Societal Entrepreneurship

A fishing rod for sustainable development and being self-sufficient

Author: Wajih Ullah Khattak Registration: F2010-2187 Supervisor: Dr. Elmos Konis Masters Thesis for MBA Ioannis Gregoriou School of Business Administration European University Cyprus 8/17/2011

Abstract
The focus of this thesis is in the area of social entrepreneurship and societal development. The purpose of this thesis was to develop a theoretical model of social entrepreneurship that will be sustainable and create a self-sufficient socioeconomic environment in the developing countries. Another aim of this thesis was to find out the effects of non-governmental organizations (NGOs) and foreign financial aid given to developing countries. Finally the socioeconomic environment of Pakistan and the foreign financial aid given by U.S. Agency for International Development (USAID) was critically analyzed. The research approach adopted in this thesis was deductive approach which relied mostly on secondary but scholarly information, and organizational reports and statistics. The findings of this thesis provide evidence that there is no connection between foreign financial support and long term strategic growth of an economy. The main conclusion drawn from this thesis is that governments should not rely on financial aid, and that the major actors of a society; Government, Business firms, and the general public, should all work towards societal development. This thesis recommends that, in order to have a sustainable socioeconomic environment, societies must come together and work towards the societal development from a micro level, as their cumulative effort can make a big change in the countrys economy. Another suggestion this thesis recommends is that enterprise education should be given the deserved emphasis by the policy makers of developing country.

Keywords: Societal entrepreneurship, Societal Development, Islamic Banking, Social Entrepreneurship, Sustainable Socioeconomic System.

Acknowledgement

The study was conducted in the Ioannis Gregoriou School of Business Administration, European University Cyprus. I am really thankful to everyone who have helped me directly or indirectly in completing this thesis on time. This thesis would not have been possible without the help of my supervisor, Dr. Konis Elmos, whose interest in the subject at the initial level motivated me in working on this subject, his encouragement, guidance, and support enabled me to develop an understanding of the subject and academic writing. I would like to specially thank Dr. Fida Shinwari, professor in the department of sociology and criminal justice, state university of New York, who helped me a lot in giving creative criticism and suggestion on how to improve the thesis. Besides the direct help I got from people I would also acknowledge the work and efforts of other scholars in this topic which helped a lot in completing the thesis on time without their efforts it would have been impossible to complete the thesis in given time. My deepest gratitude goes to my parents who have always supported me in my education. I owe my loving thanks to my family and especially to my son, Deron, who has lost a lot due to my masters abroad. Without their encouragement and understanding it would have been impossible for me to finish this work. Finally, the generous support by the planning bureau of Cyprus, CyprusAid, is greatly appreciated. Without the support of CyprusAid, my ambition for MBA and doing a thesis that can help the developing countries would never have been achieved. Nicosia, Cyprus Wajih Ullah Khattak 17 August 2011

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Table of Contents
Abstract.................................................................................................................................................... i Acknowledgement ................................................................................................................................... ii Table of Tables .................................................................................................................................... v Table of Figures .................................................................................................................................. v Abbreviations ..................................................................................................................................... vi 1.0. 1.1. 1.2. 1.3. 1.4. 1.5. 1.6. 2.0. 2.1. 2.2. 2.3. 2.4. 2.5. 3.0. 3.1. 3.2. 3.3. 3.4. 3.5. 3.6. 3.7. 4.0. 4.1. Introduction .................................................................................................................................. 1 Background.............................................................................................................................. 3 Problem Statement ................................................................................................................... 5 Research Questions .................................................................................................................. 5 Purpose .................................................................................................................................... 5 Usability .................................................................................................................................. 6 Limitations............................................................................................................................... 6 Methodology ............................................................................................................................... 7 Choice of the subject and research approach ............................................................................. 8 Choice of literature................................................................................................................... 8 A Model in Pursuit ................................................................................................................... 9 The Research Method..............................................................................................................10 The Research Process .............................................................................................................. 11 Literature Review ....................................................................................................................... 12 Basic Types of Socio-Economic Systems ................................................................................ 13 Societal Development ............................................................................................................. 15 Corporate Social Responsibility ..............................................................................................16 A system perspective...............................................................................................................18 Microfinance...........................................................................................................................19 Islamic Banking ..................................................................................................................... 20 Need for a new theory of Societal Development ..................................................................... 23 Theoretical Framework .............................................................................................................. 24 Entrepreneurship .................................................................................................................... 24 Entrepreneurship and Small Business ............................................................................. 26 Social Entrepreneurship .................................................................................................. 27 Are Social Entrepreneurs Real Entrepreneurs? ................................................................ 28 iii

4.1.1. 4.1.2. 4.1.3.

4.1.4. 4.1.5. 4.2.

Sustainability and Self-sufficiency in Social purpose ...................................................... 29 A model in pursuit .......................................................................................................... 29

Societal Entrepreneurship........................................................................................................ 31 Societal Entrepreneurship Definition .............................................................................. 32 Societal Entrepreneurship Process .................................................................................. 34

4.2.1. 4.2.2. 4.3. 5.0. 5.1.

The difference between Social and Societal Entrepreneurship ................................................. 37 Results ....................................................................................................................................... 42 Global Socio-Political Economy............................................................................................. 42 Size, Power and Accountability ...................................................................................... 44 Public and Private Role .................................................................................................. 44 National Sovereignty and Corporate Power..................................................................... 45

5.1.1. 5.1.2. 5.1.3. 5.2.

Successful Programs of SERC ................................................................................................ 46 HIV/AIDS Program ........................................................................................................ 46 Livestock feed production............................................................................................... 47 Peanut Processing Plant .................................................................................................. 47 Environmental Protection ............................................................................................... 48

5.2.1. 5.2.2. 5.2.3. 5.2.4. 5.3.

General Information about Pakistan........................................................................................ 48 History, Politics and Foreign Policy ................................................................................ 49 Human Resources and Social Environment ..................................................................... 50 Cultural Environment ...................................................................................................... 51 Market situation in Pakistan ............................................................................................ 52 Societal problems in Pakistan ......................................................................................... 53 Philanthropic Sector of Pakistan ..................................................................................... 55

5.3.1. 5.3.2. 5.3.3. 5.3.4. 5.3.5. 5.3.6. 5.4.

Role of Non-Governmental Organizations (NGOs) ............................................................... 56 9/11, Pakistan, United States, and U.S Foreign Aid ......................................................... 58

5.4.1. 6.0. 6.1. 6.2.

Analysis ..................................................................................................................................... 62 How businesses are involved .................................................................................................. 63 Programs in Emerging Economies .......................................................................................... 64 Productivity Enhancement .............................................................................................. 64 National Competitiveness ............................................................................................... 64 Quality of life ................................................................................................................. 65

6.2.1. 6.2.2. 6.2.3. 6.3.

Importance of Small and Medium Enterprises ........................................................................ 66 iv

6.4. 6.5. 6.6. 7.0. 7.1. 7.2. 7.3. 7.4.

Microfinance.......................................................................................................................... 68 Importance of Societal Entrepreneurship ................................................................................ 70 Pakistan Issues ....................................................................................................................... 72 Conclusion & Recommendations ............................................................................................... 74 Microfinance.......................................................................................................................... 74 Role of Non-governmental Organizations (NGOs) ................................................................ 75 Pakistan ................................................................................................................................. 76 Entrepreneurship and Societal Development ........................................................................... 76

7.5. Research Questions ..................................................................................................................... 78 References..............................................................................................................................................81 Appendix 1 ........................................................................................................................................ 88 Appendix 2 ........................................................................................................................................ 89 Appendix 3 ........................................................................................................................................ 90

Table of Tables
Table 1 Basic Types of Socioeconomic System ...................................................................................... 14 Table 2 Foundation Principles of corporate social responsibility and their modern expression. ................ 17 Table 3 the umbrella construct of social entrepreneurship ...................................................................... 38 Table 4. Comparison of GDP and Poverty ............................................................................................. 56

Table of Figures
Figure 1 A System Perspective ...............................................................................................................19 Figure 2 Societal Entrepreneurship Model ............................................................................................. 33 Figure 3: Societal Entrepreneurship Process .......................................................................................... 36 Figure 4 Average Loan Balance in Pakistan ........................................................................................... 52 Figure 5 Microfinance Equity Funds ...................................................................................................... 69

Abbreviations
AKAM: Aga Khan Agency for Microfinance CSR: Corporate Social Responsibility ECO: Economic Cooperation Organization EEP: Experimental Entrepreneurial Philanthropy EOBI: Employee Old Aged Benefit PBUH: Peace Be Upon Him EU: European Union ROI: Return on Investment FATA: Federally Administered Tribal Areas FDI: Foreign Direct Investment FY: Fiscal Year GDP: Gross Domestic Product GNP: Gross National Product IPS: Institute of Policy Studies IMF: International Monetary Fund KPK: Khyber Pakhtun khwah MFI: Microfinance Institute SAARC: South Asian Association for Regional Development SERC: Snider Entrepreneurial Research Centre SME: Small and Medium Enterprise WHO: World Health Organization UN: United Nations USA & US: United States of America USAID: U.S. Agency for International Development MFN: Microfinance Network NBFI: Non-Bank Financial Institute NFCH: National Fund for Cultural Heritage NGO: Non-Governmental Organization ODI: Oversees Development Institute

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1.0.

Introduction

Poverty in developing countries has been recognized by many as the root cause of all social problems. Many developed countries and donor agencies are trying to tackle this problem with programs specially designed to uplift poverty and bring positive change in developing world. The efforts and financial support given by these countries and agencies could never be ignored due to immediate results of such programs. Yet problems in developing world are far from being solved, poverty is increasing, serious health issues, low illiteracy rate, crime rate rising, and recently the rise in extremism is shocking and also alerting for the global security. Billions of dollars have been spent on these programs which only resulted in short term immediate results. Besides the short term approach towards social problems, the global economy is scare as well and it cannot solve the problems by allocating funds and resources whenever and wherever they emerge. Due to these reasons the impact of such programs has been criticized by many scholars, politicians, policy makers, economists, etc. In order to cure the illness rather than the patient, long term strategic approach is required to such complex social problems. Thus a country in order to create a sustainable socioeconomic environment cannot rely on foreign support and be dependent on financial aid given by donor agencies. Also the idea of leaving social development sector solely to government is also not a sane option, as social development cannot prevail without the society coming together, therefore the three main actors of the society; Government, Business, and General Public, needs to come together and create a more promising socioeconomic system. At present, world is served by different institutions; economic, political, social (e.g. markets, companies, charities, etc.) designed to cater for the needy and ills in society. Unfortunately these institutions are failing to serve most of the large population at risk. As a result most of population living below poverty line remains marginalized and have to cope with the informal system that do not guarantee fair wage, good working conditions, to be treated equally, and access to basic health and education, leading to a socioeconomic situation of chronic poverty. On other hand, most of these institutions trying to solve the global problems effectively are pushing the limits where they start generating other problems due to their over effectiveness. For example, a company trying hard to serve customers with best possible products ignoring the environment and the scarce resources are contributing to a long term problem which we have to deal with in the near future (Johanna, 2010). Governments in the developing world, with the help of donor agencies, are trying to tackle these problems and promoting programs that are targeting the social problems. Most of these programs are showing positive results on the short term and are considered successful, but still there is no concrete and

sustainable change in the developing world. Poverty is increasing, unemployment at its peak, serious social problems are emerging, etc. yet the governments are using the obsolete methods while addressing to the ever growing problems of developing world. There is a need for drastic policy revision and new approach towards the social problems in developing world. Societal development is not a simple task, rather a much more complex process in which all the actors of the society have to come together in order to create a sustainable socioeconomic system. A social research carried out by Fick (2006), observed an interviewee explaining that most of the people have a tendency to believe that social development is the sole responsibility of government, development agencies, or the elite class of the society. Whereas national development is a collective effort, a shared commitment of the public sector, and represented by the government and the private sector. The relation between entrepreneurship and economic development is based on very simple intuition; common sense and pure economic observation. Changing social and economic problems into opportunities is the very core idea of entrepreneurship. Entrepreneurship brings changes in the environment through innovation and new ideas to the market place, this result in improvement in productivity and economic competitiveness. Entrepreneurship is based on knowledge and flexibility towards the changing environment both of them are one of the significant factors in todays competitive global economy. With globalization and rapidly changing global business environment, the significance of entrepreneurship could never be so relevant towards economic development. Entrepreneurship has been in debate since long in the developed countries and the policy makers, but is not given the deserved importance by the policy makers of developing countries, where entrepreneurship can be the key element towards socioeconomic development. Another report by Harvard Business Conference (2004), also shows that one of the reason why entrepreneurship is not so popular in the developing world is that besides the general challenges and high risks of entrepreneurship, in the developing world entrepreneurs also have to deal with the government corruption, poor infrastructure, centralized economies, etc. even though most of the developing world are very rich with opportunities and factors of production; land, natural resources, large populations (cheap labor), etc., but they lack the government support, sound policies, stable economic system, etc. This indicates that leaving development work solely to government is not the only or sane option. The inadequacy of Government support in societal development gave an opportunity for nongovernmental organization (NGOs) to emerge and address the problems of society that have previously been ignored by the government. There are several different types of organizations that are working side by side to tackle with these complex social problems. The number of these organization have increased 2

dramatically over the past decade and have started working in different fields of society development ranging from human rights to even the national politics. The efforts of these organizations cannot be undermined yet there is very little obvious development in the developing organization. Poverty is on rise, unemployment touching the limits, social ills prevails, etc. this raises concerns in people mind over the efficiency and impact of these organization and the role of NGOs have a dubious image in the mind of general public, tax payers, funders, etc. Not until recently there has been any evidence to judge the contribution of NGOs towards development. There are only very few NGOs that publicly displays the result of their input in development projects being assessed by external evaluators. One reason given by NGOs for not evaluating the projects is that such a research or external evaluation can be costly even more than the project itself to find the impact over time. But over the past couple of decades the donors are very keen on knowing the impact of these NGOs and try to evaluate the work of NGOs through different evaluation techniques. The reason for growing concern about the impact is that the need of developing countries is ever increasing and the resources are limited and most of the projects dont show good results (ODI Briefing paper, 1996). In the developing world the most crucial criticism on NGOs is that they are entirely dependent and in most cases their existence is even because of the donor money mostly coming from abroad. This has resulted in an endless number of NGOs working in the developing world, mostly carrying out the diplomatic motives of the foreign donors.

1.1.

Background

The ever increasing problem in the developing world and the ineffective efforts in term of long term strategy have raised concerns about the non-profit organizations, and social enterprises. The two main concerns are from concerned citizens, tax payers, funders, and client for non-profit origination; are accountability and Impact. The basic demands of the concerned groups of people is that these organizations should be more transparent about their fund raising, spending, how they are governed, and what they have achieved with the funds they are entrusted with (Ebrahim & Weisband, 2007). Recently people are now more concerned with the impact of these organization rather than accountability due to no significant changes in poverty or inequality been observed in the developing countries (Brest & Harvey, 2008). The reason why the focus is shifting towards Impact is that the funders want to know if the money they contribute towards these organizations really makes a difference towards the society or should they give it elsewhere; leaders committed towards the society with not-for-profit idea or social entrepreneurs tackling societal problems (Hwang & Powell, 2009).

The significance of societal leaders and entrepreneurs on the socioeconomic performance of a country has been discussed by several authors and the positive influence that comes with societal entrepreneurship (Steward and Boyd, 1988). Entrepreneurship is considered by many scholars as one of the most important factor for development. In economics, (Kindleberger, 1965; and Lewis, 1970) identified entrepreneurship and knowledge as the two most important factors of production (land, labour, capital, entrepreneurship and knowledge). One cannot do justice while stating the importance of entrepreneurship for societal development. In a UN Conference on Trade and Development, Gore (2000: 31), addressed the leaders of developing countries and asked them to; Develop new generations of entrepreneurs who can identify profitable investment opportunities, take the risk, capitalize on the opportunities, and create new generation of policy makers who can ensure that the energy of this entrepreneurial drive is intensified and channelled to support national interest and social objectives. There are several articles, reports, and working papers which suggest the increasing interest of government in development of entrepreneurial activities (Gibb, 1996; and WSJ, 2004). The importance of entrepreneurship is not only recognized by the emerging economies but also by most of the industrialized economies as well. Entrepreneurship can help the economy to much greater extent and with much higher success rate when they are facilitated by the governments. An article published in the Unitec New Zealand Global Entrepreneurship Monitor (GEM, 2004), the main author, Frederick, emphasized the importance of government involvement in the success of entrepreneurship through facilitating policies and programs that are designed to encourage entrepreneurs. From his arguments, it can be concluded that governments should put maximum efforts in helping entrepreneurs by considering the employment opportunities create by them, by commercializing ideas and making people lives better, contributing towards the national economy, etc. The importance of entrepreneurship has been explained in different articles stating that the entrepreneurial aspect of human action is the prime catalyst for economic growth. There is also evidence in literature which suggests the role of many institutions involving government and donor agencies which intentionally or unintentionally is encouraging and discouraging this vital aspect of human behavior. Though a lot of research had been carried out on this subject yet there is very little information on a specific theoretical model which explains the process of socioeconomic development. Lack of a valid theoretical model explaining the process of socioeconomic development can be accounted for one of the reason of high failure rate of these NGOs and other development organization. Therefore not only

descriptive ideologies but a specific straight forward theoretical model is needed which would be able to explain the process in detail on ground realities.

1.2.

Problem Statement

In the absence of a valid social development theory, the process of development is vague and includes trial and error experiments which lead to high failure rate and uneven development. A result of this can be seen in the developing countries where the income gap between the elite class and poor class is too much, resulting in crime, violence and environmental depletion. These failures of social development can be due to no valid theory with which such programs could be run, controlled and governed in order to achieve a sustainable socioeconomic environment. According to Peter Drucker an expert on the field of management, There is nothing more practical than a good theory. This explains the importance of a good theory which is needed in the social development sector; this theory should not only tell us what we are supposed to do but how to do it, processes which would be helpful in creating sustainable environment.

1.3.

Research Questions

Can non-profit entrepreneurial organizations create a more sustainable socioeconomic environment in a developing country and make the society self-sufficient? How can existing theories on entrepreneurship and local/regional development combine into a model explaining the process of societal development? What are the root causes of terrorism and radicalization, being the major problem faced by Pakistan? What is the nature of community based social and societal entrepreneurship? How can an entrepreneur convert a societal problem into an opportunity?

1.4.

Purpose

Being a business student, coming from a developing country having many societal problems, I have been interested in exploring how business or entrepreneurship can be beneficial to the society of the developing countries. The purpose of choosing this topic for my MBA thesis is to find out if social entrepreneurship, which is described as a business venture which sees a social cause and address to it, can really make a sustainable socio-economic change in a society without engaging in profit oriented businesses. Also this research paper would deliver an in-depth analysis of a commercial entrepreneur and the new blends of entrepreneurship with its effect on the society.

This is the reason why I have decided to work on this topic and find a theoretical model (blend of different development theories) that will be sustainable and also applicable to the developing countries. The importance of entrepreneurship in developing a country have always been underrated by the governments and the nation, and the common misconception about development of a society by many is to have an industrialized economy without considering the importance of comparative advantage of nations.

1.5.

Usability

The main aim of the thesis is to create awareness in public of developing countries and also to point out the importance of the entrepreneurship in development of a countrys economy. This research paper will be helpful for the governments of developing countries, social organizations, social entrepreneurs, investors and might be able to give a new perspective to the idea of societal entrepreneurship. This thesis can also help organization become not only financially sustainable but also creating awareness in them towards the needs of the society by becoming socially and environmentally responsible. This can lead into a competitive advantage considering our diminishing resources and the demand for products and services from companies that are socially and environmentally responsible.

1.6.

Limitations

In order to come up with valid results and quality information a research must have extensive primary data. Coming up with conclusions and recommendation that can directly relate to the problems faced by the developing countries, one must study the market directly by surveys, interviews, observations and case studies. Unfortunately, an extensive primary research of the topic is not possible due to time and resource constraints. Therefore this research paper would focus primarily on articles and research work done on the subject by other respectable and reliable scholars. Beyond the technical limitations, this thesis is focused more on the theoretical findings rather than on a fact finding base. This makes it very difficult to come up with conclusions and recommendations which have valid points backing it up without being criticized as a theory. In order to be accepted as a successful theory it needs to be proven in the real world, therefore in order to overcome this limitation an extensive research is needed over a long period of time monitoring sample businesses and evaluate their success in comparison to those who are getting financed by large donor agencies.

2.0.

