Appendix 5: Country Report

APPENDIX 5:

COUNTRY REPORT: MALAYSIA

CONTENTS ACRONYMS ...... 1 1. COUNTRY PROFILE - STATISTICS ...... 3 2. OVERVIEW OF COUNTRY AND SOCIAL NEEDS ...... 4 2.1. OVERVIEW OF COUNTRY ...... 4 2.2. SOCIAL ISSUES IN COUNTRY ...... 5 2.3. SOCIAL ISSUES TACKLED BY SOCIAL ENTERPRISES ...... 6 2.4. POTENTIAL AND ECONOMIC VALUE PROXY OF SOCIAL ENTERPRISES ...... 6 3. OVERVIEW OF SOCIAL ENTERPRISE SECTOR AND HISTORY ...... 7 3.1. OVERVIEW ...... 7 3.2. TIMELINE OF MAJOR EVENTS ...... 8 3.3. GOVERNMENT POLICIES ...... 9 4. ECOSYSTEM ...... 12 5. SOCIAL ENTERPRISES ...... 14 5.1. SECTOR OF ACTIVITIES ...... 14 5.2. BENEFICIARIES ...... 14 5.3. GEOGRAPHICAL REACH, URBAN/RURAL ...... 14 5.4. TYPES OF SOCIAL ENTERPRISES ...... 14 5.5. REVENUE STREAM AND MARKETS ...... 15 5.6. LEGAL FORMS ...... 16 5.7. BUSINESS LIFE CYCLE ...... 16 5.8. SIZE OF SOCIAL ENTERPRISES ...... 17 5.9. SOCIAL FINANCE ...... 17 6. CHALLENGES AND OPPORTUNITIES ...... 18 6.1. CHALLENGES ...... 18 6.2. OPPORTUNITIES ...... 19 7. RECOMMENDATIONS ...... 21 ANNEX 1: MAIN PLAYERS OF THE SOCIAL ENTERPRISE ECOSYSTEM ...... 22 ANNEX 2: DESCRIPTION OF THE TYPES OF LEGAL ENTITIES ...... 26 ANNEX 3: PROMINENT SOCIAL ENTERPRISES ...... 29

ACRONYMS

AIM Agensi Inovasi Malaysia

ASEAN Association of Southeast Asian Nations

AVPN Asian Venture Philanthropy Network

GDP Gross domestic product

IDEA Impact-Driven Enterprise Accreditation

MaGIC Malaysian Global Innovation and Creativity Centre masSIVE Malaysia Social Inclusion and Vibrant Entrepreneurship (masSIVE)

NGO Nongovernmental organization

SE Social enterprise

UNDP United Nations Development Program

UNESCAP United Nations Economic and Social Commission for Asia and the Pacific

1. COUNTRY PROFILE - STATISTICS

2. OVERVIEW OF COUNTRY AND SOCIAL NEEDS

2.1. Overview of country Malaysia is a Southeast Asian country occupying the Malay Peninsula and the islands of Borneo with a total land and sea area of 329,847 square kilometers. Its strategic location along the Straits of Malacca and southern part of the South China Sea establishes the country as a significant hub in sea trade. While around half of its total population are Malays, Chinese and Indians make up a significant proportion of the population as well, together amounting to almost 30 percent (Central Intelligence Agency 2017).

The Federation of Malaya, which consisted of nine Malay States and the British Straits settlements of Penang and Malacca, attained independence from its British colonial masters in 1957. The Federation of Malaya formed Malaysia together with Singapore, Sabah, and Sarawak in 1963; however, Singapore was expelled from the Federation in 1965, forming modern Malaysia. Shortly after, Malaysia experienced a communist insurgency until 1989, delaying efforts to restructure the economy in a period of chaos. Malaysia’s economic development took off effectively after the insurgency was quelled, with the signing of a peace agreement with the Malayan Community Party.

From 1990 to 2016, Malaysia’s gross domestic product (GDP) increased around seven times and GDP per capita increased around four times (World Bank 2017). Today, Malaysia is an upper-middle income country with only 0.3 percent of the population living on less than US$1.9 per day. With its economic growth sustained at more than 7 percent annually for the past 25 years, Malaysia’s youthful workforce (median age of 28.2) is a potential source of more growth (Mohan, Harsh, and Modi 2017).

The Eleventh Malaysia Plan (2016–2020) points to the future direction of economic growth in the country. As the plan identifies uplifting the bottom 40 percent of households to middle class income as one of its “game changers,” there are opportunities for social enterprises to support “inclusive development” as identified by Mohan, Harsh, and Modi (2017).

Given Malaysia’s relatively high-income status, international nongovernmental organizations (NGOs) and aid organizations prefer to engage with less developed countries such as Cambodia and Myanmar. This also provides opportunities for social enterprises to step up to tackle social problems.

2.2. Social Issues in country

As an upper-middle-income economy, the Malaysian government has been highly successful in alleviating extreme poverty. The primary school enrolment rate stood at 98 percent in 2015, with adult literacy reaching 94.6 percent in the same year (Mohan, Harsh, and Modi 2017). As such, the government has been focusing on other social needs such as urban-rural inequality, labor shortages, and its ageing population.

