson from Comparative Study of Italy, Malaysia, South Korea, United Kingdom, and the United States, (The World Bank Groups Working Paper, 2016).

Antonio Fici, Recognition and legal Forms of Social Enterprises in Europe: A Critical Analysis from a Comparative Law Perspective, (Euricse Working Paper No. 82, 2015).

Carlo Borzaga et.al, Social Enterprises: A New Model for Poverty Reduction and Employment Generation An Examination of the Concept and Practice in Europe and the Commonwealth of Independent States, (European Research Network and UNDP, 2008)

Carlo Borzaga et.al, Social Enterprises: A New Model for Poverty Reduction and Employment Generation An Examination of the Concept and Practice in Europe and the Commonwealth of Independent States, (European Research Network, 2008)

Carlo Borzaga et.al., Cooperatives: The Italian Experience, (Euricse Working Paper)

Community Southwark, An Introduction to Social Enterprises, (2016)

34

David Littlewood and Diane Holt, Social Enterprises in South Africa, (International Comparative Social Enterprises Model (ICSEM) Working Papers No. 02, 2015).

Defourny, J. & M. Nyssens, Social Enterprises in Europe: Recent Trends and Developments, (EMES European Research Network WP no. 08/01,2008)

Development Assistance Group, Tracking Trends in Ethiopia’s Civil Society DRAFT POLICY BRIEF 15 Self Help Groups in Ethiopia: Regulatory Issues and Constraints, (2014), available at http://esap2.org.et/wp-content/uploads/2014/11/Policy-Brief-15-SH-Groups-Sept-2014-.pdf, (accessed on 23/5/2019).

Jacques Defourny and Marthe Nyssens, The EMES Approach of Social Enterprises in a Comparative Perspective, (WP No. 12/03, 2012).

Jacques Defourny, From Third Sector to Social Enterprises, (2001).

Janelle A. Kerlin, A Comparative Analysis of the Global Emergence of Social Enterprises, (Andrew Young School of Policy Studies, Gsu, Working Paper 06-06, 2006)

Jean-Louis Laville, What is the third sector? From the non-profit sector to the social and solidarity economy Theoretical debate and European reality,( EMES European Research Network Working Paper No. Wp no. 11/01, 2011)

Jim Brown, Defining Social Enterprises, University of Bristol, 1 (Year Unknown)

Nicholls, A. Social Entrepreneurship: New Models of Sustainable Social Change, Oxford University Press, (2006)

Spear Roger et.al., For Love and Money: Governance and Social Enterprise, ( National Council for Voluntary Organisations, UK, 2007)

UNDP, Ethiopia’s Progress Towards Eradicating Poverty, Paper to be presented to the Inter-Agency Group Meeting On the “Implementation of the Third United Nations Decade for the Eradication of Poverty (2018 – 2027)”

F. Legal Materials

Ethiopia: Building on Progress A Plan for Accelerated and Sustained Development to End Poverty (PASDEP) (2005/06-2009/10),(2006) available at http://www.ethdiaspora.org.et/phocadownloadpap/Publications/pasdep.pdf, (accessed on 4/22/19,10:33 AM).

European Commission, Social Business Initiative: Creating a favourable climate for Social Enterprises, key stakeholders in the social economy, (2011).

Social Enterprise Ethiopia, Article of Association, (unpublished internal documents 2018).

Social Enterprise Ethiopia, Memorandum of Association,(unpulished internal documents, 2018).

The Association of Social Enterprises Ethiopia Bylaws Membership Term and Conditions, Social Enterprises Eligibility Guideline (unpublished),(2018).

The United Kingdom Department of Trade and Industry, Social Enterprise: A Strategy for Success, (2002).

35

G. Thesis and Dissertation

Michelle Therese Hackett, The ‘Everyday’ Political Economy of SEs Lessons From Grameen Shakti in Bangladesh, (Ph.D. desertion, University of Adelaide), (2012).

H. Periodical

Alicia E. Plerhoples, Can an Old Dog Learn New Tricks? Applying Traditional Corporate Law Principles to New Social Enterprises Legislation, 13 TENN. J. BUS. L. (2012).

Antonio Thomas, The Rise of Social Cooperatives in Italy, 15:3Int’l J. OF VOLUNTARY AND NONPROFIT ORG. (2004).

Antony Page and Robert A. Katz, Is Social Enterprise the New Corporate Social Responsibility?, 34SEATTLE UNI. LAW REVIEW, (2011).

Daryl Poon, The Emergence and Development of Social Enterprise Sectors, SOC. IMPACT RES. EXPERIENCE, (2011).

Gbenga Sesan, Social Enterprises in Africa: An Emerging Concept in an Emerging Economy, 1:1 INT’L NGO J., (2006).

Haskell Murray, Choose Your Own Master: Social Enterprises, Certifications, and Benefit Corporation Statutes, 2:2AMERICAN UNI. BUS. L. REVIEW,1, 4(2012).

J. Haskell Murray, The Social Enterprises Law Market, 75:2:6 MARYLAND L. REV. (2016),

Moga Tano Jilenga, Social Enterprises, and Economic Growth: A Theoretical Approach and Policy Recommendations, 7:1 INT’L J.ACADEMIC RES. IN ACCOUNTING, FINANCE AND MANAGEMENT SCIENCES, (2017)

Muhammad Yunus, Creating a World Without Poverty: Social Business and the Future of Capitalism, 4GLOBAL URBAN DEVE. (2008).

Ofer Eldar, The Role of Social Enterprise and Hybrid Organizations, 1:92 COLUM. BUS. L. 92, 121 (2017)

Robert A. Katz & Antony Page, The Role of Social Enterprise, 35VERMONT L. REV, (2010).Werotaw Bezabih, Entrepreneurship and Development in Ethiopia, 8:4ETHIOPIAN ECON.

ASS’N. (2005).