Methodology

Addressing the problems faced by developing countries needs a thorough study of government policies, development literature, countries history, culture and politics, global politics and economy etc. yet a research no matter how extensive it is, falls short of concluding something which is universally acceptable. On the other hand every little contribution in the theory is not little, therefore the problem chosen for this thesis might be too broad in scope and coming up with vivid conclusion may seems unrealistic, yet the author have a very enthusiastic feeling about this research work. Coming from a developing country and especially from the North West part of Pakistan, closer to Afghanistan, having very rigid and strict cultural background, the author can relate to the social problems in this part of the world. In order to make a social change, it must start from the bottom of the society, having this belief, change in government or getting foreign aid in billions of dollars would not create a sustainable and self-sufficient society. The importance of sustainable enterprises in countrys development and the importance of selfsufficiency on making independent foreign policy is almost a common knowledge. After research it was obvious that Pakistan, like the rest of developing countries, is facing many social problems resulting in extremism on the rise and among other contributors poverty, unemployment, corruption, poor health facilities, lack of education are some of the root problems which are resulting in the Islamic fundamentalism. Like any other responsible citizen, author tried to put his knowledge to practice and to develop a theoretical model while studying several other models and theories about societal development. In the literature part the theories start from a very broad view and it gets narrower towards the concept of social entrepreneurship which is considered to be the best tool in solving social problems. But most of these theories lack on several grounds, among which sustainability and self-sufficiency were the main points. Therefore, after studying different theories about societal development the author found it necessary that an attempt should be made to develop a new theoretical model which will be based on these theories and trying to eliminate the drawbacks from them and blending them in way which should result in sustainable and self-sufficient societal development programs. In the literature Social Entrepreneurship theory is the most relevant in order to create a more sustainable socioeconomic system. After a thorough research on social entrepreneurship, the theory become more confusing due to its variegated nature and multiple expression which made it the most debated theory from social development perspective in the past couple of years. One of the reason for different definitions and ideologies of social entrepreneurship is due to absence of clear theoretical boundaries of 7

social entrepreneurship. Therefore the term has been analyzed from different perspectives and several disciplines. In order to contribute towards a more realistic and applicable model of social entrepreneurship, the model of Societal Entrepreneurship was developed by using different theoretical lenses and a combination of research methods.

2.1.

Choice of the subject and research approach

You cant do anything else until you figure out the basic focus of your topic, this being said by Dr. Susann V. Getsch, 2008, who earned her Ph.D. in Psychology from Walden University, explains how important the purpose of a research topic is. The main purpose of choosing this topic was to find out the reasons why is that most of the developing countries cant get out of the poverty trap. A topic must be doable in order to put in the effort that is needed, though the research questions and the problem of this topic are too broad and solving it with an MBA thesis could be easily called an unrealistic attempt. After reading information on this topic, the author found that many other research have been carried out on similar topics which made it very easy to combine the results of those research and analyze them from a point of view of a business student. The subject of this thesis occurred to the author while studying organizational theory and entrepreneurship and came to know about the concept of societal entrepreneurship and how it could be used to develop the social structure of the society. It also reminds of the quote If you give someone a fish, you fed him for a day but if you give someone a fishing rod you fed him for life this quotes explains the importance of being self-sufficient to create a more sustainable socioeconomic condition. According to Jeffery Sachs, economic development works. It can be successful. It tends to build on itself. But it must get started (Sachs, 2005, p.73). According to Jeffery Sachs, economic development can work successfully when it is self-sufficient and is growing from within but the most important thing is to take the initiative of starting the development phase by identifying the opportunities.

2.2.

Choice of literature

The literature review part contains many theories and too much information that can be criticized but as one of the purpose of this thesis was to create a theoretical model explaining the process therefore an extensive literature review was needed. As Dr. Getsch, emphasizes the importance of literature that the key is having an overreaching theoretical context for your results, therefore the literature presented in this thesis contributed much towards the development of a new theoretical model of entrepreneurship, where some contributed to a lesser extent and some of them established the core concepts of societal entrepreneurship.

In the literature review part, work of other authors and classical theories about entrepreneurship, social development and other relevant theories from finance, economics, development etc. have been critically analyzed. When reviewing the literature all the relevant theories that could contribute towards development of a new theory or elaborate the concept, in line with the problem statement and purpose, were chosen for descriptive and critical analysis. The keyword with which the literature review collection started was entrepreneurship and societal development with times other topics such as Micro credit in poverty alleviation, Role of SMEs in the development of economy etc. were used to gather a more broader view of the subject. For collection of scholarly articles Pro-quest and Emerald were mainly used along with Google Scholar for general opinions from blogs and other different websites Google Search Engine was used to obtain relevant information e.g. organizational reports, countries specific information and the rest of empirical findings.

2.3.

A Model in Pursuit

The existing knowledge and theories in the area of societal development contribute a lot towards the study. But all of these theories have many criticism discussed and had been a failure to an extent. Most of the theories about societal development are usually on the extremes of their ideologies and the rest which blend into both are mostly about corporate sectors or business organizations. Therefore, in order to develop a theoretical model, which will address the micro level problems faced by developing countries; basic principles were taken from Islamic banking and other relevant theories and also from the research findings. This type of research work, according to Fisher (2004, p.43), can be called as an imperative research; where theories emerge from research work. In order to provide an overview of the main ideas of various topics, summary including different authors and their views were compared and presented. Furthermore the literature review starts more generally about the problem statement and purpose and keeps discussing the short coming of those theories and then narrows down to the need for developing a theory with a model which focuses on the process of how to empower the society. In order to develop a new theory and come up with valid results some of the tools or methods which are used in order to develop societies have also been reviewed. Among these tools for development the focus was on Micro-Credit and Islamic Banking both of which are gaining popularity in the developing countries especially Islamic countries. The literature review includes topics from different fields but in a way they connect to each other when looking at the whole picture and this helped in analyzing the problem from different angles and have a much broader knowledge of the field studied. However the literature review can be criticized for several reasons. Firstly as the main objective of the thesis is to come up with a new theory and a model and that 9

needs an enormous research about literature and to take too many theories into consideration, so that no one elses work is repeated. Secondly, the keyword Societal Entrepreneurship did not get any valid results or scholarly articles explaining the process or presenting a model on which the thesis could be based. Furthermore, all of the theories are somehow interlinked with the topic yet none of them really could prove that the theory and model derived from them would actually be practical.

2.4.

The Research Method

The research approach that is used in this thesis is the deductive approach which started with searching directly about the problem at hand and further with the literature review and theoretical framework to start collecting data. As the problem statement is very broad in scope therefore preliminary investigations were largely exploratory. According to Saunders, Lewis and Thornhill (2009: 133-134) exploratory study is a good way of finding what is happening, clarifying a problem, seeking insights, assessing new phenomenon in a new light and asking questions. Also the exploratory research is flexible and can easily be amended according to new findings and let the researcher change the direction when something important is found. In order to conduct exploratory study one must have access to qualitative data and reliable data; the best way is to conduct interviews with people who are directly involved with the topic at hand. As the topic is discussed by many authors, philanthropist, politicians, academics, reports by organization and governments therefore much of the data has been gathered by studying these news, interviews, and online lectures by experts, articles, reports, and studies. The initial plan for conducting research about this topic was to send out questionnaire to the general public and other organizations that are dealing with the social problems being faced by developing countries. After researching on the internet, journals, databases, blogs etc. it was found that most of the information which was intended to be collected through questionnaire was already available, done in a much more professional way using statistical tools. According to Dr. Linda Crawford, a faculty member in Waldens Ph.D. program, says, The methodology thats used comes from the research question, not from your personal preferences for one design or another (Schwiesow, 2010: 26). Therefore the initial plan of collecting data through questionnaire was changed due to the reason that the research questions were of exploratory in nature and in such case one must go with qualitative research model, as advised by Dr. Crawford. The relationship between foreign aid and socioeconomic development is examined mostly through the use of secondary data; previous studies, research reports, national reports, IMF reports, World Bank reports, and other research finding, instead of primary data. The primary motive for relying on these reports and the research findings instead of carrying out primary research was that all these reports and findings were 10

the result of several years of efforts by accredited scholars, researchers, political analysts, etc. therefore the information collected was qualitative and reliable.

2.5.

The Research Process

The research started with exploring the field of entrepreneurship and social entrepreneurship with extensive literature review from the field of social and society development. Most famous cases from social entrepreneurship were examined and other several social entrepreneurs and their activities and how they are benefiting the society. Many of the developing countries are facing socioeconomic problems similar in nature to the rest, but to limit the scope of the thesis and complete it on time Pakistan was chosen to be studied due to information availability and the authors familiarity with the countrys problems and culture. The research started with collecting general information about the country and then the more relevant information about the country was collected in accordance with the problem and purpose of the thesis. Later several articles, reports, news, research papers etc. were examined discussing the effects of financial aid and economic growth of Pakistan. As Pakistan and its foreign policy, especially with United States, is very hot topic for debate therefore most of the information was found on internet directly related to the problem and purpose of the thesis. This is the reason why this thesis mainly depends on secondary source rather than collecting primary data. There were two opinions about the financial aid given to Pakistan, one suggesting that financial aid has helped the country in its economic growth, whereas the other opinion was totally against the foreign aid debating that it has crippled the true potential of the country. Both of the opinions were analyzed with the facts presented and in light with the literature studied in order to come up with conclusion.

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3.0.

Literature Review

Over the past few decades western European countries are taking steps and introducing laws and regulations that tend to be socialist (or Marxist). With the effects of globalization on our quality of life, the concept of socialism is getting popular among the developing countries and developed countries. Marxism is an economic and social system that is based on the political and economic theories of Karl Marx and Friedrich Engels. The idea of Marxism is defined in Encarta Reference Library as a theory in which class struggle is a central element in the analysis of social change in Western societies. Whereas in the Merriam-Webster dictionary the definition of Marxism is the political, economic, and social principles and policies advocated by Marx; especially : a theory and practice of socialism including the labor theory of value, dialectical materialism, the class struggle, and dictatorship of the proletariat until the establishment of a classless society. Marxism is derived from the work of Karl Marx or as the system is known as Marxism. The problem with socialism is that it puts too much emphasis on the people and over powers them instead of empowering them. As we should see through the rest of this thesis that a society is interlinked and all the three main actors of society; people, private sector, and the government should work together in order to achieve socioeconomic growth. According to Communist Manifesto (1848), written by Marx and Engels, they predicts that over time labor will be aware of their importance at work place and how much they contribute towards it and hence will over throw the management who are over paid for their job. From the view of Karl Marx and his followers, they believe that the wealth should be distributed fairly among the citizens and everyone should contribute according to ones potential and should take back according to ones need. From the point of view of Karl Marx, we need to have a perfect world and no one should have greed in them and willing to share to the possible extent, but as being humans everyone can be called greedy or ambitious in a positive sense. Therefore the idea of Karl Marx though is wonderful, but lacks reality. It is commonly accepted that humans in nature are both lazy and greedy (johnstone, 2010), therefore humans cannot live in a society where there is free access to wealth and work is voluntary. Therefore in order to run the Marxist society is very hard for finding such kind of human behavior which is least greedy and want to contribute towards the society and is ready for charity. In the beginning, this system can show very good results for it is perceived as Messiah to the people of developing world and even where the socialist system is working but with time free riders will take advantage of system and this in the long run can affect the productivity of those who contribute more to the society than what they take back (Taylor, 2006). Capitalist societies are using entrepreneurs to boost the economy having the belief that people operate on the basis of self-interest. Such entrepreneurs are encouraged by the system to start business as they would 12

not flourish alone but would reflect the society as well. By starting a new business, one doesnt only get self-employed but will employ other people as well, and create cash flow and enhance the purchasing power of the society. According to Adam Smith (Kennedy, 2009: 239) by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for society that it was no part of his intention. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. Adam Smith had a more realistic approach towards the development of society but it lacks certain aspects of human being. As M. Yunus explained the importance of money making in human beings life being one of the most important thing, yet he emphasized that still its not the whole of human being. When we compare these two different theories we come to see that the first choice, for creating a perfect world where everything is for the good of the society, is usually socialist system but then again in a perfect world everyone would be ready to work his/her best and support his family and would not be shy in giving away charities, therefore even a capitalist system can be working good in a perfect world. To sum this, both the systems are good and their goal is the same, creating a self-sufficient socio-economic environment with sound political goals (Taylor, 2006). Its the short coming of these two theories which create a problem in sustaining the main objective, in a socialist system the free riders would exploit the system and would leech on to those who are really working hard and eventually de-motivating them and then the down-fall of the socialism whereas in the capitalist system at first there would be abundance of jobs and cash flow, but with time greed would overcome the very basic idea of developing the society would end up in making the rich richer while the poverty in the labor class becomes unbearable (Caballero & Hammour, 1998).The reason for failure in both the systems lies in the way people of the society behaves. Both the systems will fail unless the society itself wants to improve itself and everyone is willing to take part in developing the society to his/her abilities. Therefore by being social and making charity is not going to solve the problems of the society on the longer run, yet there are problems in the societies that need to be addresses quickly, so approving or disapproving any actions towards the betterment of the society is a very complex decision.

3.1.

Basic Types of Socio-Economic Systems

Different nations in the world are dealing with their problems in different way, to generalize it there are three basic system according to which the people are organizing themselves: Free Enterprise, Central State Control, and Mixed state-and-private enterprise. In each system there is some involvement from 13

the government or private firms to an extent but the difference between the involvements differs greatly and therefore we can categorize it in these three basic systems. As shown in the figure below there are difference between the freedom and coercion in each system. Some of the systems are politically democratic and open to be criticized, whereas in the other system it is usually controlled by a single political party which had the total control over the governments and all the decision are centralized. The socioeconomic system of a country is derived from the country history and cultural norms. If we take the example of Japan, where there is a close relation between the government and the business organization, its socioeconomic system is derived from the long tradition of the close operation between the public authorities and private merchants. In China the tradition and history have educated people in a way where they have to show respect to the elders, respect the male dominated family, a rigid bureaucratic system of government etc. has a lot of influence on the Chinese society, commerce and politics (Goldman, 1994).
TABLE 1 BASIC TYPES OF SOCIOECONOMIC SYSTEM

Degree of Government coercion increases Free enterprise Mixed State-and-Private Central State Control enterprise Degree of Political, Social, and Market freedom Increases Both state and private ownership Free market and controlled market Multiple party politics Pluralistic social system State Ownership Controlled market One party politics Monolithic social system

Private Ownership Free Market Multiple party politics Pluralistic Social System

Examples: United States Singapore

Examples: France, Japan, Examples: China, North Korea, Mexico, Argentina, India, Cuba, Vietnam Australia Source: (James et al., 1996) Business and Society, pp. 149.

Even though history and culture has influence to a greater extent on the socioeconomic system of a country but history is not the whole story. Socioeconomic system can and have been changed with a dramatic speed e.g. the collapse of soviet union, the turning out of the communist regimes in the eastern Europe in the late 1980s. Also if we look at the positive change that happened in the socioeconomic system of South Africa, which was having conflicts and racial separatism for decades and how they began to solve the problems by integrating and creating a more politically democratic way of life (Ibid).

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3.2.

Societal Development

A society is not capable of giving a clear picture or solid results to its needs and wants, its usually an individual or a group of skilled, artistic, entrepreneurs etc. who have the skills and will power to change those dreams into a reality, and can leads masses into prosperity. Jacobs and Cleveland (1999: 57), defines Social development as the combination of human energies and activities on a higher level in order to achieve greater good. This definition is very appropriate with the term societal entrepreneurship as it dont limit to business, profit or non-profit, therefore using this definition with reference to entrepreneurship we can say that societal entrepreneurship can be the same combination of human energies, resources and activities brought together in a business environment in order to achieve greater good and a sustainable socio-economic environment. Interaction and working together in a society, teaches a society on how to make the most of the material, social and intellectual properties they have; on the material level it enhances their control over the processes, on the social level they are experienced to work faster and better with people from different cultures and distance whereas on the intellectual one there is always something to learn from all the process and the society can do much better with all the learning and be more efficient with time. There is a natural progression with time, a society can be more efficient with the use of material, finding alternatives and a sustainable resources for the material and make it better. Socially, society can learn better ways of managing the labor force, utilizing them in the most efficient way, improving their productivity, understating the demands of other societies and how to communicate with them, develop systems and institution of learning and recruiting more labor force from other societies. On the mental level this can help the society in assessing opportunities and threats in future and they will be prepared for it well in advance (Jacobs & Cleveland, 1999). The idea of giving charity to the unfortunate members of the society by the one who are well off is a very ancient notion and can be found in different religions as well. Royalty had to provide for the poor since ages and the same is true for those holding a lot of land and property and are considered noble. When these great philanthropist provide to the poor, contribute towards the society in building houses for the poor, investing in free education, working in the sub-Saharan Africa for the poor, they continue this long tradition of being My brothers keeper. This method of providing for the needy members of the society was especially very important in the beginning of the last century as there were no laws or governments who could support the needy members of the society. Very few organization were trying to support unfortunate members of the society but as the wealth was in few hands therefore the handful of these organizations could not make a change, it was until the wealthier industrialist stepped in to change the social structure of the society and started helping the needy members of the society (James et al., 1996). 15

3.3.

Corporate Social Responsibility

Corporate Social Responsibility (CSR) means that corporations are to be held accountable for the effect of their decisions on the people, the environment and their communities. If an action of a business has negative effect on the society, it should be corrected at all possible means if possible this might make the company to forgo the profit and incur some extra costs. However this does not mean that a company should forget about its stakeholders who are investing into the company to earn some profit, company can make profit while being socially responsible. In order to be socially responsible a company must balance the costs (overall costs including environment and society) that are to be incurred for gaining profits. Social responsibility reflects the cultural values of a society, therefore what might be accepted customs in US, and Japan, Canada and Australia may not be customary practices in Brazil, India, China and Pakistan. Therefore drawing a line for what is globally acceptable as a socially responsible act is a very difficult task for corporations (James et al., 1996). Japanese firms for example have never faced stakeholder protests when compared to the firms from United States. Victims of environmental disasters, caused by the Japanese firms, have been treated like outcasts and employment practices which favour certain groups in Japan are socially acceptable practice. Now with the world becoming a global village the Japanese firms are now facing the challenge of becoming social responsible as the they have now more global customers than the local one (Blumberg, 1975). In United States, the idea of corporate social responsibility started in the last century; it began when the corporations were under attack from society for being too big, too powerful and using antisocial and anticompetitive practices. In order to start a social program a company has to incur costs, for example if a company decides to start a program about drug education to its employees, it will cost the company in many ways. First of all starting a program and hiring consultants who are professional in this field would be expensive. Secondly the company would be losing its employees for some time out of work attending these lectures and programs, which is a loss in time of human capital. This way a company incurs extra costs and has to sacrifice its short-run profits. On the other hand, if we look at a longer run, with all the drug education and drug abuse on jobs will educate the employees and can help them on quitting drugs resulting in less expenses in terms of health insurance, less absenteeism, more healthier work force, better image etc. this way a company can start making profit in the longer run (Miles, 1987).

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TABLE 2 FOUNDATION PRINCIPLES OF CORPORATE SOCIAL RESPONSIBILITY AND THEIR MODERN EXPRESSION.

Stewardship Principle Business, acting as a public trustee, should consider the interest of all who are affected by business decisions and policies. Modern Expression Corporate philanthropy Acknowledging the business and society Voluntary actions to interdependence promote the social good Balancing the interests and needs of many diverse groups in society Examples Corporate philanthropic Stakeholder approach to foundations corporate strategic planning Private initiatives to solve social problems Optimum long-run profits, rather than Social partnership with maximum short-run needy groups profits Enlightened self-interest attitude Source: (James et al., 1996) Business and Society, Eighth Edition, pp. 44. Definition The modern meaning of corporate social responsibility is derived from these two theories of Charity Principle and Steward Principle. From the first principle we got the Corporate philanthropy whereas when the managers of todays business realize the interdependence and intertwined relations of business and society, they take care in exercising and social concern in formulating policies which makes them go towards the Stewardship principle. From table 2 we can clearly see the difference between the two approaches towards the corporate social responsibility. If we look at the Charity Principle definition it tells us that business should be helping the unfortunate person and groups in the society regardless of how this can affect the business operations and the interest of stockholders. As the number of needy people in our society is too much to be satisfied therefore this approach seems not to work for longer. The problems related with this approach are somehow similar to the problems faced by Socialism which is explained earlier in this chapter and why such an approach is not sustainable for longer period of time. The second approach, Stewardship Principle is more realistic as it takes the interest of not only the society but everyone in general related to the business organization. Therefore, in order for an organization to survive and be profitable have to take all its stakeholders in consideration.

Charity Principle Business should give voluntary aid to the society needy person and groups.

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3.4.

A system perspective

Management thinking has been greatly influenced by the general system theory presented by Talcott Parson in his first book The structure of social action (1937). He wanted to integrate the analysis of various topics into one model, unlike the Marxist school of thought who focused only on the radical changes in the society. According to this theory all living organisms (systems) are affected by and affect other forces in the environment. In order to be successful in such situation, one must adapt accordingly to the situation and be responsive to the changing environment. Figure 1 illustrates the very broad perspective of business, society and government relations. The broadest view of these relationships is the societal perspective that emphasizes the system connection between the country economic activity, the political environment and the culture of that country. Every society is made up of these three actors in a country, where each of them are again generated by its own system of people, institutions and ideas. In other words our environment and reality is made up of economic, political and cultural influences. On the intermediate level it becomes a bit narrower where it illustrates that a business is composed of many segments, industries and sectors; government involves political life at the national, state, local and also on international level; and society is composed of different segments, ethnic, religious, minority groups and stakeholders (Ibid). Before it used to be believed that business and society come together to interact in the marketplace but with time and the marketing techniques and business effect on the country economy have changed the idea about market place interaction and now we can see that business and society have many nonmarket interactions as well. Business and society affects each other, like many social actions of businesses are actually the influence of the society on the business and also the way a society behaves is mostly tuned by the businesses in that society. The reason of this close interrelated relationship between business and society is due to the reason that every action taken by a business has an effect on the society and any change in the society must be accepted and handled accordingly by the businesses. A business must be very careful with the reaction to the changes in society as its survival depends on the society attitudes towards the business. For example, taxes and environmental regulations can be set by the society which can make it difficult for the business to operate in a certain location this can result in closing down the business or relocation to another place where the conditions are feasible, which will result in job losses and economic activity of the local society. On the other hand the labor union can as for wage increases of working environment which is beyond the capabilities of the company or its ability to compete in the marketplace. This explains that even though businesses have positive or negative impact on the society but still society determines the survival of the business (Ibid).

