NGO Vs Social Enterprise

“Who is a social entrepreneur? Is he/she different from an NGO volunteer?” Such questions generally pop up when one starts talking about social entrepreneurship.

While talking about the institutions or groups working in the field of growth and development, many phrases and terms get thrown around. Most of people get confused and use the words NGO, non-profit, and social enterprise interchangeably, intending to have the same meaning. But are they the same in reality? Maybe to some extent, they are. But it’s not that they are altogether the same. This article will point out the differences in all these terms to make sure one uses them correctly in the future. In addition to the differences, some similarities may also be touched upon.

For the ones who are new to the world of non-profit organizations and social businesses, the disparities between the two may not be evident at first glimpse. Both these organizations are there for doing social good, yet the roads which both of them opt to achieve their goals are distinct.

The article will try to answer all such questions on the differences between non-profits vs social enterprises.

What is an NGO?

NGO is an abbreviated form of Non-Governmental-Organization. So, this means that the community operates and functions independently of the government and authorities. Many times, NGOs function and advocate for people and try to unite the gap between such organizations and the government itself.

What is social enterprise?

A social enterprise is a group of changemakers who strive to boost the development of society by using commercial tactics and acumen. Like the term non-profit, the identity of a social enterprise is established within its name only. It is an entrepreneurial endeavor that is concentrated on the end goal of building a positive public and environmental upheaval, as well as steady earnings and revenue. A social enterprise trades a good or service that boosts a social, economic, or environmental cause. They do not bank on external contributions for their motive but let their product “talk and do the work”. Let us cite an example here- Assume there is a social enterprise X. Now being a social enterprise, it will first try to reach out to its targeted audience and observe the difficulties they are facing in their day-to-day lives. It will then document all these problems and will try to come up with a feasible solution to that problem. In addition to this, it may help the audience by making them self-reliant and helping them earn revenue by selling their products.

Now that one may have gotten a bit of both these organizations, one may wonder what kind of organization is he/she a part of.

Non-profits are exempt from income tax and donations from outside sources are tax-deductible, unlike all other profit-generating avenues. However, they are still liable for employment taxes for their employees.

A non-profit works towards some sort of social good, such as poverty eradication or improving healthcare. Non-governmental organizations (NGOs), charities, civil society organizations (CSOs) all work under the term of ‘non-profit organization.’

Non-profits range in size and reach, from smaller localized and grassroots organizations to some international initiatives and globalized campaigns.

So, if these are the characteristics of the firm he/she is into, then the firm is a non-profit one.

On the other hand, social enterprises are organized like commercial businesses, with a business model, a consumer base, and revenue-generating streams. These revenue streams go back into the initiatives of the enterprise (apart from the repayment to investors), creating self-sufficiency in their working.

Unlike non-profits, social enterprises aren’t tax-exempt.

Ideally, social enterprises wish to be financially self-sustaining- however, they can be given funds in the form of grants. Investments in organizations striving for social good is part of an initiative that has been increasingly become popularized known as ‘Impact Investing.’

Social enterprises are usually quite environmentally conscious, and strive to be as environmentally sustainable in their business avenues as they are financially sustainable.

Another feature typical of a social enterprise is the employment of people who are many times marginalized from the workforce, such as women. This allows a fully contributive initiative by social enterprises on creating social goods. So, if the person is a part of a firm having such features, then it must be a social enterprise with which he/she is associated with.

Now, how are they different?

The elementary difference between non-profits and social enterprises is the origin or source of funding. Non-profits depend upon public funding through donations. Social enterprises are businesses; they create their own profit to keep themselves running.

Social enterprises also have a product or service which they sell to a consumer base that aids them in some way; whereas non-profits operate more directly with the social issue through areas like advocacy, direct aid, food relief, and empowerment.

And how are they the same?

Well, non-profit organizations and social enterprises are often combined and grouped together- and for good reason too! They both are the efforts by organized groups of people who work towards the development of some social issues. Within both these types of organizations, the cause is the focus of their actions.

Though social enterprises generate at least some revenue, all profits are utilized back into the business. So, while they do create some profits, they operate like a non-profit by directing all funds towards the social or environmental cause.

The lines between non-profit organizations and social enterprises are often blurred, and the differences between the two are both quite clear and yet frustratingly nuanced. After reading this article, however, the nitty-gritty regarding these firms will get clarity.

Written by Connecting Dreams Foundation SVC member Mathurkritik