According to the national census in 2012 by the Malaysian Department of Statistics, 5 percent of Malaysian households (1.5 million Malaysians) earn less than RM 1,000 a month. The study also demonstrated the evidence of an urban-rural gap in income levels, where the number of households earning more than RM 5,000 a month is three times higher in urban areas than in rural areas (MaGIC [Malaysian Global Innovation and Creativity Centre] 2015b). Poverty also has a racial dimension: 17.1 percent of Malays and also another 17.1 percent of Indians fall into the bottom 40 percent of households by income in 2014, compared to 16.3 percent for Chinese and just 14.9 percent for other races (Economic Planning Unit, n.d.). An increasingly prominent social issue in Malaysia is the ageing population—like other developed economies which face similar concerns as a result of successful family planning and increasing wealth. While its median age of 28.2 is a promising sign for the future development of Malaysia’s economy, the growing percentage of senior citizens aged 60 years and above, expected to rise over the next 14 years (Idris 2017), is of deep concern to policy makers. Some efforts have been made to pre-empt possible problems faced by the country, such as allocating RM 424 million (US$97.5 million) to senior citizens in 2017 including a RM300 (US$69) monthly allowance. Senior citizen activity centers are also being established in the country (Prime Minister’s Office Malaysia 2017). Nonetheless, further accommodations in areas of social and health care needs will be required for the transition to an increasingly ageing economy.

Malaysia continues to face labor shortages and rely on foreign labor. Foreign workers in Malaysia accounted for almost a third of the total labor force in July 2012 (Mohan, Harsh, and Modi 2017), totalling 1.6 million. The vast fraction of migrant workers among Malaysia’s labor force can be attributed to the insufficient skilled labor among its local workers, with only 28 percent among its 14.8 million workers skilled, even though the economy needs 50 percent of the workers to be skilled (Anuar et al. 2016). The government has made its response through the Eleventh Malaysia Plan (2016– 2020) where “enabling industry-led vocational and technical education” was identified as one of the six “game changers” to propel the Malaysian economy to greater inclusive growth (Eleventh Malaysia Plan 2015).

2.3. Social issues tackled by social enterprises While the alleviation of poverty in Malaysia has seen great success, there is a need for social enterprises to address the concerns of the disadvantaged and less privileged in Malaysia.

It is observed that it is common for social enterprises to offer vocational training to disenfranchised groups of individuals, such as impoverished youths, as a method of directly and sustainably benefiting their beneficiaries. This corresponds with the shortage of skilled labor as a social concern mentioned in the previous subsection.

Another area Malaysian social enterprises often venture into is the field of environmental sustainability. These social enterprises offer products that tend to be more environmentally friendly and services which indirectly aid their cause by improving corporate practices. Fifteen percent of social enterprises observed by a survey identified environmental conservation and sustainability as their social objective (MaGIC 2015b).

2.4. Potential and economic value proxy of social enterprises No information found in research.

3. OVERVIEW OF SOCIAL ENTERPRISE SECTOR AND HISTORY

3.1. Overview In Malaysia, the social enterprise industry is nascent, and has not matured to be comparable to the complex social enterprise sectors in Thailand and the United Kingdom. More than 64 percent of social enterprises in Malaysia were founded between 2009 and 2015, according to the 2015 Malaysian Global Innovation and Creativity Centre (MaGIC) Social Enterprise survey (MaGIC 2015a). It is also estimated that there are approximately 100 social enterprises operating in Malaysia, with a mere 0.02 percent of Malaysians working in social enterprises. The relatively low numbers of social enterprises operating in Malaysia compared to the rest of the countries in the region can be largely attributed to the unclear legal status and insufficient support structure of the sector (MaGIC 2015b).

Most social enterprises in Malaysia specialize in sustainable consumer products or waste management (50 percent) and are typically focused on supporting persons/families with low income (36 percent) or addressing environmental degradation (32 percent) (Malaysia Government 2018). Social enterprises in Malaysia also largely operate at the state or provincial level (80 percent); just 10 percent operate at the national or local (meaning a region smaller than province) level. Sixty percent of them operate in the country’s urban areas (Malaysia Government, 2018). Most social enterprises in Malaysia are small-scale operations run by 1 to 9 people (60 percent). Where financial metrics are concerned, however, 29 percent of social enterprises in Malaysia cited annual revenue between US$10,001 and US$50,000, and 25 percent cited annual revenue more than US$100,000 (Malaysia Government 2018).

In recent years, Malaysia has put emphasis on establishing a vibrant local entrepreneurship scene. The social enterprise sector has received growing attention from policy makers, as evident from the 2013 establishment of MaGIC, a key institution in the ecosystem. MaGIC provides support for emerging social enterprises and research into the local landscape, facilitating information flow for organizations. MaGIC is supported by government statutory boards, such as Agensi Inovasi Malaysia (AIM), a key body in promoting innovation and entrepreneurship in Malaysia in order

to fulfil the Malaysia Vision 2020. AIM’s vision includes developing social enterprises among their initiatives (AIM n.d.). Further elaboration will be provided under the section on ecosystem players.

The outlook for the sector is bright. In an interview, MaGIC was ambitious and optimistic about the growth of social enterprises (SEs, which they also call “impact- driven enterprises”) in Malaysia. They noted that the number of SEs now exceeds 100, with 75 percent or more founded in the last 5 years by young founders. They hope for rapid growth: to have 700 or more SEs active in Malaysia by the end of 2018. Malaysia was also deemed the ninth-best place to be a social entrepreneur, among 45 countries surveyed (Thomson Reuters Foundation 2016). Malaysia ranks 22nd on the World Giving Index and 23rd in terms of the ease of doing business (Mohan, Harsh, and Modi 2017), signifying a favorable environment for the future development of the social enterprise sector.

