Entrepreneurs: Lack of law on social enterprises hurting local businesses

Local businessman Ephraim Rwamwenge asks a question to the President during the meeting with Young Professionals last Sunday. / Village Urugwiro

A question by a local entrepreneur to President Paul Kagame during his meeting with young professionals on Sunday has once again stirred debate on whether Rwanda needs a special law to regulate social enterprises.

A social enterprise is an organisation that is directly involved in the sale of goods and services to a market, with specific social objectives that serve as its primary purpose.

It is under that category that Westerwelle Startup Haus in Kigali, a place where young entrepreneurs with new start-ups that have the potential to grow can pay a relatively small fee to use the office space and connect with other entrepreneurs, falls.

But Guido von Westerholt, the Programme Manager for Westerwelle Foundation that runs the space for mostly start-ups, registered his organisation in Rwanda as an NGO even if he charges money to the office users in order to ascertain their level of seriousness and monitor their growth.

Westerwelle Startup Haus in Kigali charges Rwf100,000 per month to users of its space who are young entrepreneurs that the Westerwelle Foundation looks to help by providing a platform at the office where they can meet, connect, and eventually organise learning workshops to hone their business skills.

That part where people pay a fee to use a well-equipped working space at Westerwelle and similar establishments, has Ephraim Rwamwenge, a young businessman behind the multi-million Rwa Business Group, worried.

At the session dubbed ‘Meet the President’, Rwamwenge asked President Kagame how young businesses are going to grow while NGOs are allowed to engage in the same businesses while using donor funds as private businesses struggle to service loans.

His company provides office space to start-ups at almost double the price paid at the Westerwelle Startup Haus and he describes the foundation’s work as undermining competitiveness within the economy.

Rwamwenge urged the Government to step in and put in place a strict policy when it comes to allowing NGOs to do business.

“We talk of sustainable growth but the question is, when you allow them in, what guarantee do you have for sustainability?” he said in an interview with The New Times on Monday.

Upon hearing from the young entrepreneur’s concern, President Kagame ordered officials at Rwanda Development Board to investigate the issues and find out what is exactly the problem.

The New Times understands that the Board has swiftly moved to respond to the President’s directive and it has reportedly called Rwamwenge for a meeting, along with other entrepreneurs (with similar complaints) in other sectors such as coffee, construction, and real estate.

For any organisations to operate in Rwanda, they can either register as Non-Governmental Organisations (NGOs) through the Rwanda Governance Board (RGB), if they are non-for-profits, or as private profit-making companies through the Rwanda Development Board (RDB).

But the law in its current form has made it possible for both NGOs and private companies to initiate business activities, leaving a gap for unfair competition, according to some experts.

“It has the potential of being a big issue,” Rwamwenge said about the current legal framework.

He said that an environment where NGOs are allowed to use charity money and do business is not “a sustainable ecosystem” because they not only undercut prices for services offered by private businesses, but also eventually close shop and leave the country after killing locally-based businesses.

Westerholt agrees with Rwamwenge to some extent and he just wished the country had a legal framework under which initiatives like his can be registered and regulated.

He said that he would have registered his project as a social enterprise if there was a law in the country about that but he was instead compelled to register as an NGO even if his business model seeks to help people in need.

“What is missing is the framework for social enterprise. There is a bit of a grey area which needs to be addressed,” he said in an interview with The New Times on Monday.

The State Minister for Constitutional and Legal affairs, Evode Uwizeyimana, told The New Times back in January that social enterprises are very hard to define in legal terms although it’s a growing movement globally.

The minister said that the current legal framework in the country is able to accommodate social enterprises because they can choose to register as private companies, NGOs, or cooperatives.

“So far, we don’t know anyone who sought to work as a social enterprise and failed to register their company. We don’t feel there is a legal gap yet,” he said in an interview for an article about whether Rwanda needed a law on social enterprises.

But Uwizeyimana added that debate on whether Rwanda needs a special law on social enterprises should continue in order to be considered by the Government, which he said usually initiates legislation once the need for it in society is very well established.


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