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.