3.2. Timeline of Major Events

Year Major Event

2010 Creation of Agensi Inovasi Malaysia

2013 Hosting of the Global Social Business Summit in Kuala Lumpur

Establishment of Malaysia Global Innovation Creativity Centre (MaGIC), with a RM 20 million allocated

2015 International Conference for Young Leaders, which focused on “Changing Communities through Social Entrepreneurship.”

MaGIC’s blueprint for the development of social enterprise sector

2017 MaGIC establishes the Impact-Driven Enterprise Accreditation (IDEA) scheme (Malaysia Government 2018).

2018 MaGIC launches the Malaysia Social Inclusion and Vibrant Entrepreneurship (masSIVE) Initiative with MasSIVE Impact Day on February 8, 2018 (Malaysia Government 2018).

MaGIC launches the IDEA Accelerator Programme, a six-week accelerator program which focuses on five themes: employment for the marginalized, equality and empowerment, pollution and waste

management, income/productivity growth, and community development.

3.3. Government policies Policy framework

In 2015, MaGIC unveiled a blueprint (MaGIC 2015b) for the development of the social enterprise sector. As MaGIC is supported by the government, the blueprint also reflected the government’s vision for the sector. The blueprint focused on social entrepreneurs, ecosystem players, and institutions, and had a strategy for the years 2015–2017. According to the blueprint, MaGIC has aimed to generate awareness and skills among the grassroots community to: operate social enterprises in 2015 (“Inspire a movement”); create a more inclusive sector through participation from the private and public sector in 2016 (“Create an enabling ecosystem”); and introduce regulatory, tax, and administrative frameworks to support the social enterprise sector’s development in 2017 (“Affect systemic change”). In particular, MaGIC has aimed to introduce a more detailed operational framework for social enterprises, in terms of tax, regulation, and administration, and advocate for public procurement from social enterprises.

Legal framework

The framework on the nature of legislative environment toward social-purpose organizations (SPOs) represented in the 2017 Sattva-AVPN (Asian Venture Philanthropy Network) report authored by Mohan, Harsh, and Modi views Malaysia as a neutral environment for social enterprises, with no or little tax benefits. Tax benefits are only applicable for companies that incorporate local subsidiaries, as opposed to incentives aimed at social purpose organizations or social enterprises. There are no explicit tax benefits exclusively reserved for social enterprises as part of Malaysia’s government policy (Mohan, Harsh, and Modi 2017).

There is no legal category for social enterprises. Malaysian social enterprises are usually registered as either a charity/NGO (nonprofit) or corporate (for-profit) entity.

For-profit forms do not allow social enterprises to enjoy tax and government incentives extended to nonprofits and charities. However, legal forms of for-profit entities such as sole proprietorship allow for cheap and easy registration, compared to the more

tedious registration process of nonprofit organizations. Furthermore, their for-profit status also justifies the commercial aspect of their business. On the other hand, social enterprises operating as a society, charitable organization, or nonprofit, may face legal non-compliance issues since the commercial aspect of social enterprises runs contrary to the definition of such organizations. As concluded by MaGIC, the lack of a clear legal definition for social enterprises is a major deterrent to the development of the sector (MaGIC 2015b).

Tax exemptions and incentives

Tax exemptions and incentives offered by the Malaysian government are usually targeted at start-up enterprises in general and not specifically at social enterprises. As an effort to achieve the Vision 2020 for Malaysia’s economy, incentives are offered to start-ups, with support organizations such as AIM and MaGIC providing capacity building and seed funding as well. The Malaysian government also grants tax exemptions for charities and nonprofits; however, the majority of social enterprises are not registered as that type of legal entity.

Schemes to encourage consumption and investment in SEs

The Malaysian government has a few initiatives to support consumption and investment in SEs. As part of MaGIC’s mandate to oversee the growth of the social entrepreneurship sector in Malaysia, the Social Entrepreneurship Amplify Awards were launched in 2015 with the intent of providing financial assistance to recognize social enterprises and provide a platform for them to scale up their efforts (Lee 2015a). While the primary purpose of the Amplify Awards is to provide financial support for social enterprises, the initiative also draws investment and private sector support for social enterprises in Malaysia. Nine social enterprises received the award in 2015, and in 2016, five social enterprises were selected.

The launch of the accreditation scheme Impact Driven Enterprise Accreditation (IDEA) in 2017 aims to create systemic shift to drive social procurement by providing accredited impact driven enterprises (IDEs) advantages in getting procurement contracts from partners of the accreditation program, including from government agencies, corporations, and international government agencies.

Another key initiative is the launch of the Malaysia Social Inclusion and Vibrant Entrepreneurship (MasSIVE) Initiative in early 2018. MasSIVE aims to be a movement that connect different players and build coalitions, in order to bring forth a wide range of programs to further develop impact-driven enterprises and the ecosystem (MaGIC 2018a).

Marks, labels, and certification

In July 2017, MaGIC launched the Impact Driven Enterprise Accreditation scheme which provides qualified social enterprises, social businesses, and NGOs networking and branding opportunities, access to social procurement, and greater access to funding as well as technical support. Organizations that register for the scheme pay an annual membership fee of RM1000 and are certified as Impact-Driven Enterprises. Organizations that apply for this scheme are assessed based on three criteria: clarity of social/environmental goal, percentage of resources allocated to solving the stated social/environmental mission, and financial sustainability (MaGIC, 2017).