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FIGURE 1 A SYSTEM PERSPECTIVE

Source: (James et al., 1996) business and society, eighth edition pp. 7.

3.5.

Microfinance

According to United Nation report on financial services there are about 4 billion people living on less than $1400 a year and among them only very few have access to financial services (UN year of Microcredit 2005). Microfinance banks (MFIs) serves the poor people in the community who do not have access to Commercial banks or/and are usually turned down by them for being credit worthless. These institutes offer small loans to people in need with much lower interest rate than that of commercial banks, this provides the needy a chance to live their dream and start their own business, feeding themselves and giving something back to the community by being self-sufficient. The vision of Microfinance began with the idea of Bangladeshi professor, Prof. Dr. Muhammad Yunus, who came from 19

USA back to Bangladesh after its independence as a new state. He was teaching economics at a university which had a village near to it, he saw people in need, who needed money to start their own business as they had borrowed money from creditors who were charging them a lot interest and all their profit was going into the creditors hand. So he decided to help a couple of them to get out of the system of those creditors and through this he started growing the number of people to whom he would lend the money and with time he came up with the idea of Grameen Bank (Yunus, 2004). Microfinance is the supply of financial source to the poor e.g. Supply of loan, financial services, saving etc. as by the term Micro the loans are comparatively smaller in amount and given to those to whom a couple of hundred dollars can make a life changing opportunity. With this small loan, the entrepreneurs can start a small business e.g. livestock for a small farm, sewing machines for making accessories and garments, or supplies for a small convenient store etc. The poor class throughout the world is not part of the working class due to lack of education and opportunities, therefore what microfinance does is giving them an opportunity of self-employment. A Microfinance Institute (MFI) provides these financial services to the poor throughout the world to the poor class who are out of the job sector and do not have the required financial capital to start their own businesses. An MFI can work in different types of organization e.g. non-profit such as non-government organization (NGO), credit cooperative, nonbank financial institutions (NBFI), and also as a formal profit oriented banks offering services of microcredit.

3.6.

Islamic Banking

Islam has its own model of economic relations within the framework of entire Islamic system based on sanctions and norms, derived from the Quran and Sunna (the actions and saying of the prophet PBUH), called the Sharia. The Sharia specifies rules that relate to the allocation of resources, property rights, production and consumption, the working of market, and the distribution of income and wealth. Also there have been rules and procedures had been specified that defines the framework in which monetary and banking system can operate. The main point of Islamic banking by removing interest is that it has been replaced with the rate of return on real activities, thus the bank and the borrower have certain risk and profit sharing (Wilson, 1983). In Quran charging interest rate has been forbidden as it is considered as injustice, many of the Muslim scholars who consider interest rate as injustice have their arguments (Zaidi, 1987). According to these authors, a lender (Bank) is not entitled to receive an interest rate as reward for their savings, as this does not make a moral justification unless the money is used to create capital and more wealth. Their argument is that just by saving money and not using it, does not entitle a person or an organization to a monetary reward for lending it out. Their argument is that according to modern theory it 20

is an error to treat interest rate as price of or return on capital, as money by itself is not a capital but merely a potential capital which requires an entrepreneur who can transform that money into something useful and profitable, therefore money by itself is not a capital it is used by an entrepreneur to convert it into a successful business (Abbas, 1986). According to Islamic Banking when a person lends money there are two outcomes of it, either it creates a debt or an asset (as in investment). In Islam there is no justifiable reason for why someone should receive a reward (interest rate) for lending money to a person in need nor is it justifiable either from the point of view of borrower to fix a certain amount of money as interest rate without considering the use of that money, why should a person (lender) be entitled to a small fraction of money in case of a very successful business idea. In the second case where the money is used to create asset or start a business, the lender should be remunerated accordingly to how successful the business is going on (Naqvi, 1981). According to the Muslim scholars, as an answer to the western idea about Islam and interest rate, Islam does not discourage, in fact it encourages the true profit as a return to the financial and entrepreneurial investments made. It is only forbidden to identify money as capital and receiving reward for that money just by abstaining oneself from using that money (Iqbal & Mirakhor, 1987). Not considering money as a capital is very practical, as this discourages Rent Seeking and also enhances the cash flow. By discouraging Rent Seeking the upper class of a society are thus required to invest in businesses generating profit. Besides generating profits for the investors, businesses in local community will create employment opportunities and enhance the purchasing power of lower class; in short the whole society will be benefited. According to Islam lender is entitled to profit sharing, by lending money to entrepreneurs who use the money for trade and production, he/she becomes partners in the business and shares a risk in the business and this makes him/her different from a creditor (Chapra, 2000). The shareholder is a part of the enterprise and is liable to the companys debt to the extent of his investment and only gets paid when the company is doing good and making profit. On the other hand, the creditor is only like a debenture holder who lends money without getting involved with the business risk and profit sharing and would claim a certain amount of money without considering how good or bad a company is doing (Fabianto & Kasri, 2007). In Islam, contracts have a wide freedom unless they conflict with another rule of Sharia, it permits both parties to come with up with a contract of any arrangement as long as the shares of each party are depending upon uncertain gains. This aspect of the contract is crucial, as Sharia condemns even the guarantee by the working partner to restore the invested capital, not only because it removes the element of uncertainty which is needed in order to legitimize the contract but also because the lender may not be

21

rewarded accordingly as to how the business is doing, in case its making good profit (Iqbal & Mirakhor, 1987). The reason why Islam prohibits interest rate can be found in its position on individual property rights and obligations its concept on economic justice. Islam identifies two types of property rights, the first one is which resulted by the combination of individual skills, work and natural resources and what he/she makes of it and the second one is of property whose rights have been transferred to another individual in exchange of something else, transferred by the owner to those who are in need (case of charity), and finally by inheritance. Money is just to give the property a vague figure in monetary system for which the property represents which is obtained either through the first way of ownership or the second way. Therefore lending money is actually the transfer of rights through which the money is obtained and hence only the same value should be returned nothing more (Rahman, 2004). So the money that has been lent is either used productively resulting in creating extra wealth or capital or unproductively in which it does not create extra wealth to the borrower. In the first case where the money borrowed is used productively the lender can ask for a portion of the extra wealth created through labor of the entrepreneur but not a fixed amount. In the second case, where the borrower used the money unproductively, the lender cannot ask for additional wealth as none is created. As money represents capital or assets, therefore in case of considering inflation in a country economy the two parties can set up a system with which they can identify the true value of what was borrowed by the entrepreneur, one simple way for doing that can be evaluating the money with the price of gold, how much could be acquired by the money given at one date and how much of the same weight gold would be worth on the day the money is returned. Through this method both the parties can be sure that in case if the money is not utilized in a productive way both the parties would be treated fairly even if the money has gained or lost its value in the market (Iqbal & Mirakhor, 1987). Islam has forbidden interest rates therefore it has come up with two types of contracts for borrowing and lending money in order to permit profit sharing. The two types are called Mudarabah and Musharakah as a system for sharing profit without charging interest. In Mudarabah one party provides the financial resources whereas the other party provides human capital which is needed for the success of the economic activity undertaken by both the parties, this is commonly applied to short duration commercial activities. On the other hand Musharakah is when a group of partners pool their financial resources to acquire a business enterprise, and is applicable to production and commercial activities of longer durations. In Musharakah the profit sharing system is applied either to the whole business enterprise where the partners take an equity position or they share different departments of the enterprise and get the profit

22

accordingly (Doi, 1984). These partnerships are supposed to be based on the profitability of the project at hand rather than the credit worthiness or financial soundness of the borrower. These rules and characteristics have made a general conclusion about the Islamic Banking that there is a potential for investment in more varied and numerous projects, the projects selected by the lender are scrutinized for its efficiency and most of all the general public is getting involved with the entrepreneurial activities within the society. This is very different than how things work in a traditional fixed interest rate system, mostly the general public getting involved with the entrepreneurial activities and depending on each other in order to create a more sustainable and self-sufficient environment.

3.7.

Need for a new theory of Societal Development

After a brief study of literature, related to the social development from different perspective, we come to know that all of these ideologies were based on creating societal value. So in essence all of these theories have some good points but also on the other hand they have some negative points or loop holes that could be manipulated by people for their own personal gain. Among all these theories the Mixed State-andPrivate Socioeconomic system (Explained in the theoretical framework) provides a platform for developing a system, an organization, or a network of entrepreneurs which can fully take the society into becoming self-sufficient with enlightened self-interest. Besides developing a system the Islamic Banking provides the basic rules and financial terms and condition system which will be used in order to develop a conceptual framework explaining the societal entrepreneurship process. Hence from the failures and problems of the theories explained in this chapter, it seems thus necessary that an attempt should be made on developing a new model which should encompass the good points of these theories and process of this model should be defined. As Peter Drucker emphasized the importance of a good theory, it is about time that social entrepreneurship should be defined in an entrepreneurial way. In last couple of years the number of nonprofit organizations have increased and thus the competition for charity and public sector subsidies have dramatically increased as well, not to mention the need of humanity taking the developing world into consideration. Therefore in order to ensure the operations to be running smoothly the managers of nonprofit organization needs to take this issue seriously and try to keep a sustainable environment where an organization is self-dependent.

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4.0.

Theoretical Framework

Using the positive influence of business on a society is described as social entrepreneurship. Though many scholars have written about social entrepreneurship yet the idea have not catch the spot light for policy makers. According to John L. Thompson social entrepreneurship has been a part of history it has yet got a little attention in the theoretical framework. While stating the importance of entrepreneurship in theoretical framework, Thompson explained the importance of entrepreneurship as follows: Social entrepreneurship has not been the subject of many academic papers, but research projects are beginning to be reported, certainly in the national press. Social entrepreneurs do not generally receive the same media coverage that certain business entrepreneurs do, however successful they might be and however significant their contribution - although, inevitably, there are exceptions to this (Thompson, 2002) pp. 412-431. Entrepreneurship is a very important part of the economy in the development sectors whether its the Commercial approach or its the non-profit organization. The strategies that are used to start a business in an urban area is very different from that of starting a business in the deprived areas, leave alone the rural and remote areas. As entrepreneurship is the focal point of creating jobs, making the society better and helping in the overall economic development of the country, therefore entrepreneurs must be helped by governments and other organizations in different ways. In order to be effective, when starting a business in a rural area, many factors are to be taken into account while developing a strategy. Strategy should be designed in the light of the specific socio-cultural, structure, human, economic and social situation (Potter & Noya, 2004).

4.1.

Entrepreneurship

According to Merriam-Webster dictionary the definition of entrepreneur is one who manages, organizes and assumes the risk of a business and enterprise. In general, entrepreneurship mean when a person recognizes a needs, find problems and converts them into an opportunity and start using resources which can fulfil these needs (Jones, 1999). The term entrepreneurship is widely used in the common market with vague meaning, at one extreme the word describes a person who comes up with new ideas, new business and is very intelligent whereas on the other hand we see people just operating small businesses. Actually the word has more to it than just a sole proprietorship; it is the practice/style of managing a business regardless of its size and nature. Entrepreneurship can be defined as a practice of starting a new business, improving an existing business or come up with totally new ideas. According to Schumpeter, a very well known and most cited author of entrepreneurship, An entrepreneur is a person who is willing and able to convert a new idea or invention into a successful 24

innovation (Economist Magazine, March 11, 2006, pp 67). From this statement it gets clear that an entrepreneur is actually a person who is looking for opportunities and making ideas commercially applicable. One of the disagreements that have been with this statement is that it narrows down the view of an entrepreneur and doesnt leave space for organizations/networks that can work and act like entrepreneurs. Entrepreneurship is a trendy concept of contemporary business research, as Paul Burns said in his book Corporate Entrepreneurship (2005: 24): Over the last twenty years the business world has fallen in love with the idea of entrepreneurship. The notion of Entrepreneurship has been mentioned by many scholars during a long time. Though there is no universally unified definition on entrepreneurship, researchers have a unified want: to unravel the way in which entrepreneurial initiative contributed to economic development (Brouwer, 2002: 83-105). Joseph A. Schumpeter (1883-1950) the main figure in the literature on entrepreneurship (Sweberg, 2007: 51) defined entrepreneurship as the making of new combinations of already existing materials and forces, and entrepreneur is the actor whose function is to carry out the new combinations. An entrepreneur will break up the circular flow, which means that the economic process in a business is the same, constantly repeating, nothing new and no change. And an entrepreneur is opposite to that and will break that pattern and he is doing that through innovations. Over time firms need entrepreneurs who can update and innovate theirs products, way to do things. But big firms can be obstinate to entrepreneurs because they are used and feel comfortable with their routines so they will postpone innovation until they really need new ways to do thing because the one they are used to is obsolete. Schumpeters entrepreneur is an eager beaver who is passionate for his work and are ready to work more hours to achieve his goal something that is totally opposite from Schumpeters Circular flow which the worker will not do anything extra if he not feel that he will get anything extra out of it. Based on several theoretical perspectives, Burns P. (Burns, 2005: 53) raised the definition: Entrepreneurs use innovation to exploit or create change and opportunity for the purpose of making profit. They do this by shifting economic resource from an area of lower productivity into an area of higher productivity and greater yield, accepting a high degree of risk and uncertainty While Burns views profit as the purpose of entrepreneurship, Frank Knight views innovation as the source of profits: Innovation is the source of profits and can only occur when investments is used to create new resources (Brouwer, 2002: 83-105). He thought that an entrepreneurs motivation of being an entrepreneur was the desire to surpass and to win. In contrast to Schumpeter, Knight involves 25

uncertainty in his theory about entrepreneurs, that not all will be a success some may fail and that is not something you can see in advance. Furthermore he discuss that many venture will start up but just a few will succeed. 4.1.1. Entrepreneurship and Small Business

Most of the entrepreneurial firms are usually small in size serving local or regional market. Though most of these start-up businesses are not usually entrepreneurial companies but are more or less a way of selfemployment in the society lacking job opportunities, therefore confusing the entrepreneurship term with small business is universal (Falcone & Wilson 2008). A research study done by Bhide (2000, pp. 17-19), on these start-up businesses to find out the entrepreneurial ones, found that there is a pattern of growth and certain characteristics were found in a promising start-ups; Initial conditions: most of the entrepreneurs who become successful usually copy or modify, accordingly to the market, someone elses idea. Nature of businesses: these businesses require low capital cost, market is uncertain, potential profit is somewhat not favourable. As the entrepreneur have invested low capital which dont promise huge profits but on the other hand if they have to fail they lose not so much financially. Opportunistic adaptation: there are no in depth analysis of the market or costly research carried out, an entrepreneur goes with his/her instinct. This is due to lack of huge financial support and lack of time, as entrepreneurs have to adapt to any new opportunity which arises and take advantage of it and the same happens with any unplanned problem they face. Thats why its very different from conventional business where the market is well analyzed before a decision is taken. An entrepreneur can rely very less on calculated risk and would be using any opportunity that comes along. Securing resources: being new in the market and coming up with ideas which havent been used before in the market, an entrepreneur face problems in securing resources from investors who would be interested in risk sharing with their new idea. Therefore an entrepreneur would usually go out for contacts they already know and use face to face proposals rather than too much on papers. Traits and Skills: In order to start a new business or entering a new market an entrepreneur must be used to ambiguous situations where things are not certain. Most of the time an entrepreneur success is referred to as being lucky but when closely observed one can easily say that there is much more to it by hard work rather than simply relying on luck.

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4.1.2.

Social Entrepreneurship

Recently a lot of studies have been conducted by many organizations including World Bank, IMF, DFID etc. and also the topic of societal development has been discussed by many scholars and the politicians. Also there have been several books written about the concept of how social entrepreneurship can benefit the society, for example the most relevant and most acclaimed book in this topic would be from the author David Bronstein who wrote How to Change the World: Social Entrepreneurs and the Power of New Ideas. In his interview, to Guy Kawasaki, David Bronstein explained some of the controversial ideas which differentiate between for-profit and non-profit entrepreneurship. According to him the way they act and manage the business is the same, the only difference is what the person wants to maximize. David Bronstein also emphasized that in order to address a social cause or being social one dont have to run a non-profit organization and slowly many of the social entrepreneur are running for-profit organizations or a blend of different ideologies put into business practice. A social entrepreneur is simply defined by many authors as a person who uses his innovation, management and organizational skills in order to bring a social change without taking profit into consideration. There are several definition of social entrepreneurship, emphasizing not whether the organization is for profit or non-profit, but what the core objective of the business should be, is to create social value (Zadek & Thake, 1997). Simply this could be defined as entrepreneurial skills used in nonprofit organization, business or government. Social entrepreneurship can be defined as innovative, social value creating activity that can occur within or across the non-profit, business, or government sectors (Austin et al., 2006, p. 2). The success factor of an entrepreneurial market is that it admits failure and accepts the responsibility for it. Therefore when an entrepreneur is given an opportunity to be exploited it will create a sustainable growth institutional system and a profitable economic environment. A successful entrepreneurial system is one which admits failure and learns from the mistakes, therefore dropping ideas and processes which lead to wasted resources (Garden, 2007). Another definition found in literature which tries to broaden the view of social entrepreneurship yet remained much more focused on the key entrepreneurial activities is from Paul C. Light, in attempt to broaden the scope of social entrepreneur, he came up with this definition, A social entrepreneur is an individual, group, network, organization, or alliance of organizations that seeks sustainable, large-scale change through pattern-breaking ideas in what and/or how governments, non-profits, and businesses do to address significant social problems (Paul C. 2005 pp. 17).

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Paul analyzed most of the common definitions found on the field of entrepreneurship and developed this definition, where sustainability is an important aspect, but sustainability in the field of entrepreneurship cannot be achieved without proper strategy for growth which is a key aspect of entrepreneurship. Definition of Social Entrepreneurship has been in discussion among researchers for the past couple of decades, and what it really means to be social entrepreneur. Due to so many definitions of entrepreneurship, it can be used in many different meanings depending on the situation, which makes it hard to come up with one universal definition that could be accepted by all and can be used in all situations. All these definitions differ from each other on several grounds, yet they share some points found in almost all of the definitions. Some of these points are; 1) Social entrepreneurship addresses social problems or needs that are unmet by private markets or governments. 2) Social entrepreneurship is motivated primarily by social benefit. 3) Social entrepreneurship generally works with not against market forces. 4.1.3. Are Social Entrepreneurs Real Entrepreneurs?

