Tarek Ben Halim, a London-based investment banker of Palestinian and Libyan descent, once characterized himself as "a very nationalistic Arab and very proud of Arab history". Although he deeply loved his homeland of Libya, the images of destitution in the region stayed with him. The extreme rates of infant mortality and illiteracy among women. The children laboring in Egyptian quarries, deprived of education and a pathway out of poverty. The gravity-defying rise in unemployment among young people, and the deep malaise in far too many communities.

Despite those dispiriting realities, Ben Halim embraced the notion that "everyone has potential," even as he conceded, "not everyone has a chance." He argued that far too little was being done to address the great need. His conclusion: he and other successful Arab entrepreneurs had a responsibility to help the region’s most marginalized people build a brighter future for themselves and their children.

In 2000, Ben Halim acted. He resigned from his successful banking career, vowing to put his skills to work in the social sector. He would do this by supporting organizations that were devoted to "transforming lives in deprived communities" across the Arab region. But how to proceed?

Ben Halim knew that many small social enterprises — both for-profit and nonprofit — bring innovative approaches to address the region’s challenges. Some, like Inaash, which serves Palestinian refugee camps in Lebanon, are creating employment opportunities for refugee women. Others seek to better educate underprivileged students, as Educate Me does in Cairo’s slums.

He also knew that all too often, these ambitious organizations lacked the capital and capabilities to grow sustainably. To graduate from the start-up phase, they needed long-term funding and management guidance. However, both of these supports were in critically short supply in the Arab region’s nascent social enterprise sector in 2004.

At the same time, the global business sector was becoming increasingly adept at scaling growth-stage companies, with venture capital firms providing them with risk capital and management support. In the United States, philanthropists were increasingly using these venture capital techniques — a practice called — 'venture philanthropy' — to help position more up-and-coming social enterprises for long-term success.

Ben Halim decided to bring this venture philanthropy approach to the Arab region. His logic: if Alfanar could provide the funding, training, and management support to help local social enterprises grow their impact sustainably, they could empower communities to solve their toughest problems long after Alfanar's investment exit.

In 2004, Ben Halim founded Alfanar, the Arab region’s first venture philanthropy organization. "I’m not sure if it will succeed,” he said, “but Alfanar is a risk worth taking."

Alfanar’s approach breaks from the status quo in three important ways. First, rather than add to the sizable pools of funding for early-stage efforts and mature organizations, Alfanar addresses the funding gap for organizations in between those life stages. It targets growth-stage social enterprises that have pushed past the start-up phase and demonstrated some success, but still need help in extending their reach. To match their funding needs, Alfanar commits to making larger multi-year, flexible investments.

Second, rather than operate at the well-addressed ends of the financial returns spectrum — which ranges from no-repayment grants to investments with return expectations — Alfanar targets the gap in between. It refrains from obligating the social enterprises to deliver a financial return, so they have the flexibility to invest in themselves.

At the same time, Alfanar does offer partially repayable grants. "We want to train them to repay a portion of the funding, and to be ready for loans or for equity investments after we exit," explains Michelle Mouracade, head of Alfanar Lebanon.

Alfanar also opts to call the organizations that it funds "investees", to encourage a mindset of developing revenue-generating models for longer-term sustainability.

Third, unlike many of the region’s funders, Alfanar provides non- financial support. Ben Halim believed that helping investees with strategy, operations, and measurement would amplify their ability to deliver sustained and scalable impact. For every $1 in funding, Alfanar adds $0.42 in management support to each social enterprise. 

"Tarek knew that funding is necessary but not sufficient for change," says Myrna Atalla, Alfanar’s executive director. "The real glue to venture philanthropy is active management support."

With this vision in place, Alfanar set about testing its approach in Egypt, where the need was great — especially in fields such as education and women’s economic empowerment — and the relatively stable environment was conducive to venture philanthropy. The country also had a sufficient number of growth-stage social enterprises that were making an impact and demonstrating the potential to scale, and so would likely benefit from Alfanar’s model.

Even with these promising indicators, Ben Halim knew it would take a coordinated effort to confront the region’s vast, deep-rooted social development needs. In addition to launching Alfanar with his personal funds, he reached into his network to recruit people with diverse expertise, to serve as founding board members.