4. ECOSYSTEM

Categories of Ecosystem Players List of organizations

1. Policy Makers Ministry of Finance

2. Professional and Support Service iM4U Providers Scope Group

3. Capacity Builders myHarapan British Council East Asia and China a) Incubator/accelerators Region Bursa Malaysia Malaysian Network MaGIC ICube Innovation Institute of Corporate Responsibility (ICR) Social Enterprise Alliance UnLtd Malaysia Youth Trust Foundation Yayasan Hasanah Khazanah National Berhad

b) Educators of social Binary University entrepreneurship Universiti Malaysia Kelantan myHarapan Tandemic Impact Hub Malaysia

c) Facilitators of learning and British Council exchange platforms for social Tandem enterprises Impact Hub Malaysia Agensi Innovasi Malaysia InspiraC The Good Shop

4. Research Institutes Centre for Social Entrepreneurship at Binary University Social Enterprise and Economic Development program at Universiti Malaysia Kelantan Universiti Malaysia Kelantan (UMK) Universiti Malaysia Pahang (UMP)

5. Network Providers ANDE Malaysia British Council East Asia and China Region MaGIC myHarapan Social Enterprise Alliance Women Organising for Change in Agriculture & Natural Resources (WOCAN) MasSIVE

6. Fund Providers AirAsia Foundation British Council (Entrepreneurs for Good) Agensi Inovasi Malaysia Koperasi Jayadiri Malaysia Berhad (KOJADI) Perbadanan Ushawan Nasional Berhad (PUNB) TEKUN TERAJU Social Enterprise Ventures (SEV)

7. Competition Organizers myHarapan Social Business Challenge Agensi Inovasi Malaysia’s Berbudi Berganda Challenge

5. SOCIAL ENTERPRISES

The majority of information in this section is derived from MaGIC’s 2015 report on the state of social enterprises in Malaysia (MaGIC 2015a).

5.1. Sector of Activities As Malaysia’s social enterprise sector is still relatively young and yet to have matured, there is no detailed research on the sector activities in Malaysia. According to the 2015 MaGIC national survey, 46 percent of surveyed social enterprises provide only services, 35 percent provide only products, and 19 percent provide a mix of products and services (MaGIC 2015a).

5.2. Beneficiaries Social enterprises in Malaysia mainly focus on the areas of community development, with 19 percent of social enterprises surveyed involved in this area. Other popular sectors include environment and sustainability (15 percent), economic access and poverty alleviation (14 percent), education (11 percent), and health care (10 percent) (MaGIC 2015b).

5.3. Geographical reach, urban/rural According to the MaGIC 2015 report on the state of social enterprises, 52 percent of social entrepreneurs serve exclusively urban beneficiaries, 22 percent exclusively rural, and 26 percent both (MaGIC 2015a).

In terms of geographical distribution, social enterprises are mostly headquartered in Kuala Lumpur and Selangor, with 43 percent and 34 percent of social enterprises located there respectively. The majority of social enterprises also serve beneficiaries within Kuala Lumpur and Selangor, constituting 64 percent and 55 percent of social enterprises in those locations respectively. Other prominent states mentioned in the report include Penang, Johor, and Sabah (MaGIC 2015a).

5.4. Types of Social Enterprises Retail production is the most popular business model among Malaysian social enterprises, with 41 percent of social enterprises adopting this model according to the

MaGIC report. (MaGIC 2015a) This business model also allows for more beneficiary engagement through employment and training, with a 60 percent of these social enterprises involving beneficiaries. Retail production is followed by training, with more than 30 percent of social enterprises choosing to gain revenue from training. Subsequently, consulting services provided by technical field experts are business forms adopted by 20 percent of social enterprises (MaGIC 2015a).

According to the Social Enterprise 101 report by MaGIC (2015c), the most common types of social enterprises include:

Cross subsidization. Using revenue gained from one consumer tier to subsidize the costs accumulated from another consumer tier. Buy and give. Donating one product or offering one service to its beneficiaries for each one sold or provided to regular consumers.

Micro-franchising. Entrepreneurs able to start small franchise businesses without an overwhelming sum of investment.

Inclusive business. Beneficiaries are involved in the operations of the social enterprise either on the demand or the supply side.

Design for extreme affordability. Technologically developed solutions for the less privileged beneficiaries at a lower price with greater local responsiveness.

5.5. Revenue stream and markets Social enterprises in Malaysia mainly obtain their revenue from B2B (business-to- business) sales (38.78 percent), followed by B2C (business-to-consumer) sales (28.57 percent) (MaGIC 2015b). Sixty-one percent of social enterprises gain the bulk of their revenue from commercial sales, and a full two-thirds of social enterprises are dependent on commercial sources of income. With only one-third reliant on non- commercial sources such as donations and grants, this is promising in assessing the projected financial sustainability of social enterprises (MaGIC 2015a). However, 55 percent of social enterprises identified their businesses as yet to break even. Sixty-two percent of those surveyed in 2015 also described their revenue stream as fluctuating and unpredictable. This demonstrates the lack of financial sustainability in the social enterprise sector and the need for further progress to the reach maturity stage of their business life cycle. In addition, social enterprises seek to increase their financial sustainability by securing additional funding and gaining guidance from experts (MaGIC 2015a).

5.6. Legal forms Social enterprises in Malaysia do not have a definite legal framework of operation. A social enterprise in Malaysia can consider establishing itself under the legal structures of a sole proprietorship, limited liability partnership, partnership, trust, society, cooperative society, company limited by guarantee, or private company limited by shares (British Council et al. 2018). Descriptions of the relevant legal structures can be found in Annex 2.