The importance of entrepreneurship in socioeconomic development is stated by many authors, and the key role a social entrepreneur plays in the social development, but a good question is if social entrepreneur are entrepreneurs after all. There are several articles and research works that identifies the similarity between social and commercial entrepreneur, for example (Sullivan, 2007) a research study stated that like commercial entrepreneurs the social entrepreneurs also identifies opportunities that presents themselves as problems need to be solved and by creating entrepreneurial teams these problems are addressed. Dorado (2006) also compared the findings from an entrepreneurial research to social entrepreneurship and stated as a definition that social entrepreneurship is entrepreneurial because the founders have the same qualities as that of a commercial entrepreneur. Other researches about social entrepreneurship have also stated the similarities between social and commercial entrepreneurs. Dorado also stated that social entrepreneurs are individual with personal credibility, this statement matches the definition or the characteristics of a commercial entrepreneurs found in the literature. The process of identifying opportunities by social entrepreneurship explained by Dees (2007), mentions that through a process of exploration, innovation, experimentation, and resource mobilisation, this is very similar to Schumpeter definition of entrepreneurship. Even more specific about social entrepreneurship is the definition of Simms (2009), according to Simms, the social entrepreneur brings entrepreneurial talent to social problems and describes the social entrepreneur as a pioneer and activist who works in the world of business and finance. Finally the most relevant observation about societal entrepreneurship and commercial entrepreneurship was made by Shaw & Carter (2007), they

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found that both social and commercial entrepreneur use their network to pursue their aims and goals, and that both share belief in centrality of their role and that both require creativity and innovation. 4.1.4. Sustainability and Self-sufficiency in Social purpose

The entrepreneurial qualities in a social entrepreneur are important but the major point that differentiates a social entrepreneur from commercial entrepreneur is the motive. Commercial entrepreneurs when engaging in a business operation is mainly motivated by creating financial wealth whereas the core concept of social entrepreneurship is creating a social change. Thompson (2008) clearly states that social entrepreneurship has Social purpose and that its managed in a way by recognise, create, engage and exploit opportunities with a social orientation. Murphy & Coombes (2009), also argues that social entrepreneurship begins with the discovery of novel means to achieve constructive social change (ibid) and the social purpose [is] at least as important as customer satisfaction (ibid). Other Scholars have also mentioned the importance of social entrepreneurship in local development, as Zahra, et al. mentions that social entrepreneurship addresses to local needs (Zahra, Gedajlovic, Neubaum, & Shulman, 2009). Since the main topic of social entrepreneurship usually revolves around the social purpose the need for sustainability of these initiatives is also found in some literature when they refer to the long term effects or the impact of social entrepreneurship. Therefore Social entrepreneurship tends to make long lasting changes (Murphy, et al., 2009), Dees (2007) also mentions while explaining the role of social entrepreneurship as a person focused on achieving sustainable results and to support these arguments Trexler (2008) finally concluded that sustainability is a value that cuts across definitional lines. Social change requires capital and financial resources, success or the impact of social initiative cannot be accepted as successful unless its sustainable and self-sufficient. Thus in order for a social entrepreneur to be entrepreneurial they have to manage the business in a sustainable self-sufficient way; else it would only be a philanthropic issue with a matter of time while the resources to run short or exhausted. This explains the difference between charity work, philanthropy, and the long lasting role of social entrepreneurship. The main motive of all these social development programs are the same, addressing to social need, but the approach and vision is different. Social entrepreneurship focuses on the problems and solves them in a sustainable and self-sufficient manner. 4.1.5. A model in pursuit

Taking the concept of entrepreneurship in a broader view, every entrepreneur is a social entrepreneur, as every entrepreneur is creating wealth and without cash flow most of the social needs cannot be met. Still from the literature and research its found that there is a difference between social and commercial entrepreneurship, even though both shares the same basic traits. According to Pierre Omidyar, founder

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and chairman of EBay, I think of myself as an entrepreneur, and I have a social view, but I dont call myself a social entrepreneur, from Omidyar statement we see two points, one is of a entrepreneurship who created the most successful auction portal and the second is that his intention for EBay was not social but gaining financial value (The Economist, 2006). The charity work of Omidyar is not an act of social entrepreneurship but a philanthropic gesture from a successful entrepreneur. Unlike Omidyar gesture of philanthropy, a social entrepreneur starts an organization with the purpose of social work. Creation and management of that organization is what a social entrepreneur does, for example the work of Muhammad Yunus about Grameen Bank is one of the best examples of social entrepreneur. The difference between social entrepreneur and a philanthropist lies on the nature of the involvement of the person in the cause addressed to a specific social need. As mentioned that a social entrepreneur creates and manages a social enterprise whereas the involvement of a philanthropist is usually limited to financial resources. Recently the field have observed some of the corporate philanthropist turning into a social entrepreneur, for example the Melinda and Bill Gates Foundation, the philanthropic contribution done by Bill Gates towards solving the global poverty problem has yet been one of the largest contribution ever, yet Bill Gates, founder of Microsoft, saw that his efforts were not enough therefore he stepped down from his executive position in Microsoft and started Melinda and Bill Gates Foundation (Beugr, 2011). This transformation from Philanthropy towards social entrepreneurship has been observed a lot recently and from this it could be concluded that though philanthropic work is very noble yet the long term impact of social entrepreneurship over weighs the philanthropic contribution. In creating societal wealth and addressing to social cause, one trait that is very important for a social entrepreneur is that social entrepreneur applies commercial approaches and techniques to social and state objective. From Trexler (2008) point of view of social entrepreneurship Social entrepreneurs combine values from two different connectional domains, this statement of Trexler is supported by Simmes (2009) statement which describes social entrepreneurs as pioneers and social activists who work in the world of business and finance. From these arguments its clear that in order for a social entrepreneur to be successful, he/she should manage the business in a sustainable way, but how to do it? How can a social entrepreneur combine the world of profit and social work together? This could be done by blending different tools from the world of business, finance, economic, social development, etc. and many researchers have found organizations which are blending the ideologies from different fields. For example, Murphy & Coombes stated that hybrid ventures are growing in prevalence, or in different context explained by Dorado (2006), ventures bridging profit and service goals in new and creative ways are mushrooming.

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From the arguments above it seems that a social cause can be managed more efficiently if its sustainable. In order to make social organization work in a sustainable and self-sufficient way management should run organizations with commercial market approach and technique. In Murphy & Coombes (2009) opinion it is time to move beyond the view that financial and social value generation are at odds with one another. The ability to apply commercial approach to social ventures gives a more narrowly defined idea of hybrid model combining both the aspects of commercial and social ideologies in one business model. Therefore it can be concluded that for-profit and non-profit organizations are not exclusive and they overlap each other, also the social purpose, no matter how important is cannot undermine the significance of financial independence. Therefore a model of social entrepreneurship which emphasizes the importance of financial independence with social motives is very important to be developed.

4.2.

Societal Entrepreneurship

Socioeconomic innovations are one of the solutions to the financial crisis we are facing these days. Especially in the developing world, there is a need to produce and consume in a way which will promise the self-sufficiency of a society in order to compete with the big corporations and developed world. If societal problems are addressed by entrepreneurs who would promise sustainability of society this would open new opportunities for the country and will not depend on foreign aid. According to Margaret Mead Societal entrepreneurship refers to initiatives which aim at improving what is lacking or nonfunctioning in society; new solutions intended at creating a sustainable society economically, socially and ecologically by applying entrepreneurial logic (Mead, 2009 pp. 7). As suggested by many scholars that in order to have a long term impact on a society a social enterprise needs to be independent and self-sustaining. Sustainability and self-sufficiency is related to different business models and theories. From a social point of view, in order for a firm to address a social issue it needs to be created with an aim of improving the social life of people, but as the literature suggests that addressing to social issue directly by donating financial resources or providing what is needed is not an entrepreneurial activity but is categorised as philanthropic work. The problem with Philanthropic work is that it cannot solve the problems of the world, as they are unlimited and philanthropic resources are limited, this is the reason why many scholars and research suggested that there should be a blend of business and social world. A sustainable social firm can be achieved when its created with the core concept of creating societal wealth through a corporate business model generating revenue rather than depending on donor money. Apart from being social, companies have to keep in view their self-interest, managing both the social side and the corporate side is not an easy task for the managers. Meeting continually changing public 31

expectations, recognizing profound social changes and anticipating how it will affect the business organization is the key to survival in todays business world. Such organizations usually have good relations with the government, the society in general, its stakeholders, and often cooperate with lawmakers when new laws are created in order to deal with the social problems. These companies know that they have to change with the changing social environment rather than trying to block it, this way they have more chances of survival and being competitive (Miles, 1987). Companies that are managing their business operations in this way are guided by Enlightened SelfInterest, which means that they are socially aware without giving up their own economic self-interest. According to this, profits are rewards that businesses receive when it provides genuine quality service to the society, helping its employees grow, and behaving in a responsible way as a corporate citizen. Most of the profitable firms across United States are following this approach towards Corporate Social Responsibility (Garfield, 1992). Societal entrepreneurship is not a new concept but has been around for many years, and has its traces in other theories about society, business, social entrepreneurship, development, micro financing etc. it lays on the border land of Commercial entrepreneurship, non-profit, commercial, government, academia and the society itself. All of these theories about social entrepreneurship, societal development, and micro financing have points that if they are being put together would define societal entrepreneurship. 4.2.1. Societal Entrepreneurship Definition

The basic concept of Socialism and capitalism has a problem of being at the extremes and thus they have been rejected by many scholars and academics, but they do provide a platform for most of the developmental theories that came afterwards. Hence the literature from socialism and capitalism has helped a lot in the development of this model, especially on deciding other theories to study. As these two theories are very broad in nature, therefore to understand the specifics of societal development, studies from Jacobs & Cleveland helped a lot in understanding what needs to be done but the main and most vital question was how to do it. In order to answer this question, the most famous financial and banking tools used for societal development were studied. The most relevant and practical theory, financial tool, or a principle of religion that helped a lot in understanding the process and pointing out the main terms and condition was Islamic Banking. From the literature review chapter and the entrepreneurship theories (socioeconomic models, and banking and financial tools) discussed in this thesis, Societal Entrepreneurship can be defined as; A society which addresses to a gap (Social Problem) by bringing together different members of the society in order to achieve a common good by the combination of qualities (financial, 32

business knowledge, labor and entrepreneurial skills) of various actors, sharing profit and loss without considering the nature of the business (as long as it is legitimate in the country of operation and based on solving a social issue), size of business, type of the business, as long as its self-sustaining and the percentage of the profit is reinvested into the business for growth without damaging the society and environment in any way possible.
FIGURE 2 SOCIETAL ENTREPRENEURSHIP MODEL

Socio-Economic Problem
Gap in Society Shared problem Common Goal

Social Entreprise
Self-sustaining Entreprise Growth through profit

Social Entrepreneur
Entrepreneurial Skills Training & Development Opportunist Expertise

Combination of society members Qualities

Skilled Labor Investors Entrepreneurial Philanthropist

The importance of combining the societal resources as in skilled labor, investor, entrepreneurial philanthropist, etc. is very important for the societal development. The importance and the necessity of private property in providing financial motives for entrepreneurial actions and hence economic development have been recognized by most of the scholars, including Schumpeter. From this point of view an entrepreneur will have to adopt and adjust according to the societal institutional framework he/she is facing and will have to base his action according to the incentive structure he/she is facing. According to Schumpeter (1960), an entrepreneur needs a society having favourable institutional framework and without this an entrepreneur will not be able to succeed and carry out his/her innovative business ideas. This concept of doing business is very similar to the concept of Social Business used by the followers of Grameen Bank. As M. Yunus explained the concept, in the lecture he gave at Google campus, that in 33

doing social business a person or organization can start a business on the basis of profit but the entity should only take back the initial investment and other costs incurred back as return on investment. The advantage of adapting this strategy is that it has a limitless potential, for example when compared to charity work its keeps on solving problems whereas the charity is used once. In other words charity has one life of solving problems whereas Social Business has limitless possibilities. The concept of Social Business is very good, but there is a contradiction, as we explained earlier that Money making is a very important part of human being therefore in this concept it seems like no profit no loss. This very attribute makes Societal Entrepreneurship different from Social Business, as in Societal Entrepreneurship the investor should take back the initial investment at a higher percentage rate from the profit (e.g. 80% back to investor and 20% invested back in the business) and once the initial investment is recovered the investor should get low percentage of profit and reinvest the remaining for the growth of the company (e.g. 20% taken as ROI and 80% reinvested for growth). The initial higher rate of return from profit is attractive for investors to get into Societal Entrepreneurship while solving the social ills in the society, whereas after the initial investment is recovered the entrepreneur would start investing the higher percentage for growth which will result in more profits while the expansion of business will have more impact on the society. 4.2.2. Societal Entrepreneurship Process

According to the above definition of societal entrepreneurship, the society in general should start behaving in an entrepreneurial way. The job of development should not only be restricted or dependent on couple of individual or a small group of business people. All the members should contribute according to their resources or skills. This does not mean that all of the society should start investing in one project but according to the nature of the problem the project is addressing to. Therefore in such society there can be several projects going on and members of the society just by being the customers or being loyal to the local business can be contributors as well. The resources should be addressed towards a common problem people are facing in a society. This can be easy access to a convenience store, a school, hospital, bakery etc. This does not necessarily mean that there must be a problem but can easily be a gap which other business ventures or government has not noticed and can be converted into an opportunity by the combination of their resources and skills and can satisfy the need of the society. In order for this to be successful, each member of the business venture addressing to the problem should share the profits gained and losses incurred. Profit is one of the most important elements of societal entrepreneurship, and thus it totally disagrees with the concept of Charity Principle, where the clients receive support for free. For example a person who is investing his/her

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financial resources should not put an interest rate on the money loaned but should share percentage of profit or loss agreed upon. On the other hand, the person who would be working there would be awarded financially on profit and would be losing time, effort, and credibility upon loss. One of the points which differentiate this concept from the traditional social entrepreneurship is that it is supposed to start on itself, from within the society, so that the ownership of such projects should be totally in the hands of those who are affected most by the success and failure of this project. Another point which makes it social and more appealing is that a predetermined percentage of profit should be allocated towards growth of the business. Growth is very important for societal entrepreneurship as it will create a more sustainable environment and also will contribute more towards the socio-economic situation of the society by creating jobs and bringing in revenue. By looking at how this concept should work, seems too difficult and very unrealistic, but if we look at the model of Grameen Bank we see that its run almost on the same concept. This is one of the most interesting point of Grameen bank that it does not take money from the government, donors etc. according to the founder, M. Yunus, Grameen Bank does not take money from anybody, it just generates the money from inside, it take deposits from people, and lends the same money to people in locality, and thats how it runs. By looking at the success of Grameen Bank, its clear that though this concept might not be very easy to adapt but it works and works very well. In Societal Entrepreneurship the role of Grameen Bank is taken by an entrepreneur who has to bring together the various actors of the society together, the job would not be so easy as it would be for Grameen Bank but again this would save some of the interest rate that is going to be paid to any bank providing Micro Credit which usually have much higher rates than normal loans from banks. Societal entrepreneurship should address a social cause which is affecting the society in general and is not limited to a certain group of people e.g. Health care, education, employment opportunities etc. and these problems should be solved by using the actors in the society having qualities which when put together with other actors qualities from the society can make a change towards this problem. For example in a town or village where there is lack of quality education and employment, the society of this village should find someone from within the community who has a spare building which can be used for a school, now they should also check for qualified people who can teach and are jobless, this would solve couple of problems e.g. for the building owner who had it as a spared construction can start having a reasonable rent, the graduates from within the community who didnt had a job would find a job (though it may pay minimal wage) and would be contributing towards the society by providing quality education to the children.

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In another case if there is a pensioner who has saved up a good amount of money but dont have the energy or idea to invest this amount into a business or something more profitable than just getting minimal amount of interest from conventional banks can lend this to someone young who is out of job and wants to start his/her own business but dont have the financial capital required. Now this money should not be given on a predetermined interest rate, but rather on an agreement of sharing profit and loss. Now on the account of the financial investor, he/she can take the profit up to the limit of his initial invested capital once that is reached he/she should take part of the profit afterwards and reinvest the rest of the profit into the business and increase his share of the business (depending on the agreement between the financial donor and the entrepreneur). Whereas if the business fails to attract profit as had been planned by the entrepreneur, he/she can be held accountable for the loss of financial capital invested into the business, but his/her time and energy he/she invested into the business should be taken as his/her lost.
FIGURE 3: SOCIETAL ENTREPRENEURSHIP PROCESS

Vulnerabl e Populatio n

Purchasing Power

Social Entrepreneur

Job/Investment Opportunities

Labor Expenses

Profit Generation

Potential Investors
Socio-Economic Problem

Social Entreprise

Return on Investmen t

Societal wealth creation

Societal entrepreneurship is very similar to most of the common definitions of social entrepreneurship, the only difference is that the main actors in societal entrepreneurship are from within the society and no outsider donor or funder is needed in order to create a more independent, sustainable, and self-sufficient socioeconomic model. Like social entrepreneurship, societal entrepreneurship starts with a social entrepreneur, who is the main actor of the societal entrepreneurship model, who assesses the environment, finds a gap in the society and turns the gap of the society into an opportunity by using entrepreneurial 36

skills. Now the two other actors of societal entrepreneurship are form the society, first one is the people who are vulnerable to social problem Vulnerable Population and the second one is the rich class of the society with enough savings looking for investment Potential Investors. In this process the job of a social entrepreneur is not limited to finding a social problem and converts it into an opportunity, but also solving the problem by using the local resources i.e. Land resources, human resources, capital resources, financial resources, etc. by providing training, knowledge, job opportunity, and income potential to the vulnerable population the entrepreneur will become social entrepreneur as this will improve the life standards of the people living in the locality. The other relation is between social entrepreneur and the potential investor, the exchange between social entrepreneur and the potential funder can be of barrower and lender or business partners with exchange of business expertise. If the business is not very profitable or leans more towards social side, it would be better for a social entrepreneur to approach people who are willing to contribute in a philanthropic cause and can receive their investment back over a period of time. After the social/commercial venture is established and running it should start generating revenue now the profit of this venture should result as return on investment for the funders, whereas the costs incurred in the form of wages should enhance the purchasing power of the employees which previously were unemployed. This would mobilize the cash flow in the society as the employees of the social enterprise would have more to spend and yet more opportunities would be created, resulting in more societal wealth creation thus sustainable societal development.

4.3.

The difference between Social and Societal Entrepreneurship

Social entrepreneurship is a very trendy topic these days, with many politicians, celebrities, business people, and philanthropists etc. becoming social entrepreneurs. Even some of the social entrepreneurs who started as social entrepreneurs are becoming heroes and celebrities, for example Muhammad Yunus of Grameen Bank. Most of these social entrepreneurs are invited to conferences and lectures where they shed light on the topic of social entrepreneurs; and most of them differ from each other on ideologies. The importance given to social entrepreneurship in the past several years cannot be taken as overrating but it has created confusion to an extent on the boundaries of social entrepreneurship, and this is one of the reasons why the topic is generating so much interest in the academic world. With so many influential people e.g. Bill Gates, Muhammad Yunus, Pierre Omidyar, etc. putting in their efforts towards the betterment of the society has created mass awareness of the significance of social entrepreneurship and turn it into a trend of 21st Century. The speciality of social entrepreneurship is that people joining into the concept of social entrepreneurship from different segments of the society has resulted in a parallel diffusion within different segments of the society, each with different agendas and 37

motives. For example in Politics, social entrepreneurship has worked on creating policies that works towards the welfare system of a country (Grenier, 2009), in business it has pushed the businesses into remodelling their businesses plans which will benefit the developing countries and the society in general (Seelos & Mair, 2007), in finance it introduced ideas such as social stock markets, socially responsible investment, and the creation of a new asset class (Emerson, 2003). Finally the field of Philanthropy have also witnessed a difference in people approach towards giving away charities, the trend is shifted towards strategic and impact orientation due to success of social business acumen of entrepreneurs (Letts & Ryan, 1997).
TABLE 3 THE UMBRELLA CONSTRUCT OF SOCIAL ENTREPRENEURSHIP

Source: Johanna Mair (2010), Social Entrepreneurship: Taking stock and looking ahead. The trend of social entrepreneurship is attracting people from every segment of the society and with so many articles written about the topic makes it very hard to agree on a single definition or the nature of social entrepreneurship. The meaning of social entrepreneurship means different to different people, and difference depends on several things e.g. culture, background, society, political environment, economic environment, etc. Though the core concept of all the meaning and definitions of social entrepreneurship is 38

the same, helping out the needy and making a positive change, yet the differ from each other in many ways; actors involved in the process, contexts and mechanism at play, and theories of social change. With so many different definitions and theories about social entrepreneurship, it is an exciting subject for research but on the other hand from a scholarly perspective it faces challenges. From the above discussion and table 3, the diversity in both discourse and phenomena of social entrepreneurship definition is clearly visible and therefore perusing a theory which is different or could be proved different from social entrepreneurship is very difficult yet a specific type of social entrepreneurship or a model of social entrepreneurship could be explained by naming it Societal Entrepreneurship based on the nature of the model. Therefore the two terms Social Entrepreneurship and Societal Entrepreneurship just to explain the difference or to point out a specific model of entrepreneurship, would be dealt as two different theories, without considering the similarities based on the core concept. Also by looking at the definition of Societal Entrepreneurship presented in this thesis, and the definitions of different concepts of Social Entrepreneurship from the table above it seems that Societal Entrepreneurship is a combination of mainly three different phenomenons; The first one is the Community Entrepreneurship where the community is supposed to behave in a social way, but what it lacks is the profit generation for sustainability and growth therefore the second one needed is the Entrepreneurial non-profit organization which needs to engage in commercial activities to create an income stream and enhance financial sustainability, now to combine these two phenomenon, a Social change agent is required who can alter public perception about social issues. Therefore in order to differentiate between the two concepts, Social Entrepreneurship is analysed from the most common and narrow definition. Its very important to distinguish between these two concepts of entrepreneurship; social entrepreneurship and societal entrepreneurship. So far they have been confused by readers and some of the authors definition as well. As the words describe themselves social entrepreneurship is a single individual e.g. Muhammad Yunus, or as an entity an organization e.g. Grameen Bank, but on the other hand the societal entrepreneurship can be a combination or a network of several social entrepreneurs who wants to bring change into the society or enabling the society to develop by its own. Societal entrepreneurship can be led by an individual or a single organization but in order to create a network of other entrepreneurs where there is direct communication between the funders and entrepreneurs. Here the focus should not be on how much productivity or revenue they can make of the enterprise but the focus should be on the total societal wealth.

