Social Business

Presently, the dominant business form is the profit-maximizing business (PMB). Yunus proposes an alternative, and its promotion is the main goal of the book: the social business. A social business is a business, it is not a charity, it is not a non-profit. It operates on business principles and aims to cover its own costs, rather than rely on other funding as charities do. The difference between a social business and PMB is that the explicit goal of a social business is to solve a social problem, meet a social need and provide a social benefit. The product or service offered by a social business is not free. It charges a fee (and it can be extremely low fees) in order to cover its costs in order to be self-sustaining and to potentially grow and expand (much as Grameen Bank has done).

The major difference here is that the principle of profit maximization is replaced with the principle of social benefit. The success of a social business will not be measured by the size of its profits or the dividends distributed to its investors but how much of a positive impact it has had in solving, or at least alleviating, the social problem it was created to solve.

Another major difference between a PMB and a social business is that investors in a social business are entitled to recover the amount of their investment but the social business does NOT distribute dividends. Money made gets reinvested in the business itself. As Yunus puts it, a social business is a "non-loss, non-dividend business". The point is to generate profits to better serve the poor of the planet. So, a social business is

• self-sustaining
• self-propelling
• self-perpetuating
• self-expanding

Investors get their money back or remain owners of the company. But no dividends. Otherwise, then, social businesses will compete on the same terms as PMBs, against PMBs. Social businesses will target socially minded investors who are not in it for the money. Ideally, Yunus wants to have a social stock market where people could invest based on the success of various social businesses.

Two Types of Social Businesses

Yunus distinguishes two types of social businesses:

Type I: Companies that focus on providing social benefits rather than making a profit. The nature of the goods and services they provide is geared toward social benefit (food, housing, health care, education, etc.). These benefits can be social or environmental and they would be provided while covering the business's costs through the sale of goods and services, with no dividends.

Type II: PMBs that are owned by the poor. Here, the social benefit comes from the generation of profit and dividends distributed to the poor who own the company. The main goal then is the reduction of poverty through profit maximizing. The goods and services provided are not necessarily social benefits. The social benefit is the very ownership of the company. Grameen Bank is a Type II business.

And it is possible to have social businesses combining I and II. What is not possible, and Yunus is adamant about this, is to have hybrids of PMBs and social businesses. Overtime the PMB side would always take over the social side.

SOCIAL BUSINESSES ARE THE FUTURE

Nobel Peace Prize winner Muhammad Yunus urged Stanford students to use their talents to develop "social businesses" to solve pressing problems such as global warming, unemployment and poverty.

Yunus is famous for thinking small, but in a big way. He is a pioneer "micro-credit entrepreneur" whose Grameen Bank has 7.5 million impoverished borrowers with loans averaging less than $200 and a payback rate of 98 percent. He also focuses on silver linings: The world's economic crisis offers "an enormous opportunity" to design a fairer financial system, he said in a talk Friday at Stanford.

Now it's a question: who's more creditworthy, the rich or the poor?" Yunus said, drawing laughs from the standing-room-only audience. "So why don't we create a financial system that's an inclusive system?"

Technology offers a powerful weapon against poverty, Yunus said. He urged technology-minded students to live among the people they seek to help before designing their "high-impact social ventures."

This year, Grameen Bank opened a branch in Queens, New York, where Yunus said there are now 380 borrowers, all women, with average loan amounts of $2,200 without collateral and a 99.5 percent repayment rate.

"We follow the same procedures as in Bangladesh and when other things are collapsing it's as strong as ever."

New York borrowers have created businesses in areas such as child care, elder care, housecleaning and flower arranging.

"Today we're small, but if we can enlarge it to, say, 10,000 borrowers costs will be covered with an interest rate of 15 percent," Yunus said.

Grameen also makes interest-free loans to beggars in poor countries, he said. With average loans of $15, the bank encourages the beggars going house to house to carry cookies, candies or toys to sell, giving people the option to give money or buy something.

"More than 7,000 have stopped begging completely and the remaining 90,000 or so are part-time beggars, mixing begging and selling at the same time.

"It's an amazing experience to be of some help to a beggar," he said. "They're very smart -- they know which houses are good for begging and which are good for selling. They don't have to go to business school; they already know about market segmentation."

Yunus outlined numerous other Grameen ventures, including a hospital and a partnership with the French company Groupe Danone to produce low-cost yogurt containing nutrients Bangladeshi children are missing in their diet. Grameen also has partnered with a French water company, Veolia, to offer clean water in Bangladeshi villages at a price of a penny for 10 liters.

"People can bring their own container, take 10 liters and that's it," Yunus said. "If it works and pays back, then we can repeat it.

"Once you develop a prototype you develop a seed. Now multiply the seed and it can be everywhere.

"That's the challenge to young people in a school like Stanford -- to develop a social business, because that's where the future lies," Yunus said.

"We see every day how human beings are packed with unlimited capacity, unlimited potential. They're not helpless people; they're as capable as anyone else. It's that society never gave them an opportunity to unwrap that gift. It's a matter of removing the barrier.

"We have not allowed the bulk of the population on this planet to unleash their creativity and talents, and that is our loss," he said.

(Writer Chris Kenrick, a former editor at the Weekly, can be e-mailed at christina_kenrick@yahoo.com.)

Social Quality Web

The book "Creating a World Without Poverty" by Muhammad Yunus defines social enterprise as a dynamic means of solving economic, political, social and environmental problems. This private-sector approach has been developed by the Grameen Bank and many other organizations in its environment and is now a proven, successful scheme. It is applicable worldwide - even in rich countries.

The development of quality criteria and of the regionally adapted definition of poverty is especially important now. All other points can be resolved simply by applying the recipies from the book.

To collect and discuss the quality criteria and the regionally adapted definitions, we can use sqwww.blogspot.com immediately.
We want to build a social business, which eventually shall become capable to offer quality certifications in the field of social enterprise. The initiator of this site can offer the URL www.sqw.ch for this purpose.
NEW on 8.5.2009: The Project for Social Quality has begun !