According to a study conducted by the Malaysian Global Innovation & Creativity Centre (MaGIC), social enterprises were found to register as both for-profit and nonprofit entities in Malaysia. Among SEs which registered as for-profit entities, 48 percent registered as a private limited company, 8 percent as a sole proprietorship, 4 percent as a partnership, 4 percent as a public limited company/berhad, and 1 percent as a limited liability partnership. Out of the 88 percent that incorporated their enterprises, 35 percent registered as a society (under the Registry of Societies) as well (MaGIC 2015a). While cooperatives were not an option in the survey, they form a prominent part of the social sector. Cooperatives are governed by the Co-operative Societies Act 1993 and regulated by the Malaysia Co-operative Societies Commission. Currently, there are more than 12,000 cooperatives (International Co-operative Alliance, n.d.) under Malaysia’s official union agency for cooperatives: Angkatan Kerjasama Kebangsaan Malaysia Berhad (ANGKASA).

5.7. Business life cycle Malaysian social enterprises are relatively young, with a majority founded in the past 6 years. According to the study by MaGIC (2015a), age is a determinant of the financial ability of social enterprises to break even. This corresponds with the stages of their business life cycles as well. Thrity-six percent of younger social enterprises founded in or after 2010 have reached break even point. The percentage increased to 57 percent for older social enterprises founded in 2009 or before.

The relatively lower percentages of social enterprises to reach the stage in their business life cycle to break even can be attributed to the nascent nature of this sector, with 14 percent of social enterprises founded in or before 2009 still being considered as early-stage businesses. Furthermore, the lack of a legal definition for social enterprises has resulted in many social enterprises transitioning from their original nature as a nonprofit organization, delaying their progress towards business maturity. Twenty-eight percent of social enterprises in the 2015 MaGIC survey began as nonprofit organizations (MaGIC 2015a).

5.8. Size of social enterprises Since most social enterprises in Malaysia were founded in recent years, the majority of social enterprises are either small or medium in operational size. Social enterprises in Malaysia typically have an average of four full-time paid staff and six regular volunteers (MaGIC 2015b).

5.9. Social finance In Malaysia, most social enterprises are initially funded by the entrepreneurs themselves, with 75 percent of entrepreneurs investing their personal money to fund their own ventures. External funding is more prominent in the later stages of their business cycles, as ecosystem support players are more willing to support social enterprises through financial methods. External funding was enjoyed by 67 percent of the social enterprises surveyed, often in the later stages of their businesses (MaGIC 2015a). A key challenge is the ability to secure loans, with only 14 percent of social enterprises who raise external financing able to raise debt financing. The majority of external funding takes the form of grants: an overwhelming 75 percent compared to equity funding which is enjoyed by 5 percent of social enterprises (MaGIC 2015a). Social investing in Malaysia has yet to develop into a mature sector. Donations in Malaysia usually take the form of religious philanthropy, with the Islamic finance sector in Malaysia relatively developed. In 2013, zakat (the platform for religious giving in Islamic circles) alone made up 20 percent of social spending by the Malaysian government, totalling up to 0.25 percent of the nation’s GDP (Mohan, Harsh, and Modi 2017). Furthermore, the introduction of sukuk (Islamic bonds) in Malaysia signals greater potential for its existing Islamic finance market to engage in socially responsible investing (SRI). As the world’s largest Islamic bond market, Malaysia accounts for two-thirds of sukuk issued, with US$161 billion of local currency sukuk outstanding as of the end of 2014 (Boey 2015). If part of these funds can be directed to investment into social enterprises, the potential will be tremendous.

6. CHALLENGES AND OPPORTUNITIES

6.1. Challenges In MaGIC’s report (MaGIC 2015a) on the state of social enterprises in Malaysia, the observed social enterprises identified the top three challenges as a lack of public awareness and understanding, a lack of funding and financial support, and a lack of business acumen to financially sustain their enterprises, in that order. The Mohan, Harsh, and Modi (2017) report also listed similar challenges.

Low public awareness of social enterprises Ninety-five percent of social enterprises in the MaGIC national survey said that the public has “very little or little” understanding of SEs. Thirty-seven percent of respondents hoped to see better education about social enterprise across the country. They expect this education to raise awareness and provide a cohesive understanding of the sector—not just among the public but also among other relevant parties such as government agencies, corporations, enablers, and social entrepreneurs themselves. Earth Heir noted that this hampers its fundraising. “There are a lot of other family offices and foundations that are also interested in this (funding SEs). But I don’t think... they understand how to do it necessarily; as in, how to work with a social enterprise vs an NGO. They (family offices and foundations) are used to (saying), “(because) you’re an NGO... the money I give goes mainly towards impact. But if I give money to a social enterprise, ... they’ll use the money not just purely for impact; they are going to use the money to grow their business,” which they may not be comfortable with. MaGIC has indicated that they have started such awareness campaigns.

Financial sustainability and revenue generation Over 16 percent of respondents in MaGIC’s national survey identified financial sustainability and revenue generation as one of their top three challenges. Among those who have started sales, almost half have not yet been able to consistently cover costs, 28 percent have broken even but are looking for consistent customers, and only 22 percent have found a consistent set of customers.

While SEs are a growing movement in Malaysia, it will take initial successes, testing, and support to ensure that the sector is built on strong foundations for longevity and impact.

