Not an oxymoron: Financial sustainability for non-profit social enterprise

One Acre Fund provides training to smallholder farmers in East Africa, but asks that it be repaid in full. This formula makes the social enterprise’s business sustainable. Photo by: Hailey Tucker / One Acre Fund

Historically, the prevailing belief in the development community was that achieving financial sustainability meant sacrificing a high level of impact. While the debate still rages, more and more social sector leaders agree that impact and sustainability aren’t mutually exclusive.

One Acre Fund, along with a growing number of nonprofit social enterprises, is coming to realize that pursuing financial sustainability, far from hurting social impact, is actually one of the best ways of achieving impact on a transformative scale.

We offer a market bundle of farm inputs, delivery, training, and market facilitation to 180,000 smallholder farmers in East Africa — and we ask those farmers to repay us in full. It may sound counterintuitive, but we think that insisting on repayment from farmers actually helps them dramatically. Here’s how:

1. Repayment makes us more responsive to our customers’ needs. If our service in a village declines, repayment there will suffer, and we can address the problem quickly. Similarly, if we offer a product that clients aren’t interested in, farmers won’t pay for it!

2. Seeking earned revenue increases One Acre Fund’s overall resource-base. This allows us to serve more farmers, expand more rapidly, and return to serve our customers year after year. Our overall social impact is a function of our impact per customer, multiplied by the number of customers we serve. Expanding impact requires large investments, which can only be made over the long-term with at least some earned revenue.

3. Achieving sustainability in our direct service operation frees up donor dollars to focus on potentially game-changing innovations. With donors no longer caught in the cycle of fully subsidizing service delivery, they can fund innovations and “public goods”— for example, agriculture microfinance innovations and agricultural R&D .

Many social entrepreneurs agree that earned revenue should be part of their program model, but are left with the question of how to actually go about incorporating it. This is a particularly pressing question for organizations serving the bottom of the pyramid, where it can be hard to envision even some earned revenue, let alone breaking even.

One Acre Fund hasn’t reached full financial sustainability yet, but we think there are some common strategies organizations can employ which make this an achievable goal. These strategies boil down to economies of scale. As organizations grow bigger, not only do they serve more clients overall — which drives impact — but they are able to serve them more efficiently.

Social enterprises should think about sustainability in the way that best suits their model — we define financial sustainability as the portion of field costs (things like seed, fertilizer, and field staff salaries) covered by farmer loan repayment. Currently, One Acre Fund operates at 77 percent financial sustainability.

One way we improve our sustainability is by increasing the ratio of farmers to field officers who serve them. Each of our field officers serves a group of farmers, training them, ensuring they receive their inputs, and troubleshooting issues in the field. Increasing the number of farmers that each field officer serves — without sacrificing service quality — allows us to serve more farmers with the same staffing and cost footprint.

Mobile repayment is another area we’re exploring as a means to improve operational efficiency in Kenya. Instead of field officers handling cash repayment, mobile repayment allows farmers to repay their loans directly to One Acre Fund’s accounts. This frees each field officer’s time to serve more clients and allow them to focus on high-impact activities like agricultural trainings — a win-win for sustainability and impact.

We’re also looking for ways to responsibly increase average transaction volume, which is the value of the goods each farmer purchases from us. We take a margin on the products we sell, in order to cover the cost of our services. Each of our product offerings is also proven to generate returns for farmers, so that if farmers take on larger transactions, we can deepen our impact on their livelihoods, while improving our own financial sustainability.

One way to increase transaction volume that minimizes risk for clients is assigning credit scores to our farmers. We think credit scoring will help set appropriate transaction volume limits for clients, allowing us to increase transaction sizes for farmers with a proven ability to handle more risk, while offering less experienced farmers loans they can manage.

We are not alone in coming to realize that high impact and financial sustainability go hand-in-hand. Bridge International AcademiesLiving Goods, and Sanergy are examples of nonprofit social enterprises that place a high premium on financial sustainability, and have some creative ideas for how to achieve it. While our strategies are always evolving, we’re increasingly convinced that the pursuit of financial sustainability actually helps drive social impact, rather than undermining it.

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About the authors

  • Jake velker

    Jake Velker

    Jake Velker is a special projects manager at One Acre Fund, an agricultural organization that serves 180,000 smallholder farmers in East Africa. He is based in Bungoma, Kenya.
  • Hilda poulson profile

    Hilda Poulson

    Hilda Poulson is a senior analyst with One Acre Fund, an agriculture NGO that provides smallholder farmers in East Africa with the financing and training they need to grow their way out of hunger and poverty.