Social business

Muhammad Yunus’ definition : a non-loss, non-dividend company

In his book Creating a World without Poverty – Social Business and the Future of Capitalism, Prof. Dr Muhammad Yunus defines what a social-business is and what is not. A Social Business is a non-loss, non-dividend company designed to address a social objective: it is a cause-driven business. The business operates without incurring losses.

According to him, a social-business must have these following requirements:

  1. First definition: a social-business has a social objective and no profit distribution.
  • A social objective: the business needs to tackle a social problem.
  • Non-profit distribution: investors cannot take out profits out of the enterprise as dividends. Actually, the investors can gradually recoup the money invested, but cannot take any dividend beyond this point. No personal monetary gain is desired by the investors, as the purpose of the investment is purely to achieve one or more social objectives through the operation of the company.
  1. Second definition: A business may also be classed as a social business if it is owned by the poor, and therefore the profits directy work to achieve the social objective of the business.

Profit and social business

The success of a social business is measured by the impact of the business on people or environment, rather than the amount of profit made.

But profit making is consistent and desirable to generate surplus:

  • To pay back the invested capital to the investors as early as possible;
  • To expand and reach the deeper layers of low-income people and disadvantaged communities;
  • To undertake research and experimentation in order to improve and diversify products and  services;
  • To increase efficiency through the introduction of new technology.

However, according to the Pr. M. Yunus, it is crucial to clearly define a social business in saying that it has not as goal to seek any profit and to give any dividends. He puts forward 3 main arguments:

  1. The moral argument: it is immoral to maximize profits when trading with the poor.
  2. The pragmatic argument: if a company has a double bottom-line and looks both social impact and profits, in period of crisis this goal of generating profit will systematically gain momentum, at the expense of the social goal of the social-business.
  3. The systematic argument: the social-business concept is an alternative to the traditional enterprise maximizing profits and to charities, it is absolutely crucial to be very clear in the definition of a social-business to change minds and foster new ways of thinking.

In a word, a social business has to be financially self-sustainable, but profit seeking is not a goal, just a condition.

 

The Seven Principles of social business

These principles were developed by Prof. Muhammad Yunus at the World Economic Forum in Davos (2009), thanks to the help of Hans Reitz from the Grameen Creative Lab:

  1. Business objective is to solve one or more problems which threaten people and society, not profit  maximization;
  2. The Social Business is financially sustainable;
  3. Investors get back their investment amount only. No dividend is given beyond investment money;
  4. Company profit stays within the company for expansion and improvement
  5. The business is environmentally conscious
  6. Workforce gets market wage with better working conditions
  7. … do it with joy !

 

The debate about the definition

Others argue that there is no benefit in restrictig a company’s ability to distribute profit to investors because such a restriction should compromise the company’s ability to achieve its social aims. This should lead to the definition of a social enterprise, in which the conditions about ownership are somewhat different.

 

Examples of social businesses

Grameen Danone

Grameen Danone Foods is a joint venture launched by Grameen (the “Bank of the poor”) and Danone in March 2006 as a business but its priorities are reversed. The project was born following a meeting between Prof Muhammad Yunus and Danone’s CEO Franck Riboud. The mission of Grameen Danone Foods is to “reduce poverty by bringing health through food to children using a unique community-based business model”, following both Danone and Grameen goals. The main product is branded “Shokti Doi”, meaning “energy yogurt”. A single 60-gram cup provides 30% of a child’s daily requirements of vitamin. Rural women as well as tiny shops in rural areas are engaged in the product selling process. Milk is produced locally and local farms are supported with micro credit from the Grameen Bank. The success of the Social Business is above all judged on non-financial criteria: the number of direct and indirect jobs created, improvements to children’s health, protection of the environment…

Prof M. Yunus has launched many other joint ventures with other blue-chip companies since this first experience, such as Grameen Veolia Water which aims at providing clean and safe water to villagers in the poorest parts of Bangladesh. Many other projects are in progress, for example:

  • Grameen Adidas, to create the first shoe accessible to the poor, with a price of 1€ or less;
  • BASF Grameen, to provide medicine at the lowest cost;
  • Grameen Intel, to improve the access to health for the poor thanks to information  and communication technologies

 

Grameen Bank

The only type II social business (owned by the poor) at the moment is the Grameen Bank.

The Grameen Bank is a microfinance organization and community development bank started in Bangladesh that makes small loans to poor people without requiring collateral.

The system of this bank is based on the idea that the poor have skills that are under-utilized. The overwhelming majority (98%) of its borrowers are women, since women are key to the development of a country, responsible of the education of children and more stable in their work than men.

The origin of Grameen Bank can be traced back to 1976 when Professor Muhammad Yunus, Professor at University of Chittagong, launched a research project to examine the possibility of designing a credit delivery system to provide banking services targeted to the rural poor. The activity began when he lent $42 to 27 people in a small village in Bangladesh.

The model of microfinance has been duplicated in almost every developing countries and also developed countries, proving than social innovation can come from the developing world : this is the concept of reverse innovation. The organization and its founder, Muhammad Yunus, were jointly awarded the Nobel Peace Prize in 2006.

 

Here is a video of Pr. M. Yunus speaking about the social business model :

Do you think another capitalism based on social-business is possible ? -> Comment !

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