In 2009, five years after he launched Alfanar, Ben Halim tragically died from a brain tumour at the age of 54. Friends and family came together in his memory to affirm their belief in the sustainable impact movement he had launched. His vision and early success convinced Alfanar’s board that its approach was worth pursuing.

Under the leadership of chair Lubna S. Olayan, the board committed to growing and professionalizing the organization, and — in the decade since Ben Halim’s passing — Alfanar has evolved to become a regional leader in the philanthropy and social enterprise space.

Today, it has a diversified donor-investor pool comprising more than 2,000 individuals, corporates and institutions, who support Alfanar’s investments either through unrestricted funding or by giving to specific investees (restricted funding).

Alfanar looks to identify growth-stage social enterprises with the potential to drive social impact and become financially sustainable. It seeks to add two to three investees per year in each country. To qualify, the applicant must have been registered — as a nonprofit or for-profit — and have a proof of concept that is ready for growth capital. Applicants must also pass standard background checks and due diligence, before being presented to Alfanar’s investment committee and board.

A number of factors are tested, including the organization’s commitment to serving disadvantaged communities, a revenue model that ensures its sustainability, a desire to grow, and a strong leadership team. Importantly, Alfanar also tests the organization’s openness to receiving management support. Over a period of one to three months, Alfanar meets with the organization’s leadership team and board, interviews its suppliers and constituents, and reviews its audited financials.

"We are trying to track whether they understand their objectives, are structured around impact, have demonstrated the potential of their model, [and] are capable of generating revenue reliably," says Atalla.

Once Alfanar has identified an investee, it provides a year-long pilot investment of up to $45,000 to test the organization’s capacity to grow and sustain its operations. During that year, the investee seeks to demonstrate that it can reach agreed-upon performance targets, such as those around reach (number of students receiving courses), outcomes (number of women employed and their take-home income), and cost recovery. If this process reveals that an organization’s business model is unlikely to be financially viable and it will rely on fundraising to sustain it, Alfanar will exit.

Yet for most investees, Alfanar will then commit to a longer-term social investment. The agreed upon timeframe — typically a three-year duration, and up to five — is based on business plan projections. Over the course of this period, Alfanar provides funding of between $250,000 and $700,000. By committing to multiple years of support, Alfanar givrs investees the flexibility to think big, plan long term, and take calculated risks.

"People keep saying to these organizations ‘Think bold, think long term,’" says Atalla. "But if they don't know somebody is going to back them, how are they to do that?"

Alfanar’s nonfinancial supports help strengthen investees’ capabilities and set them on a path to sustainability. As Shenouda Bissada, head of Alfanar Egypt, explains, "Many of the organizations that we select do not yet have management structures and plans in place."

To address these needs, Alfanar provides a set of foundational supports to each investee: business planning and execution, management support, and impact measurement. In 2015, it launched the Alfanar Sustainable Social Enterprise Training (ASSET) program, which offers 12 training modules on both business and social entrepreneurship topics.

Alfanar also layers on customized supports to meet each investee’s specific needs, including connections to expert advisors, study trips to best-in-class enterprises from across other developing countries (such as BRAC’s poverty-alleviation programs in Bangladesh), and tools and technology.

A team of 15 full-time staff across Egypt, Lebanon, Jordan and the United Kingdom provides these deep supports, with each investment officer covering four investees. The standardized training curriculum and strong network of volunteer experts help Alfanar to keep this team relatively small, while still ensuring investees receive rich supports.

Based on what they learn from these measures, Alfanar works with investees to make evidence-based decisions about strategy, adjusts their targets if necessary, and identifies any additional supports they will need.

“What we're trying to do is transform reporting from being a chore,” says Atalla. “We want investees to experience it as a source of power that helps them make better management decisions.”

To foster its own learning and improvement, Alfanar asks investees to complete an anonymous survey twice a year. Investees often offer positive feedback, noting how the Alfanar team’s nonfinancial support helps to improve their performance. There is also constructive feedback. For instance, responses about the lengthy due diligence process led Alfanar to reconsider and streamline its approach.