Lack of physical and manpower resources Over 21 percent of social enterprises in the MaGIC national survey identified a lack of resources as one of the key barriers to running their venture. The lack of human capital remains a significant hurdle for SEs as the majority find it difficult to attract and retain high-quality talent. For example, Earth Heir’s experience is that it is hard to hire talent in the sector. Additionally, when foreign talent who are passionate about the sector want to work with them, visas are hard to come by. Insufficient government support About half (56 percent) of respondents agreed that there were policies that limited their work. These social entrepreneurs named challenges with government regulations in their respective sectors, such as environment, education, and animal welfare.

6.2. Opportunities Government support Government support is growing and gaining traction. The Malaysian government is increasingly collaborating with SEs to solve social issues. For example, the government’s Social Outcome Fund will encourage social innovation by attracting social investment and spurring the development of high-potential local social enterprises.

Increased financing Impact investing is gaining traction and continues to grow, although the funding scene for early stage SEs remains nascent. The corporate sector is also building more partnerships with social organizations, which will open up new markets and new social impact models that can hopefully be scaled up.

Social procurement There is potential to scale up the social procurement that is supported by MaGIC. Increasing the number of companies and organizations that are willing to consider social value in their purchase can bring a lot of tangible benefits to social enterprises.

Growing SE sector According to MaGIC, the sector is growing rapidly across the country. They hope that by 2018 there will be 700 active SEs which will bring the sector to a “self-sustaining”

stage. They also felt that SEs are creating social impact at a grassroots level, if it can scale-up and micro-franchise, the potential to create large-scale change is infinite.

Young population

Malaysia has a young population with a median age of 28.2. This provides a pool of talented young people to contribute to inclusive development, especially given that the majority of current Malaysian social entrepreneurs are below the age of 30. Conscious consumerism Malaysians are increasingly selective about what they choose to consume; more Malaysians are turning to products offered by social enterprises, which they perceive as more environmentally and socially sustainable (Malaysia Government 2018).

7. RECOMMENDATIONS

Continue and strengthen current measures Malaysia has one of the most comprehensive sets of policies and ecosystem support in ASEAN (the Association of Southeast Asian Nations). However, as such efforts only started in earnest in recent years. With some measures only being implemented within the past year, they have not reached their full potential and many SEs still suffer from the problems these efforts aim to solve. Therefore, continued monitoring and research into the current efforts is needed before determining what needs to be done next.

Increase access to funding Financing continues to be an area of concern for the social enterprises interviewed. More can be done to encourage corporate, impact investors, and/or philanthropists to increase funding for social enterprises. Tax incentives for impact investment can also be considered.

ANNEX 1: MAIN PLAYERS OF THE SOCIAL ENTERPRISE ECOSYSTEM

Descriptions of the organizations are quoted from their websites and/or indicated sources.

1. Policy Makers

Agensi Inovasi Malaysia (AIM) https://innovation.my/about-us/aim/

Agensi Inovasi Malaysia (AIM) was established in 2010 as a statutory body under the Malaysian government in order to fulfil the Malaysia 2020 vision of becoming a full- fledged developed economy. AIM works to incubate innovative entrepreneurs and support wealth creation in Malaysia through collaboration with multiple ecosystem players from government, academia, and industry.

Under its efforts to foster a more vibrant start-up environment in Malaysia, AIM has also worked to develop the social enterprise sector. In March 2017, AIM launched the Social Outcome Fund, totalling MYR3 million (US$690,000). The Social Outcome Fund aims to benefit marginalized communities and encourage industry players to engage in socially responsible investments. According to a minister in the Prime Minister’s Department, investments made by corporate investors are entitled to reimbursements if results are more than 1.5 times the value in terms of cost savings to the government (Damodaran 2017)

2. Capacity Builders myHarapan (Youth Trust Foundation) http://myharapan.org/ myHarapan is a nonprofit organization founded in 2010 which focuses on capacity building for social entrepreneurs through initiating projects that enhance the development of social enterprises. Support is given to early-stage social enterprises until they are assessed to have the capability for independent functioning. myHarapan offers capacity development programs and industry engagement, as well as ecosystem development through the organization of social business summits.

myHarapan also provides seed funding as incentives to attract skilled youths with interest in the social sector. myHarapan also offers funding through Youth Action Grants and Social Venture Fund for social initiative projects and social businesses, ranging from RM500–RM15,000 and RM5,0000–RM250,000 respectively. As of 2016, according to its official website, myHarapan had engaged 25 000 youths in 145 projects and extended its support to 6 social enterprises (Mohan, Harsh, and Modi 2017). A total of RM 1.179 million has been disbursed by the organization.

Tandemic https://www.tandemic.com/ Tandemic is a capacity builder for social enterprises in Malaysia that provides training and consultancy services for local social enterprises. One of its key achievement is building Do Something Good, Malaysia’s largest volunteering platform with over 100,000 volunteers. Tandemic’s incubation program also includes Makeweekend, its flagship program which is the largest design thinking-based program with over 4,000 participants in 4 years. This program encourages the development of solutions to social challenges by youth participants. Tandemic also works with the United Nations Development Program (UNDP) and the United Nations refugee agency (UNHCR) to tackle issues related to refugees (Tandemic n.d.).

3. Research Institutes

Centre for Social Entrepreneurship at Binary University https://binary.edu.my/centre-for-social-entrepreneurship-cse/

The Centre for Social Entrepreneurship at Binary University is a research centre with the aim of “nurturing entrepreneurs, businesses and voluntary organizations to explore and implement pragmatic and sustainable solutions based on the values and principles of social entrepreneurship and social enterprise” (Binary University n.d.).