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Another point that differs this concept from the Social Entrepreneurship and Commercial Entrepreneurship is that it works somewhere in the middle of these two concepts, for example Commercial Entrepreneurship is usually about money making whereas Social Entrepreneurship is about addressing to social problems, whereas Societal Entrepreneurship is based more on the idea of Enlightened Self-Interest where making money is important but not the sole purpose. According to M. Yunus, in a lecture at Google campus, Money making is a very important part of human being, but its not the whole of human being. From this statement its clear that in order for a human being to stay motivated he/she needs to make money but again thats not the whole picture and according to the Maslows hierarchy of need as well a person needs to thrive for more than just materialistic things in life towards self-actualization e.g. philanthropic work, social work etc. Doing social work and using business resources towards the betterment of society costs companies, hence there are many arguments about corporates being social. Some people say that in order for a company to be truly socially responsible it has to have a strong desire of doing social work and invest their money voluntarily without the fear of government stepping in and forcing them to do their business in a way which will promote the social conditions of the society (Miles, 1987). Social responsible actions from businesses usually occurs from mixed motives, some of them might be responsive to the changes in the society and would know that sooner or later they have to manage their business in this way or they would be doing social work just to promote their image in the society using it as a marketing technique. There have been many studies trying to find the relationship between being social and being profitable but always have given mixed results. Some of the studies have proved that being socially responsible many companies have generated more profit than before, which could be an example of enlightened selfinterest. However other studies have reported that the relationship between socially responsible and being profitable is sequential and a company can afford to be socially responsible once it is profitable (McGuide et al, 1988). As its hard to say why business are going towards being socially responsible and what is the motive, therefore finding the relationship between being socially responsible and being profitable is a very complex issue. According to Jerr Boschee and Jim McClurg, in order to be entrepreneurial a non-profit organization needs to generate revenue from their activities else they would not be behaving in an entrepreneurial way. Just by doing good and wonderful things, producing new and vibrant programs does not entitle a nonprofit organization as an entrepreneurial one; they can simply be called an innovative organization (Borschee & McClurg, 2003). According to this argument, any organization which is working as nonprofit, needs to use its resources in such a way that they can generate revenue out of it and be self-

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dependent. The idea behind this is to create a sustainable kind of an organization rather than which would be depending on aid from government or other sources. Innovation is the key to start a new organization, implement its plan, strategies etc. but its a totally different thing to sustain the same for long-term without depending on charitable contributions and public subsidies. At a question and answer session at Learner Resource Centre, Mr. Boschee also explained that the idea of not charging clients is understandable when we take the social view into perspective but its a misguided desire when we look at sustainability. As the costs are rising and competition of non-for-profit organization for grants is increasing as well, therefore to have a long-term strategy an organization must look into practices which will generate profit for the organization. To explain this, a Commercial entrepreneur who is running a business is contributing to the society by giving wages and creating jobs, but usually the profit generated from these businesses are used for personal reasons and not reinvested into the business. Now a societal entrepreneur would start up a business with certain amount of capital and create, lets say five jobs but with time if the business is successful this person can increase its market and thus create more jobs if he continuously reinvest into the business. The Commercial entrepreneur cant be called an entrepreneur unless he keeps on renovating his business but with the societal entrepreneur he is constantly trying to reinvest into the business and make changes to the business which can affect the society positively; this very attribute of his business would keep his organization entrepreneurial as per Schumpeter definition of entrepreneurial organization which focuses on innovation and growth.

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5.0.

Results

The picture of our society, presented in the news, TV, internet, etc. displaying the violence, drug abuse, crime, and poverty mainly reflects the frightening reality for millions of people around the world. The unlimited social problem the world is facing these days affects not only the local or national community but has a ripple effect on the global situation as well. Despite the millions of dollars spent on social programs and financial aid given to the needy and developing countries, yet the problems in these regions seems to be escalating. Most of the developed countries are helping out the needy and developing countries with the help of other international developing organizations, among them United States is one of the biggest contributor, however the irony is that most of these programs are failing miserably in Pakistan and other developing countries and at times are even worsening the situation. Currently, we are facing many problems e.g. global warming, ever increasing cost of living, income inequality, poor working conditions, poverty, terrorism etc. where most of these are found together in the developing countries. Above all these problems the most important and the recent one gaining trend, is the approach of people towards terrorism, as sort of way out of frustration caused due to combination of other problems. With the on-going war on terror, in Iraq and Afghanistan, has created a lot of frustration in the neighbouring countries and the west. The local governments are trying to tackle this situation with spending billions of dollars on security forces, are unable to realize the root cause of terrorism. The positive influence of entrepreneurship is always undermined by the governments and instead to alleviate poverty and frustration from these societies the governments are pumping in money into the economy, creating a bubble economy which bursts after the financial aids are exhausted. When talking about economic development, everyone refers to global, regional or national level. Local development seems to be not an important issue for the policy makers and the governments. The importance of local development through SMEs have always been undermined by the policy makers and not given the utmost importance they deserve, especially in the case of developing economies. There are several articles examined and cited in this thesis which proves the importance of local development and SMEs towards the national economy of a country.

5.1.

Global Socio-Political Economy

In many of the developing countries the wealth is distributed among the nation in an unfair way, one would find very few people holding most of the nation wealth, limited middle class and a big population living under the poverty line. It has also been observed that not all of the rich class would get involved in the business sector; rather they would invest their money in property or would simply deposit it in a bank for profit or another organization, resulting in low cash flow. All of the middle class and the rich sector 42

lives in the urban area of the country and have investment there, due to the rich people living in the urban area cost of living is more than that of living in a small city or rural area but on the other side due to the investment of the rich people, the job situation in the urban area is much better than that of small towns or rural area. As location is the one of the most important part of starting a new business therefore big or multinational companies chose urban or suburban location for starting their business, resulting in creating jobs in the urban areas and ignoring the development of the rural sector. As most of the population in developing countries is living in the rural part of the country therefore development is needed in the rural part, the government is usually not able to provide so many jobs and the business people would not operate in the rural part of the country. Considering this, entrepreneurship is very important for the development of the rural areas which in the bigger picture would help the developing countries economy. The desirability of operating at a specific location is a universal consideration in todays business world. Therefore the attractiveness of rural or semi-rural areas for the new entrants are very low, at one point we see that there needs to be many job opening in this area as labor is readily available and considerably cheaper than that of the proposed locations around or in the cities. On the other hand one notices that there is no cluster of suppliers, supporting industries, and service industry may need to be developed from scratch (Porter, 1998). Businesses have complex relationships among the different segments of the society. The effect of these segments on the business needs to be carefully managed and appropriate actions are thus required. In order to be successful in todays global economy (new political arrangements, public values changing every day, ecological concerns etc.) manager of the company must consider the needs and requirements of the stakeholder along the primary objective of being profitable (James et al., 1996). This is the idea which resulted in the new management theory of Stakeholder Management. This also refers to managing business with Enlightened self-Interest, considering profit as the primary goal of a business but also considering the interest of the society. The world economy is dominated by many of the multinational corporations who are doing business across more than one country. According to a survey there are now more than 37,000 such corporations doing business around the world. These corporations are very important for the global economy and have a great effect on the changing trends in the world political and financial environment. Some well-known multinational companies are so big that there annual sales from the worldwide business exceeds some significant nations. For example, the annual sale of General Motors in 1993 exceeded the gross national product (GNP) of Denmark, whereas Wal-Mart had gross revenue which was much greater than the Gross

43

Domestic Product (GDP) of Poland. In a way, the executives of General Motors and Wal-Mart seem to have more responsibility than that of the political leader of Denmark and Poland (James et al., 1996). 5.1.1. Size, Power and Accountability

As the companies become bigger and bigger, doing business across the world the leaders of such business realizes the importance of having a harmonized global business environment, wherever they are operating. As most of the countrys economic system depends on the operations of these companies therefore they are considered the powerful engine for economic stability. The overall contribution towards the economy of a country by these corporations is huge, even a country might have many businesses and partnerships but yet compared to the economic contribution of these corporation, the share of these small and medium businesses is relatively smaller (James et al., 1996). This does not necessarily means that the socioeconomic system totally depends on these big corporation, especially when taken the societal value created by the small and medium industries as even though they being small but they are offering more jobs than that of these capital intensive corporations. Due to high competition many of the governments are now trying to turn the state-owned enterprises into competitive businesses through privatization. Despite the size and power of a corporation, according to law a corporation is an artificial legal person that has the same rights and power given to an ordinary person, unless otherwise mentioned. Accountability and responsibility is the core value of every countrys law, therefore these corporations are held responsible by the law. In case if these corporations are not following the law, the government can face financial penalties, force them to comply to law, or even close them down. 5.1.2. Public and Private Role

Besides the national and global economy, the society is always trying to find a balance between a company being a generator of wealth and its role as a large employer, a seller of good/services to the people and being a resource itself in the community. There are three main ideas behind the public and private role, firstly it is generally accepted that a business is responsible for any consequence that is generated by its operations, thus a company is directly responsible for damaging the environment by dumping waste into the local river, the quality of its products, and the safety of its operations. In case if the company fails to meet these expectations and something hazardous happens, the government is entitled to take action and make the business held accountable (James et al., 1996). Secondly, these responsibilities of environment depletion and more general problems created by the industry cannot be put on a single company. If there are more than one company dumping into the river and as its not easy to identify which factory is the one polluting the river therefore the government has to 44

step in to ensure that all the factories are working in an environmental friendly way and divide the costs of fixing it accordingly. Another example of this situation would be the air pollution to which there are too many contributors and the cost of fixing this cannot be addressed to few members of the society, therefore the government is supposed to come with a fair system where each member of the society should be held responsible. Lastly, the business should integrate their private profit-seeking activities with the general public responsibilities. As in most of the society a person is expected be responsible for oneself, ones family, and the community the person is living in. The same is the case with corporations, if a company is working in a society it is expected to be responsible not only towards its stockholders but all of its stakeholders where they are economic stakeholders or non-economic stakeholders. 5.1.3. National Sovereignty and Corporate Power

With the expansion of big corporations, especially, into the developing world has created number of problems. Because most of these corporations are over powered when compared to the governments of developing countries and they create new relationships and new forms of activity, the existing rules and laws of government sometimes become inadequate in responding to such problems. Among the key problems faced by these countries are, how to secure the local ownership, and above all how to assure the citizens of the country that the new foreign company will act responsibly (James et al., 1996). The national sovereignty of a country is on the top priority of the government and also the citizens of the country. According to this principle a country has the right to exercise its rules and laws about how companies should operate within its borders. This allows the country to create a law about the legitimacy of a business and its operations. For example, Coca-Cola had a problem entering the Indian market as the government of India asked them to disclose the formula of their product, on refusal to do so the company was forced to leave the country. Until, they renegotiated with the government that they would start exporting 75% of its production in India while selling the rest of 25% within the Indian market, helping them with the foreign trade balance (Hazarika, 1989). With the world becoming a global village and companies now having businesses almost in every country, they are being called stateless corporations. These corporations have facilities, ownership, and customers everywhere and can relocate to any of these countries easily; therefore they owe loyalty to no single nation. There are many advantages for being stateless corporations in terms of political and economic advantage. For example, Taiwan and South Korea had banned automobile imports from Japan, but as Honda Motor Co. had United States based operation therefore they could export their cars from United States and in this way they were considered as a US corporation (Landry, 2006). Statelessness allows

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companies to avoid the political problems, regulatory hurdles, and powerful labor union but it does not eliminate corporate responsibilities. Historically, companies that have operated internationally found it hard to get adjusted to the host markets, reason being they reflected an Ethnocentric Perspective. According to this perspective they view the home country as the primary source of capital, revenues, human resource etc. also such companies having an ethnocentric perspective deal with problems according to their home country laws and norms (Pucik et al, 1992). This could be one of the reason too why some of the foreign NGOs are having problems dealing with the developing countries. For example, the way some of the problems are dealt with or looked at in the western world are totally different than the way they are being perceived by the developing world e.g. child labor, working women etc. There are many business schools which are already working on promoting the entrepreneurial activity and its effects on the society, among them is the Snider Entrepreneurial Research Centre (SERC) at the University Of Pennsylvania Wharton School Of Business. The four major programs in its Experimental Entrepreneurial Philanthropy Program have conceived the possible entrepreneurial solutions, developed the business plans and created a pilot business experiment to tackle the social problems in the society, with time they have rearranged according to the reality and the way opportunity presented itself.

5.2.

Successful Programs of SERC

5.2.1. HIV/AIDS Program

The goal of this program was to help the people infected with HIV/AIDS, regarding the life span of and their employment opportunities. If a society is facing a problem of being infected by the HIV/AIDS virus it weakens the workforce availability and especially when the skilled workforce is affected this creates a serious economic problem for the companies. Therefore companies have to start programs that can tackle with this social problem causing the companies economic problems (Patrick, 2004). Botswana is a country of some 600,370 square kilometres with a population of approximately 1,561,973 (2004 estimates). The civilian leadership for the past couple of years, progressive social policies, and significant investments has made this country into one of the emerging economies in Africa. However, even with this rapid economic growth, the country is facing one of the highest known rates of HIV/AIDS infection threatening the economic progress of the country. According to SERC report for 2004, there are about 350,000 people living with the disease and 69,000 AIDS infected orphans and the numbers are rising quickly. According to the report the life expectancy at birth is at 30.76 whereas without AIDS it is calculated to be around 72.4 years. 46

The country of Botswana is among the leading countries in Africa which have the most progressive programs to fight against AIDS. As the number of infected patients is beyond the capabilities of the government, therefore the ministry of health with the help of SERC and the Medical School of University of Pennsylvania has started recording the monitoring and reporting services of these patients. This information system will help the doctors and nurses to deliver diagnostic and prescriptive service to vastly more patients. This information system can easily be accessed by radio broadband satellite from US and Europe. 5.2.2. Livestock feed production

The goal of this program was to help the emerging economies in improving the quality and production of livestock. Applications that help the producers for animals bred for meat are usually using advanced mathematical skills and linear programming solutions for optimal feed mix, which is unfortunately is not available to small scale producers. A more simplified version of this programming has been developed by SERC and being used by an entrepreneurial firm in Zambia with assistance from SERC. After a year of using this pilot software the producers reported that, feeds have been available to a large number of small scale producers, producer doubled the sales, net margins were increased by 7 to 10%, animal yield and quality improved, quality of the meat improved, etc. According to SERC, if the success of this pilot study would be continual, soon they would introduce this program into other developing countries. 5.2.3. Peanut Processing Plant

The goal of this program was to introduce low-cost, mechanical peanut distribution, collection, and processing plants. Peanuts provide about 40% of proteins, carbohydrates and fats needed for a human body, provided along with milk; peanuts can virtually take the place of meat. The problem with peanuts is that it is time consuming when done humanly and the modern processing plants requires huge amount of capital investment. Due to these problems, peanuts are not taken into consideration in Africa, Asia and Latin America, therefore cheaper and robust processing plants are required in order to encourage the farming of peanuts. Introduction of such plants in the rural communities can increase the life standards of the people, especially the women who can work in these plants and earn more than what they can else work as. It is also been observed that earning women are spending their money wisely and mostly on schooling their children and usually themselves as well. In addition, peanuts can prove to be as an important source of food in these communities. According to SERC report, South Africa had an annual growth rate of 4% to 6% and the current level about $390 million. SERC started researching for a cheaper and robust processing plant, where they found an already established entrepreneurial firm Kalinda Trading Company. Kalinda has developed a

47

robust plant which enables a business with low capital resources to compete with lower capital cost than the one commercially available. SERC believes that the Kalinda model can be easily expanded into the Sub-Saharan Africa, Asia and Latin America. It is estimated that each plant will initially employ 30 to 50 employees and once fully operational will require 80 full time staff. The baseline roll-out model has three phases; 1. establish local depots for resale of Kalinda manufactured products 2. Establish limited selection and manufacturing facilities to sort, clean and pack bulk material and to manufacture bulk volumes of peanut butter for the local/regional markets. 3. Coordinate with local farmers to promote the growing of peanuts for use in the newly established manufacturing plant. 5.2.4. Environmental Protection

The goal of this program is not limited to the developing world but is even more useful for the developed world as well. According to this program, SERC is trying to find way in which plastic refuse could be reused again in a creative way. In the report of SERC, it mentions an entrepreneurial firm which is using plastic containers and plastic bags, to create a very strong plastic Alloy material that can be used to build permanent structures. In the report its also mentioned that the company have recently built a bridge by using around 200,000 plastic containers and the project was also profitable. According to this approach towards the environmental protection we can see that not only is the company recycling the waste of plastic materials but also is making profit.

5.3.

General Information about Pakistan

Pakistan with currently having population around 150 million people is expected to be the third most populous country by 2020. With such a big population, growing rapidly, the domestic market that is small due to the limited purchasing power of people would soon grow. In addition to the population the geographic location of the country gives it easy access to the South and Central Asia and the Middle East (Pakistan CIA World Fact Book). Pakistan is the 7th world most populous country in the world with density of 19 people per square kilometre in Baluchistan to 359 people per square kilometre in Punjab. The population is distributed in 19.21 million households with average family size 6.8 members. With globalization and employment problems the urbanization process is accelerating in Pakistan where in 1970s only 25% of people lived in the urban areas and by 2000 the figure has increased to 33%. There is significant variance between the urbanization processes in Pakistan, in Sindh (Southern province of Pakistan) almost half of the population

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is located in the urban areas where as in Federally Administered Tribal Areas (FATA) almost all the population is living in the rural area (Population Census Organization, Government of Pakistan 1998). Pakistan has strategic location, spread over 796,096 square kilometres, which is about 1.5 times the size of France. Pakistan is sharing its border with four countries, in the south west with Iran, in the North West with Afghanistan, China in the north east and India in the east. In the east of the country lies the river of Indus, which is the lifeline of the country for agricultural purposes (CIA World Fact Book). 5.3.1. History, Politics and Foreign Policy

What presently is Pakistan was initially part of the larger Indian subcontinent with a long history and civilization dating back to many centuries. In the 17th century the areas was colonized by the British Empire. The first of war of independence was fought in 1857 against the British Empire, which was unsuccessful, in 1947 the subcontinent gained independence from the British Empire and formed two states with a Muslim majority called Pakistan and with the Hindu Majority called India. The division of subcontinent proved to be very difficult, as the people were living in a very mixed environment, especially in the area of Punjab where Muslim, Hindu, and Sikhs were living together. After the separation huge number people migrated from India to Pakistan and likewise according to the religion. The migration was accompanied by violence and bloodshed, around half a million people lost their lives (NFCH, Ministry of Culture Government of Pakistan). Pakistan foreign policy is influenced by its Muslim state status in the South Asia and its relation with the neighbouring country of India which has led to four armed conflicts. In this unstable regional political environment the main objective of the government is to preserve its security and territorial integrity. From the start Pakistan has kept a good relation with United States and the west as well as very friendly relations with China. After the 9/11 the country commitment towards fighting with the war on terror has strengthen its ties with the west and especially with United States. After the military takeover of the country in 1999 the country had some problems with the EU, in spite of these problems the EU is committed to assist the country in developing its socioeconomic condition (CIA World Fact Book). Pakistan is a member in the regional organization including ECO and SAARC. The Economic Cooperation Organization (ECO) was established in 1985 by Iran, Pakistan and Turkey to help the member states in socioeconomic development in a sustainable way. In 1992 seven other countries including Afghanistan and some Southern former Soviet states joined the organization. The South Asian Association for Regional Cooperation (SAARC) has seven member states; Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka and was founded in 1981 to promote the welfare of the people of these countries and improved their quality of life. Besides these socioeconomic organizations Pakistan 49

is also a member of the United Nations (UN) and has always played an important part in the UN and its affiliated organizations. Pakistan is also the founding member of GATT (now WTO) and a signatory to all the important WTO agreements (Pakistan, Chamber of commerce & Industry, 2002). 5.3.2. Human Resources and Social Environment

Although health indicators in Pakistan are improving yet the situation is very serious in many parts of the country. Due to unhygienic conditions, poor health services, access to drinking water and malnutrition, especially in children is contributing to poor health conditions. In the South Asia, Pakistan has the highest child mortality rates (110 out of 1000 in 5 years) and a really low life expectancy (63 years). According to a survey, in 2001-2002, 49% of households did not had access to proper sanitation system, both public and private spending on health services is too low, totalling to 0.7% of GNP in 2002. However, recently the government has started initiatives on improving the health and sanitation systems in the country. Apart from this, the government has also launched many other social programs targeting the health issues e.g. targeting the HIV/AIDS, Malaria, Malnutrition as well as immunization in order to tackle the child mortality rate (World Health Organization). As in many of the developing countries, poverty (affecting on third of the population) is the major social problem faced by the country. In 1960s the government introduced some social security schemes, which due to lack of financial resources had been a failure since then, traditionally, family and kin provides the social security net. Since Pakistan is an Islamic country and have several Islamic laws about economy of the country, therefore one of the major source for poverty alleviation comes from the Zakat and Usher (both terms are explained in the literature review chapter). In the FY 2002 about 1.7 million people benefited from the Zakat Scheme. Besides these major programs, there are several other programs jointly run by the government and foreign NGOs tackling the problem of poverty in the country (World Bank report 2005). There are several other state run program providing benefits, for example the Employee Old Aged Benefit (EOBI) which is available for workers in the private sector with minimum of 10 employees. However, these practices are rarely put into practice by the firms besides very large ones. Under the EOBI program, for example, only 1.6 million employees (out of an estimated 10 million eligible) were insured at the end of 2000. Besides this there is a pension scheme for employees who have worked for more than 25 years for the government. There have been many notable improvements in order to improve the literacy rate of the country but still the progress is very low. According to the last census in 1998, the literacy rate was 43.9% out of which 63.1% was in the urban areas and the remaining 33.6% in the rural areas with inferior quality. Besides the urban rural difference the other notable difference is between the genders, according

