The Victorian government is committing $5m to help develop the social enterprise sector – which is made up of businesses that exist to fund social projects.

Victoria is a centre of social enterprise, home to a quarter of the country’s 20,000 social enterprises, such as the Thankyou Group (bottled water and other grocery items), STREAT (homelessness and unemployment) and Green Collect (recycling).

Social enterprises act as an alternative to using government funding or charities to deal with social problems. Instead, they provide goods or services with the intention of being profit-making businesses.

Those profits are then directed towards issues such as unemployment, the environment, disability, poverty, homelessness, integration of new immigrants and other areas of disadvantage.

The minister for industry and employment, Wade Noonan, says a key part of the new strategy is to use the state government’s purchasing power to benefit the sector. A new social procurement framework will allow government contracts to buy from social enterprises.

This already happens to some extent but in a piecemeal way: the Level Crossing Removal Authority, for example, requests that all tenders include a “social procurement plan”.

As such, the project to remove two level crossings at Bayswater has sourced its 90,000 plants for landscaping from Yarra View Nursery, which employs 100 people (a high proportion of whom have a disability).

“In many respects, that will act as a model for further work that we can do as a government,” Noonan says.

As a result of Yarra View Nursery’s work at Bayswater, other level-crossing removal projects and the $5.5bn Western Distributor river crossing project will have social procurement plans.

The Victorian government allocated $2.4bn in its 2015-16 budget to remove at least 20 dangerous level crossings by 2018.

“Beyond that, part of the [new] strategy is to develop a whole-of-government social procurement framework in relation to government projects,” Noonan says. “We want to embed this as part of our procurement activities.”

The state government will spend its $5m allocation (from the $53m Jobs Victoria Employment Network) on eight key initiatives including: establishing a new social enterprise network across Victoria to better connect the sector; building an online market to connect buyers with social enterprises; and offering training opportunities and support for more than 100 social enterprises to expand their business.

Noonan says government assistance will help raise the profile of social businesses, which are generally small in size, employing fewer than 200 people each. “They are not large and they don’t have a depth of resources that other businesses might have.”

“[Social enterprises] are quite happy to compete on price but where they would look for government to provide a level of support is assisting in the networking, in building capacity and providing training.”

Noonan says while the federal government and other states and territories have had grants and funds to encourage social enterprises, Victoria is the first to offer a comprehensive strategy. “[Before this] there has been no whole-of-government social enterprise strategy – which is quite surprising since available research suggests there are about 20,000 social enterprises in Australia,” he says.

The sector is also fast-growing: more than 50% of social enterprises were established in the past five years.

One of the driving forces in Victoria is Social Traders, a not-for-profit company set up in 2008 to support and develop the sector with seed funding from the Victorian government and the philanthropic organisation the Dara Foundation.

The managing director of Social Traders, David Brookes, has said he is excited about the way the state government is engaging with social enterprise. “My view is that Victoria is leading the way with social enterprise here is Australia,” he said in an earlier interview with Guardian Australia.

Brookes says there is a view among young people that changing employment patterns mean they will have to create their own jobs.

“Young people are, increasingly, being brought up to think more laterally, more innovatively, and there is more need for innovative and entrepreneurial approaches to the way you work, do business and the way in which you tackle social and environmental issues,” he says.

“A big proportion of the people we work with are young people who are looking to run and set up a business. But they are not looking to set up a traditional commercial business, they are wanting to set up a social enterprise.

“They want to use their skills, but they want to create a positive impact in society or the communities in which they live.”