4. Network Providers

MaGIC https://mymagic.my/about/our-people/

MaGIC is a prominent ecosystem player in the Malaysian social entrepreneurship landscape, with its initiatives mainly geared towards supporting social enterprises in terms of capacity building and seed funding.

Funded by the government since its establishment in 2013, MaGIC also serves as an intermediary by engaging other government agencies, local venture capitalists, and corporations in impact investment. Its range of services also includes a corporate fellowship, an accelerator program, and a social procurement program to incentivize social enterprises in public sector procurement (Lee 2015b). For instance, MaGIC’s Global Accelerator Program aims to help 80 global start-ups to become investment- ready in four months.

Social Enterprise Alliance (SEA) Malaysia https://www.socialenterprise.org.my/

Social Enterprise Alliance (SEA) was formed in 2010 by Tandemic as a nonprofit organization based in Kuala Lumpur. SEA has a focus on social entrepreneurship advocacy and serves as a knowledge base and education center for piloting and existing social entrepreneurs. SEA offers services such as networking among social enterprises, and tools for aspiring social entrepreneurs.

5. Fund Providers

The British Council (Entrepreneurs for Good) https://www.britishcouncil.my/programmes/society/social-enterprise-award

The British Council partnered with Arthur Guinness Projects to deliver the Arthur Guinness Projects and British Council Social Enterprise Award. Selected social enterprises in Malaysia receive up to RM 40,000 each, depending on their stage in their business life cycle. The overarching objective is the upscaling and sustainability of business models.

Yayasan Hasanah https://yayasanhasanah.org

Yayasan Hasanah was established in December 2013 as a foundation of Khazanah Nasional Berhad (Khazanah). As the charitable arm of the corporation, Yayasan Hasanah supports the social enterprise sector by working with these enterprises to develop their organizational capabilities through the provision of financial and technical advisory support.

Perbadanan Ushawan Nasional Berhad (PUNB)

http://www.punb.com.my/index.php/en/mengenai-punb/about-us

A national agency established in July 1991 and wholly owned by Permodalan Nasional Berhad, Perbadanan Ushawan Nasional Berhad (PUNB) provides financial and corporate support in the form of business advisory, consulting, and monitoring services to bumiputera entrepreneurs in Malaysia’s strategic economic sectors. As Malaysia’s national entrepreneur development corporation, PUNB is responsible for knowledge and resource exchange, improvement and value-creation, and sustainable business development in Malaysia’s entrepreneurship sector (Latip & Smyrnios 2012).

TEKUN Nasional (TEKUN) https://www.tekun.gov.my/en/corporate-info/info/introduction/

Established as an agency under Malaysia’s Ministry of Entrepreneurial and Cooperative Development, TEKUN Nasional seeks to provide simple and quick financing facilities to bumiputeras in order to kick-start and further expand their businesses. In 2017, MaGIC and TEKUN Nasional collaborated on the IMPACT initiative to provide micro- franchising opportunities for successful impact-driven enterprises (IDEs) in Malaysia (Kumar 2017)

ANNEX 2: DESCRIPTION OF THE TYPES OF LEGAL ENTITIES

Descriptions are quoted from indicated sources.

Legal Entity Description

Sole Proprietorship A business owned solely by one individual. If the business fails or is declared bankrupt, creditors can sue the sole proprietor’s owner for all debts owed to respective merchants. This means personal assets, personal income and employment income are all liable (MaGIC 2015).

While administration under a sole proprietorship is relatively simpler, source of capital is limited to the owner’s own contribution. Due to the inability to allocate share capital, it is not easy for a sole proprietorship to receive investment or loans (British Council et al. 2018).

Limited Liability A LLP is an alternative business vehicle regulated under Partnership (LLP) the Limited Liability Partnerships Act 2012, combining the characteristics of a company and a conventional partnership (MaGIC 2015).

A minimum of two partners is required for a LLP. It is mainly financed by capital contribution from each partner, and profits are treated as part of each partner’s personal income and taxed accordingly (British Council et al. 2018).

Partnership A partnership is a business owned by two or more persons but not exceeding ownership by twenty persons. If the business fails or is declared bankrupt, creditors can sue the partners for all debts owed to respective merchants. This means personal assets, personal income and employment income are all liable (MaGIC 2015).

Compared with a sole proprietorship, it is easier to secure financial assistance from financial institutions. Equity can also be increased through enlisting additional partners (British Council et al. 2018).

Trust A trust is governed by the Trustees (Incorporation) Act 1952. It is a legal arrangement where asset ownership is transferred from the settlor who sets up the trust to the trustee for the benefit of one or more beneficiaries (MaGIC 2015).

Society A society consists of at least seven members and can have an unlimited number of members. It is exempted from certain tax obligations, has limited liability for members, and is a separate legal entity. However, there is no shareholding and capital is limited to contribution from members (British Council et al. 2018).

Cooperative Society A cooperative society is an organization whose objective is to increase the economic significance of its own members in accordance with cooperative principles. At least fifty members are required, and members have limited liability. Funds may be raised via entrance fees, shares subscribed by members, or savings, deposit or loans by members or non-members. (British Council et al. 2018).

Private Limited A private limited company where liabilities of its Company/Sendirian members are limited to the number of shares they hold Berhad in the company. It prohibits any invitation to the public to subscribe to any of its shares, or deposit money with the company for investment or subscription. (British Council et al. 2018)

Public Limited A public limited company where liabilities of its Company/Berhad members are limited to the number of shares they hold in the company. However, unlike a Sendirian Berhad, its shares can be offered to the public. (British Council et al. 2018)

Note: Information extracted from MaGIC 2015 and from British Council 2018, 109–25.