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to the census only 32% of Pakistani women were able to read and write whereas in men the percentage was 54.8%. In 2003 the literacy rate increased to 51.6% with the government initiatives in the education and several other NGOs working in education improvement programs (Ministry of Human Resource Development, Government of Pakistan). 5.3.3. Cultural Environment

In Pakistan there are more than 20 different languages spoken, where the national language is Urdu which is commonly spoken by almost all the citizens of Pakistan. Among the most spoken languages Pashto, Sindhi, Balochi and Punjabi are spoken, which all belong to the Indo-Aryan branch of the Indo-European family. The distribution of languages roughly corresponds to the provinces, where Punjabi is spoken in Punjab, Pashto spoken in KPK, Sindhi spoken in Sindh and Balochi spoken in Baluchistan. Besides these languages and Urdu, English plays a very important role as its the second official languages mainly used in government, businesses and Educational institutes (CIA Word Fact Book). The ethnic composition of the country roughly corresponds to the linguistic distribution, at least among the large groups; 59.1% Pakistani recognize themselves as Punjabis, 13.8% as Pashtuns, 12.1% as Sindhis, 7.7% as Muhajirs (Muslims who migrated from India after independence), 4.3% as Baloch, and 3% as other ethnic groups. Most of these ethnic groups are primarily concentrated in their home provinces whereas the Muhajirs are mainly located in the urban Sindh (Pakistan Britannica Online Encyclopaedia). As the country separated from India on the basis or religion and as the country official name indicates. Islamic Republic of Pakistan, therefore Islam is the state religion with 97% of the population being Muslim. The other two big minorities easily identified are Hindus and Christians, where Hindu are mainly living in parts of Sindh and Christians are spread over the country. As the state religion is Islam and Quran (the holy book of Muslims) plays an important role in the society, therefore the believers consider it to be the final word of God and follow it unquestionably. Though Islam was not intended to be used as a political system in this country, but in the 1970s due to Islamist opposition parties it created a more Islamic political life in Pakistan. In this context, Sharia has had some influence on the legal framework of Pakistan, mainly on the civic law (Primarily on the marriage and inheritance matters). As far as the commercial law is concerned, the Mudarabah (Islamic Banking) is a result of Islamic thought, whereas the criminal law is not affected by Sharia (Library of congress, CIA World Fact Book). Islam deeply affects the social life of Pakistan; religion, state and society are conjoined, for Muslims religion is not a private affair but a law affecting all aspects of life. The very basics of Islam promote brotherhood, where a member of a community has to obey certain rule. Among these rules the most 51

important one are praying five times a day, giving charities to the poor, fasting during the month of Ramadan, and the pilgrimage to Makkah once in a life time. Besides these duties, Islam also forbids the use of Alcohol, eating pork, interest and gambling. In Pakistan family is the centre of social organization where people are known by the family they belong to and the family supports them through thick and thin. The family besides providing identity to person also provides social and financial securities, rarely does a person lives individually, apart from relatives. Children tends to live with their parents till they get married and mostly the sons even after marriage lives with their parents forming a joint family system, whereas the daughters get settled at their in-laws. 5.3.4. Market situation in Pakistan

In Pakistan the wealth distribution is very unfair, 24% of the population is living under the poverty line whereas 10% of the population holds 26.5% of the household income of the country. The unemployment rate is 14% in 53.78 billion labor force. The employment of the country sector wise is that 43% of the labor is working in agriculture sector, 20.3% in industry and 36.6% are in the service industry whereas the contribution to GDP from each sector is that 20.8% is coming from the agriculture sector, 24.3% from the industry sector and 54.9% from the service sector. The largest contributor to the export of Pakistan is its textile industry which counts for 70% of the country exports, second to this is the agriculture and also sports equipment, medical instruments and some finished goods e.g. toys, handicrafts etc. (CIA The world fact book). The handicraft industry of Pakistan is very rich and diverse as it varies in every town and area according to the local culture.
FIGURE 4 AVERAGE LOAN BALANCE IN PAKISTAN

Source: Microfinance in Pakistan, MIX Microfinance Information exchange. 52

In a developing country the importance of MFIs has been discussed thoroughly in the Literature review therefore we would just analyze the situation of MFIs in Pakistan. In total there are 30 MFIs workings in Pakistan namely; The Aga Khan Agency for Microfinance (AKAM), BWTP, Grameen foundation, Microfinance Network (MFN) etc. the gross loan for the year 2009 was $210.1 Million which is being borrowed by 1.4 million borrowers. The average loan per borrowers in Pakistan is $115.5 which is the smallest when compared to the rest of the MFIs working in other countries. When we look at the return on investment in Pakistan, its not very motivating for the funders and service providers as we see 0.07%, which when compared to the rest of the places is demotivating (Microfinance in Pakistan, MIX Microfinance Information exchange). From Figure 4 it can be concluded that the usual loan balance per borrower is small except for that of Eastern Europe and Central Asia, but that as well has a very huge gap in the smallest and largest loan, after that the Latin America and the Caribbean also has a relatively more loan, but when we look at the return on asset we see that Middle East and the North Africa is doing very well. Comparing the situation of MFIs working in Pakistan should be compared to that of Africa, East Asia and the Pacific, Middle East and North Africa, and South Asia. 5.3.5. Societal problems in Pakistan

After the war on terror started, in Iraq and Afghanistan, many of the neighbouring countries got affected by this war, among which Pakistan being the most affected one due to the lose border regulations with Afghanistan and the infiltration of Mujahedeen (as known as Taliban) into the northwest of Pakistan after the soviet war. Pakistan has been called the terror state an international migraine1 and several other catchy phrases by the international politicians and the media, but if one studies what happened in this country after the war on terror started, one would noticed that its a victim of terrorism rather than a terror state by itself. On 13th November the US ambassador to Pakistan, Nancy Powell 2 , said that her government was alarmed by the new Islamist extremist groups reappearing with new names, previously being banned by the government of Pakistan. She also added that these groups are posing threat to the government of Pakistan, the region and the United States itself. General Pervez Musharraf who was the president back then called for an end to the promotion of the Jihad ideology which was warmly welcomed by the west. Military of Pakistan got involved in the war on terror along with the US military and NATO. Supporting the US military and NATO in war on terror also resulted in resurgence of domestic extremism, including sectarian violence (ICG Asia Report, 2004).

Madeleine Albright, Press Trust of India, Tuesday, December 02, 2008 2:56 PM (Washington) U.S. warns Pakistan November 17, 2003 WASHINGTON TIMES http://www.washtimes.com/world/embassy.htm
2

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According to Graham E. Fuller, Former CIA station chief in Kabul and author of The Future of Political Islam, the border between Pakistan and Afghanistan was an imperial arbitrary line drawn between the two countries separating Pashtun families on both side, also that the Taliban are more of a Pashtun than Islamist, therefore sealing the border between these two countries is a fantasy, besides this there are twice as many Pashtuns in Pakistan as there are in Afghanistan and their struggle of these 13 Million Afghan Pashtuns have enflamed the 24 Million Pakistani Pashtuns. From the statement of the former CIA station chief, its clear that any action that is taken in Afghanistan would have its repercussion in Pakistan. Therefore occupation of Afghanistan through military power where many innocent lives are lost will result in the destabilization of Pakistan. In July 2002 ICG reported that continual military governments have legitimized the domination of the armed forces over civilian society and the state by choosing marginal groups such as the clergy and attracting the support of major powers. General (Pervez) Musharraf was doing the same by getting the supports from Mullahs and using the military of Pakistan for the political interest of the important external actors, In particular the US, by having joint operations with the US forces and NATO. This resulted in terrorist attacks within the country and people stop trusting the Pakistani military forces, which did not turned well for the government and society of Pakistan over the long run (Ibid). The government of Pakistan in January 2004 made an amendment to the Anti-terrorism Act, making the financing of terrorism a non-bail able act and raised the punishment for related acts. The government inability to tackle the problem of Islamist extremism has resulted in growth of Jihadi Madrassas and more people going towards the ideology of Islamic extremism. This is very alarming for the stability of the country, the regional and international security. With the growth of Madrassas and clerics brainwashing the students, the tolerance among different sects is almost nil. According to a study by The Institute of Policy Studies (IPS) 20% of the students in these Madrassas were intolerant towards different sects, where 29% of students identified Ahmedis (a small sect also called Qadianis who were declared nonMuslims through an act of parliament in September 1974) as the most mischievous and misguided sect of the contemporary times. Among the students being interviewed 15% also expressed similar attitude towards the Shia sect. according to these students Jihad against these sects was as much a religious duty as much against non-Muslims. The teachers in these Madrassas have brainwashed the students from primary level teaching them that Jihad is fighting against infidels and giving them examples of Afghan Mujahedeen, promoting hatred against other religions and even other sects of Islam (Ibid). As the results have shown that even having tight sanctions on these Madrassas and targeting the one promoting terrorism and hatred have not solved the problem but have even enflamed the ignorant and

54

intolerant clerics more. With every successful operation on destroying the Madrassas promoting extremism and hatred there is a repercussion in the local society damaging the stability and security of the country. The situation seems not to be solved by the banning of these Madrassas but further worsening it, in order to bring a positive change in the society the government needs to change the curriculum and to promote peace and harmony in the education system of these Madrassas (Ibid). The situation is quite similar in most of the developing countries, where a civil war or martial law is ended and the war lords have spent most of their financial resources and shed too much blood and now all of them agree to start elections and move towards democracy. But these elections are a mere disguise of the same regime put on the people with a different approach where most of the politicians are funded by the former war lords trying to get their hands on the public wealth. Corruption sweeps in these governments making few richer where the majority of the population is pushed below poverty line. Since most of the government fund for poverty alleviation goes unnoticed in societal development due to corruption, therefore the only source of fund the people start relying on is the handful of international aid given to developing countries. 5.3.6. Philanthropic Sector of Pakistan

The philanthropic sector of Pakistan exhibit extra ordinary performance in comparison to the rest of developing world and even many of the develop economies in the world. There are several reasons for the success of philanthropic sector of Pakistan, culture, religion, family traditions, etc. (See Appendix 3) according to a report generated by AKDN in 1998, the indigenous philanthropy by Pakistani individual was around $1.5 billion, this included monetary giving (42%), giving in kind (16%), and value of time volunteered (42%). The same study also found that around 93% of corporate entities were also engaged in some form of charity giving or corporate philanthropy. Pakistani are leading people in giving charity in proportion to their income, this is why a large number of schools, hospitals, public kitchens, orphanage, etc. are run by money collected from charities. The country has faced several manmade and natural catastrophes in the past couple of decades, starting from the Afghan war and its refugees, earth quakes, war on terror, and the recent floods, yet the country shows robustness and resilience towards all these by the contribution and volunteering of general public towards philanthropic issues. Besides this generous amount of philanthropic contribution towards the society, still the country is facing many problems. From the government and several other organizations point of view the reason is that most of the people are giving charities to unregistered organizations, groups or even individuals, due to this reason the contribution is not used to its best. Whereas the public have different

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opinions about these organizations and the government, above all is the doubtfulness of the government being corrupt (See Appendix 3). Looking at the economic indicators of Pakistan gives a very depressed picture of how life in Pakistan would be, but in reality the life is not as distorted as presented by the figures of the western media. Even when compared to some of the countries with good economic performance, Pakistan still is doing better than them in terms of people living below the poverty line when compared to the GDP of those countries. The table below gives a comparison of GDP and people living below poverty line, from this table it can be concluded that economic indicators only judge the economic success of a country not the living standard in absolute terms.
TABLE 4. COMPARISON OF GDP AND POVERTY

Country

**Population living below poverty line India 3526124 297520000 Brazil 2013186 48285305 USA 14256275 44428384 Indonesia 962471 42285032 Pakistan 439558 41048160 China 9046990 37535960 Sources: *http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP): Retrieved November 12, 2010 **http://en.wikipedia.org/wiki/List_of_countries_by_percentage_of_population_living_in_poverty: Retrieved November 12, 2010

*GDP Million $

5.4.

Role of Non-Governmental Organizations (NGOs)

The phenomenal rise in the number of NGOs operating in developing countries have created the paradigm that along the public and private sector, NGOs have created an equal, if not greater, role in the socioeconomic development of economies. According to the donor countries and agencies, NGOs are considered to be working far better in taking the role of development and distributing aid for bilateral and multilateral aid for the dissemination of new ideas with regards to socioeconomic development, and to improve the democratic lifestyle of societies. All the aid money coming to NGOs have made them responsible for development work, as many of them are seen as a cure to the ills that prevails in the society (Edward & Hulme, 1996). Such high expectations from NGOs have worked badly for NGOs as they are expected to solve all the problems of the society and this expectation is held as a failure against them by the general public and donors. Since most of the NGOs are totally dependent on the donors therefore they are perceived to carry out the political motives of donors agencies, as their entire existence is dependent on the money coming from these donor countries. The level of dependence on donor organization varies from country to country, but 56

when looking at developing countries the evidence shows that without the donor support these NGOs would not even survive a single day. The extent varies but yet the dependence is too much, for example in Sierra Leone and Gambia, the NGOs are entirely dependent on the external donors, since they totally depend on the outside funds, therefore these organizations are totally vulnerable towards external changes (Hudock, 1995). Such situation is similar in the rest of the African countries, e.g. Kenya takes around 90% of funds from foreign donors (Bratton, 1989). In South Asia the success of NGOs can be explained by the extensive support given by international donor agencies and most of the American agencies. Many authors, policy makers, politicians, political analysts, economists, etc. have argued based on the dependence of NGOs on foreign funds towards their legitimacy (Ditcher, 1996; Edward & Hulme, 1996; Bratton, 1989). They argue that the vision of these NGOs gets limited and dependent and they cannot perform their mission to its best due to dependence on the donor funds, as a result they focus more on the accountability upwards rather than where it is supposed to be; downwards addressing the root cause of societal problems. An example which explains the reason of failure due to high dependence is of the Sri Lankan NGO, Sarvadoya, according to Jehan Parera, the movement was destroyed due to high interference from the donor side. He argues that what started as a dialogue between the NGO and the donor soon turned into a contract based on conditions and sanctions, which must be respected when an NGO enters into partnership with donors, and what they really enter into is a power relationship where the NGO is the subordinate (Parera, 1995). The statement of Parera can be supported by the Alan Fowler work, while citing different experiences Donor agencies often impose onerous reporting burdens on NGOs in order to satisfy the obligations to their own tax payers and fulfilling donor demands dictates NGOs orientations. Time and again one hears NGOs complains that too much of their time is taken responding to and managing their donor instead of servicing their clients (Fowler, 1991). Besides the dependence on the financial support by donor agencies, NGOs have been criticized on their very own criterion, reaching the poorest of poor people. In other words to see the impact of NGOs working for the society, for example in Bangladesh where a lot of NGOs are working, including the largest Microfinance Grameen Bank, still the reach of these NGOs to the homeless and extremely poor is not more than 20% whereas the Zimbabwe the percentage is not more than 1% (Edwards & Hulme, 1996). Also the primary motive of NGOs of dealing with the root causes of society seems to defy by the new NGOs having expensive seminars and conferences, arranging meetings in the most expensive and exotic places, holding press conferences, making movies etc. whereas the sole purpose is to go on the streets, talk to people about their problems, analyse and understand the problems, and try solving it (Sethi, 1993). This has led to the dubious role of NGOs on development where most of the donor and tax

57

payers money gets spent on extremely over paid consultants, exotic hotel for seminars, expensive travelling to remote tourist resorts for meetings, etc. There are three main agencies which are providing loans to the developing world and also to some of the developed countries as well. The three leading multilateral agencies are; IMF, World Bank and ADB, that provide loans on hard and soft terms. Among these three leading agencies IMF is the only which provides loans only to countries which are facing acute imbalances between their external payments and receipts. Whereas the World Bank and ADB are providing loans more on the basis of social development, targeting mostly poverty reduction and improving peoples life standard. In general the core concept of all three leading agencies is the same, reducing poverty and increasing employment opportunities in the developing countries. In Pakistan these agencies have contributed significantly and almost half of our external debt is owed to these three organizations (Husain, 2005). Almost every large donor organizations are trying to address three interrelated problems faced by SMEs: poor business environment, business skill capacity constraints, lack of access to capital. When taken the initiatives and support provided by these donor organization, it seems unnecessary for private organizations to find and develop a totally new strategy and model for solving the challenges and problems faced by entrepreneurs in developing countries. The local organizations should try to communicate and facilitate the support being offered by these big donor organizations in order to meet the financial need of the broader program objectives or the local entrepreneurs. Also much effort should be put in to create a network and partnership between the donor organizations and integrate the programs being offered to maximize the outcome. 5.4.1. 9/11, Pakistan, United States, and U.S Foreign Aid

On September 11th 2001, alleged Al-Qaida member hijacked four planes, crashing two in the World trade centre, one in Pentagon whereas the last one was forced down in Pennsylvania field before it could cause any damage. This was the largest terrorist attack to be ever carried out in the history and especially on United States soil. It didnt take long for the United States government to blame Al-Qaida for the act and demand Osama Bin Laden which was under the protection of Taliban government of Afghanistan. Upon refusal of handing him over to the government of United States, U.S started planning on invading Afghanistan. The terrorist attack on September 11th 2001, United States, shocked the whole world; this was the first time that United States was attacked on its own ground. This event soon would engulf the whole world attention and leaving two countries destroyed and one on its brink was never imagined. United States straight away accused the Al-Qaida and held them responsible for this act of terrorism and destined for a 58

war against Al-Qaida who was located under the protection of the Taliban government in Afghanistan. Attacking Afghanistan, which is land locked, was impossible without the help from Pakistani government. At the eve of 9/11 United States and Pakistan were far from allies due to several sanctions put on the government for testing their nuclear warheads. Despite all these sanctions and the governments problem with each other, yet United States government was able to gain the support from Pakistan government through a combination of credible threats and incentives (Stephen, 2005). Around the eve of 9/11 the relation of Pakistan with United States was really low, besides the nuclear program there were several other reason for the differences between the governments e.g. the Pakistani government support for Taliban in Afghanistan. Besides this there were several other sanctions on Pakistan from United States e.g. Pressler, Glenn and Symington Amendments and the Democracy Sanction due to which the Pakistan could not get any economic or military support from United States (Hussain, 2005). Also United States was having close ties with the government of India, which is the long hatred neighbour of Pakistan. This was the time when Pakistan was in dire need of support due to its weak infra-structure, poor political situation, weak economy, a poor educational system, and above all the rise in the Islamic extremism on rise. According to World Bank report, Pakistan was in a Position of extreme vulnerability, due to immense debt, struggling economy, and the poor educational system with 44% literacy rate giving rise to Islamic extremism (Christine, 2004). In such situation where the country was falling apart due to poverty, corruption, illiteracy, unfavourable foreign relations, weak economy, poor political situations, etc. the country could not refuse the support given by United States, besides the indirect threat given to Pakistan by the president of United States in a speech to joint session of congress and the American people, where President Bush said, either you are with us, or you are with the terrorist3. Considering the socioeconomic and political situation, Pakistan could really use some support from another country leave along standing in the way of United States which is considered to be the imperial power of the present time. At the beginning Pakistan started getting better with all the foreign aid from American government and the sanctions being put away, but this was just a short term success. Considering the close relation between Pakistan and the Taliban government before the eve of 9/11 and an ineffective border between the two countries, soon the security situation in Pakistan started getting worse as the terrorist groups within the country and from Afghanistan started taking its frustration on the United States ally in its arm

President Bush speech Address to Joint Session of Congress and the American People on 20 September 2001.

59

reach. It has been almost ten years since the war on terror started, the situation in Pakistan doesnt seem to get better or more realistically its getting worse day after day. Since Afghanistan is a landlocked country therefore United States could not carry out its plan without support from neighbouring countries. United States was negotiating support with Turkmenistan, Uzbekistan and Tajikistan but without the support of Pakistan, United States could not carry on with its plan. United States military supplies and air crafts were in the Indian Ocean and the only two countries sharing border with Afghanistan and having access to Indian Ocean were Iran and Pakistan. Iran being nothing close to an ally, United States has to push Pakistan into an alliance against the invasion of Afghanistan (Collins, 2008). Source the coercive diplomacy file. Pakistan was approached officially through the United States ambassador, Wendy Chamberlain, for negotiations. In Washington, United States primarily contact the Embassy of Pakistan for support. The negotiations were carried out on several phone calls between the president of United States and the secretary of states with the President of Pakistan (John F, 2001). In the negotiations United States clearly mentioned that it needed intelligence reports, the use of Pakistan airspace and logistical support 4 . Although Pakistan was never directly threatened openly but it was told that if they would not agree on supporting the War on Terror they would be added to the State Department list of seven countries supporting terrorist, which could result in United States using military force against Pakistan (Slavin & Nichols, 2001). To all these indirect threats and the incentives offered to Pakistan, the government was left with almost no other choice but to join the United States and give them their full support. Agreeing to the demands of United States, Pakistan started supporting United States by giving them military support and intelligence. Around 28,000 aerial attacks were made on Afghanistan originating from the carriers in the Indian Ocean passing through Pakistan airspace. Pakistan also helped United States by providing them with military bases and helped them with intermediate staging bases and other military structures. Providing logistics and other support to the troops, providing fuel for the aircraft, initially all this was done without any established repayment mechanism. Beyond the logistic and base support Pakistan also provided the coalition forces with 35,000 of Pakistani troops for security of their bases. For security reasons Pakistan has to deploy its own military across the Afghanistan border around the FATA region in which the military also captured around 420 high value Taliban and Al-Qaida fugitives (Collins, 2008). As per negotiations and commitments United States shortly after the support given by Pakistan, lifted the sanctions imposed on Pakistan. Besides uplifting the sanctions United States started providing Pakistan
4

Address by the President of Pakistan General Pervez Musharraf to the Nation on 19 September 2001.

60

with economic and military support. In the first three years, the U.S. extended $1 billion in grants, wrote off $1 billion in debt, provided $1.2 billion in arms-sales, reinstituted a military training program, and provided $3 billion for economic aid and security assistance (Cohen, 2003). After the terrorist attack on United States, 9/11, and the beginning of War on Terror, Pakistan has helped United States Militarily and logistically to fight the war in Afghanistan. In the first four years of war on terror Pakistan had received $2.4 Billion as foreign aid from United States. With all this money pumping into the Pakistan economy, still it achieved a 3.1% growth in real GDP in 2001-2003 which when compared to 1980s 6.1% growth is much less than expected (Pakistan Economic Survey, 2003). According to the Pakistan Economic Survey, after the War on Terror started in Afghanistan, Pakistan lost 66.5% Foreign Direct Investment (FDI) in 2001, and since then the country has not recovered from the jobs loss due to the decrease in FDI (Khan, 2002). The immense changes in economic indicators took place right after the terrorist attack in 2001. Currently Pakistan has a per capita income of less than $600, $58 Billion in external debt, 8% unemployment, 4% inflation (Pakistan Economic Survey, 2002), and a 15% increase in population since 1997 (Census Report of Pakistan 1998). According to a report Published in the Proceedings to the Pennsylvania Economic Association Conference Summer 2004, Haider Mullick suggested that the country is in need of more foreign aid to help it get out of this situation. The suggestion given by Mr. Mullick is a very short run strategy which will make the country depend on foreign aid and lacks the long-term vision. On January 25, 2008, there was a panel on post-Bhutto Pakistan in New York, in this panel Imran Khan, founder and chairman for justice party of Pakistan (PTI), clearly stated that foreign aid has made this country never achieve its true potential. United States generous financial aid to Pakistan cost Pakistan even more than what they actually received. After the alliance with United States, and becoming the front line fighter in War on Terror Pakistan also became the front line victim for the terrorist attacks. This had a lot to do with the Pakistan-Taliban relation prior to 9/11 eve and their close ties worked badly for Pakistan government. The alliance with United States and going against Taliban resulted in the Pakistani Taliban which started a war against the Pakistani government considering it as infidel by supporting United States. The result of bringing the war into Pakistan was costly, since the war started Pakistan lost around $40 Billion to its economy and infrastructure (Umbreen, 2011). Besides the financial and infrastructure lost, Pakistan also faced a lot of military and civilian lives and not to mention the general public losing trust in the government of Pakistan over its foreign policies, pushing people towards the Taliban ideology.

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6.0.

Analysis

In the start of 19th century, income gap between American society was too much and even the wealthiest person could not handle the needs of the unfortunate members of the society. When the industrialist realized that they cannot provide for the ever growing needs of the society they started using the businesses to support the social causes instead of the business owner alone. This was the community chest movement in the 1920s, the change from individual philanthropy to corporate philanthropy. Business leaders gave vigorous support to this kind of corporate philanthropy and urging all business firms and their employees to get united and help the community. Business leader established pension plans, employee stock ownership and life insurances programs, unemployment funds, higher wages and limitations on working hours and conditions. They also built houses, churches, schools, hospitals and other public service offering institutions. For many of todays business firms corporate social responsibility means this kind of participation in the society affairs making paternalistic and charitable contribution. However charitable contribution is not the only form of corporate social responsibility (Abrams, 1951). When the United States faced the problems arising from the society regarding their antisocial practices, some of the business executives who could see the long term effects of this revolution started changing their business practices and started using their financial power voluntarily for the greater good of the society. Some good examples of these business executives are; Steel maker Andrew Carnegie who become a well-known philanthropist and gave much of his wealth to the educational and charitable institutions, besides him was Henry Ford who created many programs in the company for the wellbeing and health needs of the employees. Recently we have seen many of the top business executives who have stepped down from their positions in the company and started working for the social cause in the world; among these the most famous one is the founder of Microsoft, Bill Gates (Josephson, 1934). The global socioeconomic problems are growing rapidly and the governments are finding it hard to deal with these problems alone, it wont be unfair to say that without the help of business firms and other organization government will fail miserable in dealing with the ever growing problems in the communities, especially in the case of developing countries. Another reason why most of the business organizations are getting involved in helping the communities is the reason that unlike people it is very hard for businesses to relocate to a safe place which is out of crime and no social ills exist. Business organizations in such society have to deal with the problems like rest of the people in the community and face the challenges and continue their daily activities.

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6.1.

How businesses are involved

According to a researcher based in Washington DC working for the Urban Institute, has studied business involvement in society and concluded that many individual companies are involved in several segments of the society over the country having a variety of community activities, among these activities three approaches have dominated the corporate involvement in societal development; Direct involvement, Community partnership around a business core, and use of intermediary institutions. The concept of hands on is in community development is relatively a new concepts, where the businesses instead of making a charity gets involved in the development process and help the community to stand on its feet. In other words the businesses are helping the communities financially, but the process if somehow a passive charity giving. There are several examples in the United States where the businesses have helped the communities which were once considered to be in hopeless decline. For example the Crown Centre Redevelopment Project in Kansas City done by Hallmark Cards Inc. is an example of how businesses can help the community to get back on track. Another example is of Upjohn, a pharmaceutical company who helped the people in Kalamazoo with home loans and housing ownership, the long-term effect of such programs have resulted in decline of crime rate, drug use, poverty, etc. Besides the direct involvement some other businesses have found ways in which they integrate the community development with their primary goal of profit making by becoming partners with other community organizations. For example, Ben & Jerrys Homemade Inc. has started a joint collaboration with Larkin Street Youth Centre in San Francisco to open an ice-cream shop where they would train youth from the streets (Ages 12-17) who are mostly run away. This way the company is making money from this shop and is sharing the profit with the Larkin Street Youth Centre for helping the youth in need. There are several other examples of companies which are running business in the communities while keeping their needs in mind and yet make profit. Another example is of McDonalds which are educating youth which is working in their restaurants. Besides business organizations and governments, the community itself comes forward to address the problem they are facing in a systematic and sustainable way. For example, in Cleveland, the Cleveland Foundation convened a Commission on poverty in 1990 to devise a long term strategy for bringing together business, government, and community resources to address the poor neighbourhoods economic problems. This resulted in a successful projects where the three main characters of society came together in order to solve the poor neighbourhood problems in Cleveland. Businesses are often getting involved in community development for several reasons, some having corporate philanthropy in mind, other enlightened self-interest. Whatever maybe the reason behind the 63

motive the results are always good and sustainable. There are several case studies which explain how important it is for business to help the community, as the society works in a system, if the community is having problems its not easy for a businesss entity to enjoy good working conditions. There are two case studies given at the end of Business and Society eighth Edition, one is about the Atlanta Project which is a city with extreme income gap difference where there are two sides of the city one having an optimistic view of wealth, luxury, prosperity whereas the other is of despair, poverty, fear, etc. to deal with this situation a proper another organization was launched to deal with the poverty problems in Atlanta. The other case study is about Boston against Drugs; drugs are a social problem of almost every city in the world, though the drug abuse problem in Boston was more than average and needed to be addressed seriously. In Boston many companies started a combined project of educating the people of the community towards drug problems and started working on neighbourhoods making small teams in each neighbourhood which will educate the communities and help them in dealing with drug related problem.

6.2.

Programs in Emerging Economies

According to SERC, they started research program on social intervention based on Experimental Entrepreneurial Philanthropy (EEP), where they created experimental firms directly dealing with the social problems. These programs have been started in Africa dealing with health problems as a pilot study, they will be used as a pilot study and upon its success the idea would be transferred to other developing countries tackling different other social problems. Below it is explained how, other than improving the employment opportunity, this benefit a society and creates societal wealth. 6.2.1. Productivity Enhancement

One of the reasons of success for an entrepreneurial business is the enhancement in productivity. Many successful entrepreneurs started at a local level and moved onto regional, national, and even international level. There are many examples where the productivity was enhanced to a dramatic level by starting an entrepreneurial business, for example; the Sun Microsystem enhanced the productivity of many including engineers, project managers, researchers, scientists etc. first in United States and later throughout the globe (MacMillan, 2005). 6.2.2. National Competitiveness

The contribution of an entrepreneurial business to the country economy is just a fraction of a big corporation, but when looked at the cumulative contribution of many entrepreneurial businesses we see the effect it has on the competitiveness of the nation with other nations (Ibid). As it has been discussed, in the literature review chapter, that some of the big corporations have annual revenue which exceeds some significant countries economy e.g. General Motors annual revenue exceeded the economy of Denmark, 64

therefore we cannot neglect the importance of these big corporations for a country economy but again one has to look at the comparative advantage of a country too. 6.2.3. Quality of life

In many countries when the entrepreneurs see a gap they try to convert it into an opportunity, and as there is a demand for quality life standards in many countries which cannot be satisfied by the governments, therefore many of the entrepreneurs are seizing these opportunities and entering the market by improving the quality of life. There are several ways in which they can improve the quality of life, some of them explained below (Ibid); Enhanced National Health: There is a demand for good health services in almost every country, where people want the services being better than what is offered by the government. For example in Pakistan, The health services provided by the government are not expensive at all but the service quality and waiting time is making people, who can afford, to go to private hospitals where the services are much better but expensive as well. Improvements in Quality of work life: Many companies are producing equipments that are safer to work with and gives more flexibility to work with. For example, there are many companies producing equipments for exercising at home rather than a person going to gym. Enhanced national Educational, training and learning: the use of new technologies that are dramatically improving the productivity of employees and also the quality of workforce, this contributes in national productivity as well. Enhanced Efficiency of government services: Also entrepreneurial firms are helping governments by providing them with services and products of latest technology and systems that dramatically increases the quality and availability of services. Personal Wealth Creation leading to Philanthropy: Many of the successful entrepreneurs with time become philanthropists, as a time comes that financial reward is not enough for them and they have earned more than what they need to spend. With the entrepreneurial abilities and a spirit to make a change in the world these entrepreneurs/philanthropists have a huge impact on the social life of a society. For example, the medical research funded by Bill and Melinda Gates Foundation is helping the society to a great extent. These Philanthropists being entrepreneurs knows the gap where the government is not adequate and try to address those problems. With the above examples of how an entrepreneurial firm can help a society beyond the limited traditional view of them, gives an insightful new role of these entrepreneurs creating societal wealth. Considering the advantages of these entrepreneurial firms, its worth investing in such Experimental Entrepreneurial 65

Programs that are designed in order to attack the social problems in a profitable way by creating societal wealth. This way, Societal Wealth Enterprises can serve the developing countries as an alternative to those huge and ineffective wasteful public sector initiatives.

6.3.

Importance of Small and Medium Enterprises

In the recent years many organizations have launched ambitious programs to support promising entrepreneur in developing countries on both ideologies for-profit and not-for-profit. Many of these programs are focused on the development of business capacity, where these programs are supposed to play a vital role in the success of SMEs yet several other constraints on entrepreneurs e.g. access to expansion, working freely, operating expenses etc. have made it difficult for it to become self-sufficient. Most of these funding organizations e.g. US government, World Bank, IMF, IFI etc. have failed to create a more collaborative and strategic partnership with these private firms. Due to the global financial crisis most of the donors had a backdrop still there is growing thrust among both the U.S. Government and other prominent economies for an even greater focus on private sector-led development enterprises. In April 2010, the Obama Administration held a Summit on Entrepreneurship to develop ties between the United States and Muslim governments, communities, businesses, and foundations to support entrepreneurship, job creation, and economic growth (Leo, 2011). In general terms, SMEs in developing countries face many shared problems that stop them from expanding operations and contributing more considerably to economic growth. Several examples include: Lack of access to financing instruments designed for their particular needs. Poor business environments dramatically increase the cost of doing business (excessive taxation, licensing, and registration burdens). Low management and administrative capacity (finance, accounting, human resources, and marketing). Poor access to the infrastructure necessary to transport their products and services to market. Few organized supply chain linkages with large businesses.

Many survey-level studies have found that SMEs perceive more complications than large firms both in terms of accessing finance and the underlying cost of credit (Schiffer & Webber, 2011). Moreover, SMEs find that these problems have a substantial negative effect on their business performance. Simply, larger, older, and foreign firms have a much easier time accessing growth and development capital than SMEs (Laeven & Maksimovic, 2004). There are several reasons for this. First, developing country financial institutions often have very conservative loaning practices. They often choose to invest in high-yielding

66

government capitals or in large corporations that they view as low-risk. As such, possible SME borrowers frequently are unable to qualify for a loan. If they are able to qualify, they are often unable to meet surety requirements that can be as high as 100 to 200 percent of the original loan value. A number of the said SME constraints also further limit access to capital. Poor organizational capacity can influence SMEs ability to finally convince banks that their businesses are well managed, profitable and sustainable. Lack of formalized relationships with large, well-established companies can also make it doubtful about the sustainability of some SMEs business models. Finally, unfavourable business environments have an unbalanced impact on SMEs, mainly due to their lesser organizational resources (human and financial capital) to both direct and overcome regulatory problems (Leo, 2011). Most of the developed world governments and philanthropists around the world are spending billions of dollars every year in order to tackle the socioeconomic problems faced by the developing countries. Among other programs, small entrepreneurial businesses are getting the most attention, due to the common belief that enterprise development helps the economy of a country grow and specially helps in jobs creation. Though it is one of the most and effective outcome of small entrepreneurial businesses yet its a very narrow view of looking at the benefits that can be a result due to entrepreneurial businesses. According to Snider Entrepreneurial Research Centre (SERC), entrepreneurial activity can help a society beyond improving the employment conditions of a society; it can directly solve some social issues the society is confronting and create societal wealth. There are several studies and evidence which proves that many firms are financially constrained in the developing countries. The financial constrained depends upon the country, size, sector and other characteristics of the firms. For example large and multinational firms are relatively less financially constrained and have an upper hand on the small and medium local firms. Small and medium enterprises have found to be more financially constrained than larger firms even in the developed countries, though the difference is huge between the developed and the developing countries (IFC, 2009). A lot of reports and case studies have tried to prove the role of SMEs on job creation, improved livelihoods, and overall economic growth. To summarize, these studies generally depend on three core arguments. Firstly, SMEs often are labour-intensive; and therefore, SME development leads to job creation. Second, greater numbers of SMEs in a given marketplace create greater competition among firms, increased output, and enhanced consumer outcomes. Finally, SMEs have the potential to be more fruitful than large firms, but are constrained by market and institutional failures (Leo, 2011).

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6.4.

Microfinance

After studying the positive changes that happened in Bangladesh, the introduction of Microfinance, its obvious that Microfinance has helped the country to a greater extent, the Grameen Bank provided the necessary funding that has been required by the local entrepreneurs to start their own business which started the community and eventually the national economic growth. Cases similar exhibits the importance of MFIs in the development of developing nations economy which further improves the social environment of that country as well. Unfortunately the MFIs have not yet achieved the position in the market where they can really make a difference due to their size and nature. As in Commercial banking the money being provided to the lenders are the savings of other clients to whom the bank provides different services and on the other hand they lend their money to borrowers on an interest rate with which the bank is making profit. In the case of MFIs the saving is comparatively a very small size of the market targeted and lending money requires an ample amount of money to be present at all times when a borrower would need it, therefore most of these MFIs are relying on government support, donors, charities and lending funds. Although the concept is growing and catching the attention, still it needs to focus on the never ending needs of the poor community, MFIs needs to provide the poor with capital. At the moment there are three main options through which the MFIs can create capital; funding from NGOs and private donors, loans from local and international sources, and equity funds. Now the grant funds are usually limited in time, scope and client based whereas the donor funds are mostly one-time gift and upon the exhaustion of these the MFIs has to look for another source. Taking loans from local or international sources requires to be paid back and due to the nature of MFIs its not very easy to get the money back from the borrowers easily. Now the equity funds in comparison to the other two methods of creating capital seems promising and sustainable. Unlike grants and loans, equity provides a source of capitalization that does not require to be paid or get exhausted and there is a need for another grant. As it is not something that have to be paid back or some interest rate is being applied to it, once the MFIs reaches a breakeven point its revenue would simply exceed its expenses and money its been lending out to the poor and making the MFIs sustainable in the longer run (MIX, Microfinance Information Exchange, 2010).

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FIGURE 5 MICROFINANCE EQUITY FUNDS

Mechanism Financial Return investor

NGO Equity Grant to No financial return

Debt Finance Loan Interest payments predetermined rates

at

Term

Permanent

Ranges from very short to long term

Investor relationship to Limited to term of grant Creditor MFIs agreement rights Risk

with

legal

No financial risk as no Downside risk only in financial return case of default expected Source: Rhyne, E. Perspectives from the council of Microfinance equity funds. P. 9

Investor Equity Purchase of shares Variable returns through dividends and capital gains upon sales of shares Permanent to institution; term to investor depends on exit through sale to other Owner. Participant in governance. Shares responsibility for MFIs Last in line for claims after creditors

From the above table its clear that in order to create a self-sufficient organization the MFIs are required to rely more and more on the investor equity. It is very hard to start with something from the scratch and rely on the investor equity therefore MFIs are required to have collaboration with NGOs and take loans in the beginning but in order to create a long term strategy Investor equity needs to be given the utmost importance. Another reason for an MFI to rely more on investor equity rather than loan is that, MFIs gives small loans to a lot of people, so their customer or borrowers are much more than that of the conventional banks, now dealing with such a huge population of borrowers needs too much work and many employees, therefore having many employee simply means more expenses which can further increase the rate of interest. Therefore relying on loans for MFI is disastrous as they have to pay back the loan with interest and with adding their own expenses it becomes very expensive to the borrower who already is poor. In case of NGO equity, MFI does receive a substantial amount of financial capital but in most cases the allocation of this budget is very tight and comes with too many terms and conditions to which not a lot of people can qualify or take advantage of. The idea of entrepreneurship is got lost with the NGOs coming into the picture as they have their own agenda and they expect the MFIs to follow it and so should the borrowers. Therefore in order to have a self-sufficient MFI which operates in an entrepreneurial way it must rely on Investor Equity.

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6.5.

Importance of Societal Entrepreneurship

If the developing countries seriously in need of financial resources have to stop taking aid, then what should be the alternative? Since most of the reports indicate a very low relationship between foreign aid and economic growth, especially when considering the long-term effects, therefore we find evidence in the literature and case studies that gives us a more sustainable long term strategic approach towards development. According to Stewardship Principle big corporations can create a change in the society by considering the interest of all the stakeholders in the society. One of the most important aspects of societal entrepreneurship in term of development is that developing countries are not only facing social problems; most of the problems are directly or indirectly related to financial resources. If we take the example of some of the developing or underdeveloped Islamic countries, we see that religion fundamentalism is on rise, this indeed is a social problem. Dealing with these kinds of people would be just dealing with the patient not the illness. The family size is very big in these cultures having many children whereas women are not supposed to go out for work (and there is no work available in the rural areas for women) this leaves usually one or two persons supporting the family. As mentioned that the women are not allowed to go out for work therefore work is supposed to be brought to them in order to empower them with purchasing power and to educate their family. Women in Pakistan are one of the most skilled workers in the handicraft industry, only if they are given proper direction and designing training they can generate much more income to support their families. A single person supporting such a big family (6.7 members in case of Pakistan, which even grows much in number when considering the joint family structure) is very difficult; therefore even the basic needs have priorities. Unfortunately education is not among the list of priorities, therefore if a religious cleric would come to this family and asks that he would feed, clothe and educate their boys without a charge the head of the family is going to accept the proposal without a question. This brings us back to the financial problem, if the head of the family had enough financial support to feed, clothe and educate his sons why would he hand them over to a religious cleric. Not that all of the religious clerics are going to train the young ones and make them fundamentalist but still they lack knowledge in the rest of the fields which limits their options in choosing a career for themselves and usually land in the company of problem makers. Therefore in order to bring change into such a society we must educate them, which happens only when their basic needs are satisfied e.g. food, health, security etc. and to do so we need to give this society an opportunity to stand on their own feet by providing them with knowledge about entrepreneurship and starting financial support. One of the reasons why this community lack financial support is that they are 70

not considered credit worthy by the Commercial banks and their need is not so big as to the minimum required amount of loans from the commercial banks. Another reason is that these banks charge interest rate which is forbidden by Islam, this creates a problem for them, therefore in order to have return on investment an organization needs to follow the Islamic Banking system. The core concept of Societal Entrepreneurship is looking at social problem as if they are an opportunity for starting a business which will be making profit by alleviating the social problem. In essence, it is the shift of economic activity from public domains, government and non-governmental organizations, to businesses and private individuals. This can be explained by the model of Societal Entrepreneurship, which works in a cycle, where the entrepreneur is allowed to make profit by addressing to a social problem, the more profit made by the entrepreneur the bigger problem can be alleviated. There are two main problems with starting a societal wealth enterprise, firstly due to low profitability of small businesses and secondly due to lack of financial investment. In order to solve these two problems all the actors of the society must come together in order to make the enterprise profitable. The major problems are easily solved by the interest of an entrepreneurial philanthropist, who could be an organization or a rich person. The entrepreneurial philanthropist have to seed fund the projects and it would be easier to find many entrepreneurs, especially in the developing world suffering from poor employment conditions, who would be happy to live with the smaller profit streams acquired by the entrepreneurial firm. Therefore the major actor in this system is the philanthropist, who should realize that instead of charity and alleviating the social problems have the chance to remove the social problem from the root. In ideal condition, the first pilot project if successful should be the platform for another entrepreneurial initiative and set in motion the creation of societal wealth. In reality it is not as easy as it seems, and like all entrepreneurial efforts most of them are not the success stories, therefore a cynic might argue that if there was such an ideal solution, the entrepreneur must have found it. This is where other actors of the society must be involved in developing strategy e.g. Universities and businesses can be used in order to come up with plans that have a higher success probability and later local entrepreneurs could be trained to manage these experimental entrepreneurial ventures. Though the profits might be smaller in comparison to the developed country standards but would contribute much to the societal wealth of a developing nation at perfectly adequate for the local entrepreneur standards. The main objective of introducing enterprise education or entrepreneurship into a developing country is to enable it from being dependent into self-supporting. The introduction of entrepreneurial education into developing societies can help the country societies and individual to empower themselves with the tool of 71

entrepreneurship. This can play a vital role in endogenous change in social, education and economic development. An entrepreneur cant fail with his business, especially when taken the social cause into consideration, lets assume a developing country with huge labor market, if an entrepreneur starts a business he/she does hire and train people for the job, this adds value to the human capital formation. This further enhances their purchasing power and opens their minds to start their own business. By enhancing the purchasing power of an individual or a group within a society means enhancing the society itself. As being said that no business is an island, therefore the money earned has to be spent elsewhere, creating cash flow which further develops the society in itself.