ANNEX 3: PROMINENT SOCIAL ENTERPRISES

This annex provides examples of the range of social enterprises operating in Malaysia.

Example 1: Wild Asia

Wild Asia, established in 2003, is a social enterprise that provides consulting services to corporate organizations on environmental conservation. The firm aims to tackle social and environmental issues by improving the company practices of firms that have an impact on the social and environmental sector. It hopes to motivate companies to adopt a more sustainable management system with the ability to improve social and environmental impact. Wild Asia uses workshops and short papers that can interact with all segments of the company (Wild Asia n.d). An example of its successful projects is the Biodiversity for Busy Managers (B4BM) program initiated in conjunction with the Malaysian Palm Oil Council (MPOC) as part of the Malaysian Palm Oil Wildlife Conservation Fund. The program seeks to provide information and resources to businesses involved in land development (Sustainable Palm Oil Transparency Toolkit 2012a).

In addition, the Wild Asia Group Scheme (WAGS) was launched and has helped enhance the sustainability of the palm oil supply chain. The scheme was desinged to equip and engage independent smallholders in the palm oil industry (Sustainable Palm Oil Transparency Toolkit 2012b). WAGS has also contributed to forging connections among industry players and larger corporations. Through the skills-upgrading and support provided by the program, industry players have also been awarded international certification.

As a service-based social enterprise, Wild Asia was able to begin operations with RM 10,000 in seed funding, morphing into the profitable social enterprise today (Loh and Wong 2012). According to its website, 65 percent of profits are contributed back into company growth and 35 percent to employees as profit shares. Its financial success while fulfilling its social objectives has been attributed to this model.

Example 2: Arus Academy

Arus Academy is a social enterprise that imparts training in fields such as languages and design and technology to underprivileged children. It was established using a RM

50,000 grant from MaGIC. Its good progress is evident from the achievements of its students and accolades attained by the academy. Arus Academy was among the top six finalists in the DBS-NUS Social Venture Challenge Asia in 2016, and the academy won Malaysia’s Star Golden Hearts Award in the same year (Social Venture Lab NUS 2016).

Arus Academy’s revenue model includes conducting camps that have similar a curriculum to the academy’s existing one for students from average and privileged households. Apart from these activities, Arus also develops modules for the Ministry of Education and has introduced its project-focused digital technology curriculum to teachers (Hong 2015).

Example 3: Earth Heir

Founded in 2013 by Ms. Sasibai Kimis, Earth Heir is a luxury fashion brand in the Malaysian market which aims to facilitate greater appreciation and understanding of its art form. The social enterprise involves traditional craftsmen by engaging them for product supply, and its beneficiaries are from village cooperatives in countries such as Cambodia, India, Malaysia, Thailand, and Uzbekistan.

In addition, Earth Heir provides employment opportunities to asylum-seeking refugees in Malaysia. The enterprises places great emphasis and attention on its social objectives, despite the significance of profits for the sustainability of the social enterprise. In 2015, Entrepreneurs for Good provided a seed funding grant of RM 40,000 to Earth Heir in a partnership with the Arthur Guinness Projects and the British Council. Earth Heir has spoken of a gallery expansion with the grant received as opposed to directly distributing monetary profits to beneficiaries. According to its website, its business model is such that 10 percent of revenue is reinvested; with half of that dedicated to training and developing artisans and the other half devoted equally to reforestation and animal conservation globally (Earth Heir n.d.; 2015a; 2015b; 2015c).

References

References for country profile statistics

Key Statistics Source

GDP per capita World Bank. 2017. “GDP per capita (Current US$).” http://data.worldbank.org/indicator/NY.GDP.PC AP.CD. Accessed August 1, 2017.

GDP growth over past 5 years Adapted from World Bank. 2017. “GDP per (annualized) capita (Constant 2010 US$).” http://data.worldbank.org/indicator/NY.GDP.MK TP.KD. Accessed August 1, 2017.

Population World Bank. 2017. “Population (total).” http://data.worldbank.org/indicator/SP.POP.TOT L. Accessed August 1, 2017.

Population age structure ASEAN Stats. 2016. ASEAN Community in Figures 2016.

Percentage of population living in urban World Bank. 2017. “Urban Population (% of areas total).” http://data.worldbank.org/indicator/SP.URB.TOT L.IN.ZS. Accessed August 1, 2017.

Adult literacy rate ASEAN Stats. 2016. ASEAN Statistical Leaflet Selected Key Indicators 2016.

Number of people living under World Bank. 2017. “Poverty headcount ratio at international poverty line (US$1.90 per national poverty lines (% of population).” day) https://data.worldbank.org/indicator/SI.POV.NA HC. Accessed August 1, 2017.

National poverty line Jala, Idris. 2015. "The measure of poverty." ETP Economic Transformation Programme. http://etp.pemandu.gov.my/Transformation_Un plugged-@-The_measure_of_poverty.aspx. Accessed August 1, 2017.

Human Development Index UNDP. 2016. “Human Development Reports.” http://hdr.undp.org/en/composite/HDI. Accessed August 1, 2017.

Gini coefficient World Bank. 2017. “GINI index (World Bank estimate).” https://data.worldbank.org/indicator/SI.POV.GIN I. Accessed August 1, 2017.

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