6.6.

Pakistan Issues

In 2000, the British Department for International Development, concluded, based on a research of Burnside and Dollar (Burnside et al, 2000), that development assistance can contribute to poverty reduction in countries pursuing sound policies. According to these two economists, foreign aid has a positive impact on the countrys socioeconomic growth provided that the country has a good fiscal, monetary, and trade policies. To support this argument, James Wolfensohn, the president of World Bank in 2001 said that We have learned that corruption, bad policies, and weak governance will make aid ineffective. From these two statements its clear that foreign aid do help developing countries and is needed but again we know that most of the developing countries lack in the qualities that are needed for the success of foreign aid for socioeconomic development. According to Imran Khan, human communities are actually an extension of human beings, the more a human being stands on his feet the stronger he becomes, the more he scrunches the more weak he gets, in other words if Pakistan keeps on getting the foreign aid, it will never become self-sufficient and keep asking for more once it gets used to live beyond its means and stops relying on its sources and never develop it. From his point of view, foreign aid is making the country handicapped and taking shortcuts, which sooner or later will exhaust and the country would be in debt to these foreign donors beyond repair. According to the Burnside (Ibid), financial aid is important for the economic growth of a developing country, but then the criticism of Imran Khan about USAID and Pakistan socioeconomic growth is debatable. The reason of the failure of foreign aid to tackle the problem in Pakistan could be explained by the lecture given by Tariq Ali in Bloomsbury on Marxism (2009), according to Mr. Ali, the government which is ruling the country (Pakistan) is morally corrupt and the corruption sweeps down the system, this when analyzed with the statement from James Wolfensohn makes sense and explains the reasons of failure of foreign aid in Pakistan. The role of corrupt government when combined with the dubious motives of American government in the region makes it even worse. 72

Besides the internal problems of the government, Pakistan is facing many other international forces that are pushing it too far. For example the study of Mr. Mullick found a correlation between US financial aid and economic growth of Pakistan, mainly on education and Health which further contributes to the nations wealth. But other studies have found that the benefit Pakistan is getting from the US financial aid, with the support Pakistan is giving in War on Terror is much less than what the alliance with United States is costing the country. The reason being for getting used was the unrepresentative government and the huge sum of foreign debt on the country which made it dependent on the foreign aid and could not make independent foreign policy. Pakistan has received huge amounts of foreign aid from United States after the 9/11 but also Pakistan supported their military occupation of Afghanistan; militarily and logistically, getting involved in this war and letting United States using the country for attacking its neighbouring country brought the war to Pakistan. Since Pakistan involvement in the War on Terror and its alliance with United States, and the security situation in the country became worse, affected foreign direct investment and even local investment in businesses. Also the citizens of Pakistan are very sceptical about the efforts of US in dealing with problems in Pakistan. According to many journalist, political analyst and the people of Pakistan, US has no respect for the Pakistans sovereignty, for example the raid and assassination of Osama Bin Laden, the handling of Raymond Davis matter5, the continuous drone attacks within Pakistan have worsen the image of United States. With all these problems the relation of Pakistan with United States is damaging than the benefit American aid can contribute towards the society of Pakistan.

Raymond Davis, CIA Agent who shot down two Pakistani on a busy street and also an American consulate vehicle crushed another on its way to get him out of there.

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7.0.

Conclusion & Recommendations

In past couple of decades many organizations have been trying to find the reasons for human conflicts and the poor life standards in the developing world. One of the most notable organizations is the Nobel committee dealing and trying to recognize the reasons for such conflicts. In the past several years they have come to recognize that many human conflicts have deep roots. Some of the micro elements coming together have much broader effect on the macro environment e.g. they recognize that environment, social stigma and poverty are the key contributors to these conflicts (Nobel Committee). Unfortunately all these three contributors are found together in the developing world. Among these three contributors the most important one, that has ripple effects on the rest is, poverty. Therefore, peace cannot be achieved unless large population groups find ways in which they could break out of poverty. In order to tackle poverty governments needs development from below as it serves way beyond democracy and human rights. Such development programs could not be successful unless all the actors in a society come together; Government, for-profit and not-for-profit organizations, and the general public. One of the most flawed approaches to developing the economic conditions of a society is to transfer wealth from the wealthy nations to the poor one to get them out of poverty. People who believe in this statement know the importance of entrepreneurship and also know that by giving people easy money (government loans, grants, cheap credit etc.) would not help the community in becoming self-sufficient. Capitalism by many of us, now days, is considered to be a corrupt market, its being confused with big corporations that use their political power to enhance their market share and position in the market. According to A.V. Llosa government transfers have little to do with economic success. The real key is individual creativity and initiative, and the sense and ability to address the market needs as they arise. From this statement its clear that, in order to create a sustainable economic environment a society must help themselves and rely as less as possible or almost nil on the government or foreign support.

7.1.

Microfinance

According to Nobel Prize winner of 2006, Muhammad Yunus, pioneer of micro credit, But we have created a society that does not allow opportunities for those people to take care of themselves because we have denied them those opportunities. Regarding the development organization and foreign aid, Muhammad Yunus also added Here we were talking about economic development, about investing billions of dollars in various programs, and I could see it wasn't billions of dollars people needed right away. This explains to an extent that by injecting huge amount of money into a country economy is not going to create a sustainable environment but would rather disturb it to a greater extent. People need to have as much as they need rather than what they want in order to be motivated towards sustainable

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growth. With this ideology M. Yunus, started the concept of Microcredit which showed very good results in the past couple of decades, yet the problem seems too far from being solved. Microfinance is a very important tool to uplift the poverty from poor nations and it has shown very good results but poverty is a very complicated issue and it needs to be addressed by many different theories and tools. In order to be successful MFI must be sustainable and to do so, it needs investor equity and return on investment, therefore using this tool in a place where the poverty is too much and MFI cannot generate Investor equity and has to rely on NGO Equity which is very narrow or on Loan which is supposed to be paid back, can create problem instead of lifting them. People can get into much debt that they cannot pay back resulting in being defaulter making the MFI defaulter and the government coming in and has to pay for it will simply result in the economy of the country going down instead of coming up.

7.2.

Role of Non-governmental Organizations (NGOs)

Another problem which is related to the donor agencies in developing countries is that they are usually ethnocentric in operations. Mostly they follow the rules, norms, laws, and culture of their home country in order to assess a countrys socioeconomic problem. For example, in most of the rural areas of Pakistan child labor which is a way of self-employment by many children in order to support themselves and their family is not considered to be a social problem but almost a noble action from the child. Whereas on the other hand working women, especially in the rural areas, are looked down upon due to the cultural reasons. Some of these cultural points are ignored by the donor agencies either intentionally or due to the mind-set of a western culture. As the policies and strategies of these donor agencies are coming from the top, usually abroad, therefore they lack the knowledge of the true nature of the problem. As the conditions of the donor agencies are very strict and comes with rigid guidelines therefore they cannot be successful in tackling the problem. As in every business, the idea has to come from the bottom level employees that had been on the streets talking to people and know their need, only then can a program be successful and achieve its true potential. From the arguments of many scholars, economists, analysts, politicians, philanthropists etc. and the evidence from different donor agencies its clear that foreign aid has a positive effect on the socioeconomic growth of a country. Whereas on the other hand there are many criticism of foreign aid by scholars and politicians of the developing countries, who have valid points as well. Therefore accepting foreign aid as a positive influence on a developing economy can neither be accepted nor rejected. The factors that would contribute to the success of foreign aid on a developing countrys economy mainly depend on the government policies and sociocultural trends of a country. Therefore foreign aid, though

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can provide short term relief from urgent problem, cannot be a strategic approach to the development of a countrys economy.

7.3.

Pakistan

In case of Pakistan, it started getting foreign financial aid from the very beginning and got hooked onto it. Due to this easy access to financial resources the country never achieved its true potential and thus could not formulate a long term strategic plan which will make the country self-sufficient with a sustainable socioeconomic system. The wrong approach of pumping money into a developing country in the form of financial aid has been criticized by many scholars, as Llosa stated that government transfers have little to do with economic success. The real key is individual creativity and initiative, and the sense and ability to address the market needs as they arise. On the other hand, the economic growth needs a push or help to get started as well, as Jeffery Sachs said economic development works. It can be successful. It tends to build on itself. But it must get started. These statements can be confirmed by the data from World Bank (See Appendix 2). From this information it can be concluded that the government of Pakistan needed the financial support in order to start the economic development, but again why is it that after so many years of independence the country still relies on these foreign aids and is stuck in poverty related problems. Besides the economic problems, Pakistan is also having political problems due to its involvement and alliance with United States in War on terror. Even though both the governments have developed a very strong tactical cooperation against the militants yet the people see it as a negative point and assume costs to be paid. One of the reasons for this is that the people fear that once the US government changes its priorities they would leave them alone to deal with the mess they have created, just like what happened after the Soviets pulled out of Afghanistan (Nayak, 2005). The joint cooperation between Pakistan and United States has also made it the front line victim for terrorist; this has resulted in poor law and order situation where there is a bomb blast or suicide attack almost every week on security forces. The frustration and desperation of these militants has reached its peak and they have started targeting public places, killing hundreds of civilians.

7.4.

Entrepreneurship and Societal Development

The main purpose of this thesis was to find a sustainable way for socioeconomic development and to find out the impact of foreign aid on the economies of developing countries. From the research findings with support from literature it can now be concluded that a country in order to have a sustainable socioeconomic system should not rely on short term foreign aids. As Williams Easterly (2005), in his research found that foreign aid, as such, has not, cannot, will not solve the global poverty problem. From other several studies indicating the failure of foreign aid over the past couple of decades, suggests that the 76

development policy should be re-examined. Also the government needs to start giving more importance towards the entrepreneurs and enterprise education. From the findings in this thesis and other research articles, it is clear that the role of entrepreneurship is vital for the socioeconomic development of an economy; economic growth, productivity, innovation, and employment. With globalisation and the world politics merging into each other, reshaping the world economic landscape and technology changes creating uncertainty in the world economy, entrepreneurship is perceived as a tool to deal with the changing environment in a robust manner. Especially with the economic crisis recently have put much emphasis on the role of entrepreneurship on economic development as the less efficient firms are closing down and other efficient ones are emerging in the market. Therefore new business models are being adapted to cope with the changes in the global environment, particularly the one who are cost effective and using local resources for their advantages. Hence, policy makers should give entrepreneurship the emphasis it deserves in combination with innovation to return to the sustainable economic growth. Government policies should be specifically designed in order to give boost to entrepreneurship and facilitate all the influential elements within the policy areas. As Pakistan is a country with different ethnic groups therefore policies should be designed according to local needs and authority being decentralised to provincial or regional level rather than an organization working form the capital. The government should provide support to new entrepreneurs in different forms; tax rebate, financial support, simple government procedures, protection against big corporations, etc. and the public should be made aware of all these facilities. Besides government, banks and other financial institutions should be encouraged to support entrepreneurs financially. With the world changing so rapidly, entrepreneurs should be trained by government experts on dealing with change environments. Besides government and other agencies, the entrepreneurs can help themselves in becoming successful too, according to the core concept of this thesis about societal entrepreneurship which should develop a sustainable environment to an extent, by working together, sharing experience and other resources, forming clusters or network, all this can help the entrepreneurs in finding inspiration and advice, access knowledge and technology, or find partners. Working in networks will benefit the society in a whole by involving different actors of the society from certain sectors or group of entrepreneurs. Although many people praise the importance and success of entrepreneurship yet they lack the confidence and skills to turn their ideas into successful business ventures. Young generation should be given importance in developing an entrepreneurial society by providing entrepreneurial curriculum and trainers for developing entrepreneurial skills. Campaigns and exhibitions should be carried out in order to 77

promote the idea of entrepreneurship where role models should be showcasing and highlight the benefit they brought to the society. These programs and campaigns should be addressed towards those institutions which can really being out the entrepreneurs, such as schools, colleges, universities, investors, local communities, business organization, advisers and the media.

7.5. Research Questions

Q. How can existing theories on entrepreneurship and local/regional development combine into a model explaining the process of societal development? A. The Societal Entrepreneurship model which has been developed by the combination of existing theories on local and regional development is an example of a new theoretical model. Also the process of Societal Entrepreneurship is explained with examples in the theoretical framework chapter. Q. Can non-profit entrepreneurial organizations create a more sustainable socioeconomic environment in a developing country and make the society self-sufficient? A. The non-profit entrepreneurship approach which mainly focuses on engaging in commercial activities to create an income stream and enhance financial stability is sustainable in almost every economy of the world. In case of developing economies non-profit entrepreneurship can offer potential development opportunities for the community. But in order to create societal wealth, an entrepreneur must combine the qualities of different actors of the society and have a different approach towards addressing the problems of the society. This could be done by blending different ideologies in order to create an optimum environment for the business as well as the society. With involvement of society in business organization, an entrepreneur can offer them jobs and quality services, this will create cash flow in that society where some of the members would receive cash, as in salary, and get more purchasing power whereas other who have purchasing power would have quality services in their locality. Through employing and offering services to the local members of the society an entrepreneur can start towards making this society self-sufficient. Though no business is an island, and none of the society can be totally self-sufficient but such approach towards societal development could be one step towards prosperity. Q. What are the root causes of terrorism and radicalization, being the major problem faced by Pakistan? A. Like the rest of the developing countries Pakistan is facing several social problems that when combined are giving rise to religious fundamentalism and radicalization. Among these major problems

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Terrorism, being most discussed on media and news, is the most severe problem the country is facing. According to the western mind-set Pakistan is a terror state and giving rise to terrorism. Also the western governments are condemning the Pakistan government for not dealing with the situation in a transparent way by accusing the government of having ties with the terrorist organization. This opinion about Pakistan is very upsetting for the general public, as it undermines the efforts of Pakistan in War on Terror not only did the country became the frontline fighter against the terrorism but also the front line target for terrorists (Trivedi, 2009). Now if we look at the ground realities, Pakistan has suffered the most due to war on terror and its alliance with United States. The national sovereignty of Pakistan has been challenged by the United States military almost every day while having drone attacks within Pakistan killing many innocent civilians, besides this the notorious Black Water (now known as XE services) private security services, which are known to the general public as American Terrorists working openly and carrying out operations in the country have resulted in the public being frustrated over the government of Pakistan for having vague and non-transparent foreign policies. The Government of Pakistan keeps quiet to all these acquisitions due to the foreign aid they receive from the American government. The handful of $1.2 Million of aid given by the American government under the Kerry Lugar assistance being tightly sanctioned, usually gets spent in unsustainable programs or gets paid back to United States through their extensively high paid consultants which have to be hired according to the agreements. Most of the remaining amount from this assistance usually lands in the hands of corrupt government officials. On the other hand since the start of War on Terror Pakistan has lost more than $40 Billion to its economy and infrastructure, not to mention the countless Military and civilian death toll (Umbreen, 2011). Besides American government, Pakistan can only rely on the financial aid given by IMF, again having too many conditions, which asks for higher taxes, increased electricity bill, ever rising cost of living occurs due to this and extreme devaluation in the currency of Pakistan. Now considering all these economic and political problems faced by the country when combines with poverty and lack of basic needs for the general public, acts like a catalyst in pushing the people towards extremism. The government ties with United States and its effort to defeat the Soviet in the Afghan War resulted in the initial insurgence of militants in the form of refugees into the North West of Pakistan back in the 80s. After the war in 1998 there were about 3.3 Million Afghan refugees residing in Pakistan, the number kept rising with time where in 2001 the they reached 5 Million, and thats when the repatriation program started targeting 1.7 Million to stay legally till 2012. Among such a huge number of refugees,

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which are ethnically Pashtun mostly, it is very difficult for the government to point out which among them is a threat to the national security. Now the same groups of people (Mujahedeen back in the 80s and Taliban recently) are recruiting the frustrated public of Pakistan towards extremism which when combined by the atrocities of United States Military and the corrupt government of Pakistan, results in suicide bombings and terrorist attacks. To conclude it could be said that the root causes of terrorism in Pakistan are not due to the religion, but due to poverty, lack of education, lack of health services, lack of basic needs and besides these the vague and dependable foreign policy of Pakistan over these big donor agencies who are challenging the sovereignty of Pakistan every day. Q. What is the nature of community based social and societal entrepreneurship? A. Sustainable socioeconomic environment can not prevail unless all the actors of the society come together and support each other. By using the resources of the community, government, and business organizations a society can create a self-sufficient socioeconomic environment. There are different approaches towards the community based social and societal entrepreneurship. From the case study of how businesses are involved we see three different approaches; Direct Involvement, Community partnership around a business core, and use of intermediary institutions. Besides these three strategic approaches, societal entrepreneurship can also work on its own by using different actors of the society which is explained in the societal entrepreneurship process in the theoretical framework chapter. Q. How can an entrepreneur convert a societal problem into an opportunity? A. In order for an entrepreneur to convert a societal problem into an opportunity he/she must have a vision in mind that is achievable. An opportunity itself is the desire of change, a change from the present to a desired future. The only difference an opportunity makes is the desired future and this desire will define the role of an entrepreneur being social or Commercial; maximizing profit or addressing to a social cause and work for the betterment of the society. The main point of converting a societal problem into an opportunity is based not on the problem, need or want but whether the entrepreneur has the required resources to address the problem; knowledge and skills, financial resources, skilled workers, desire to make a change, organizational model, etc. The success of social entrepreneur is inevitable when backed by the necessary requirement and a model which is self-sufficient and sustainable.

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Appendix 1
IFC investment funds Commitments since 2000

Source: International Finance Corporation 88

Appendix 2

Pakistans External Debt and Debt Service (U.S. $ Million) 1970 3,407 259 33.6 1980 9,931 869 38.8 1990 20,663 1,902 49.5 1999 33,891 2,935 54.3 2000 32,779 2,854 45.9 2001 31,704 2,996 45.7 2002 33,672 2,850 48.7 2003 36,342 3,028 45.4

Total External Debt Total debt service paid External debt/Gross national income Debt service/exports Reserves/External Debt

33.6 5.7

16.2 15.8

21.3 5.1

28.9 6.2

25.2 6.4

24.6 13.3

17.9 26.1

16.0 32.5

Net Official Development Assistance to Pakistan (U.S. $ Million) 1970 433 369 4.3 3.6 1980 1,021 819 4.0 3.2 1990 1,228 778 2.9 1.9 1999 1,071 263 1.5 0.4 2001 1,622 525 1.7 0.8 2002 1,066 511 1.5 0.7 0.7 2003 1,247 596 1.5

Net Flows Net Transfers Net Flows/Gross National Income Net Transfers/Gross National Income

Source: World Bank report 2004.

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Appendix 3
Inspirations for giving to Philanthropic causes

Source: AKDN 2000: Philanthropy in Pakistan A Report of the Initiative on Indigenous Philanthropy Obstacles in Philanthropy

Source: AKDN 2000: Philanthropy in Pakistan A Report of the Initiative on Indigenous Philanthropy

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