Social business

A social business is a non-loss, non-dividend company designed to address a social objective. The profits are used to expand the company’s reach and improve the product/service.

Definition

Social businesses can be defined as follows:

Social business is a cause-driven business. In a social business, the investors/owners can gradually recoup the money invested, but cannot take any dividend beyond that point. Purpose of the investment is purely to achieve one or more social objectives through the operation of the company, no personal gain is desired by the investors. The company must cover all costs and make profit, at the same time achieve the social objective, such as, healthcare for the poor, housing for the poor, financial services for the poor, nutrition for malnourished children, providing safe drinking water, introducing renewable energy, etc. in a business way. The impact of the business on people or environment, rather than the amount of profit made in a given period measures the success of social business. Sustainability of the company indicates that it is running as a business. The objective of the company is to achieve social goal/s.

In his book Creating a World without Poverty - Social Business and the Future of Capitalism, Professor Dr. Muhammad Yunus defines what a social business is and what it is not. It boils down to the following requirements:

1. social objectives: it needs to have positive social objectives (help comes from the altruistic social services that the business provides to the poor): e.g. health, education, poverty, environment or climate urgency
2. non-profit distribution: investors cannot take profits out of the enterprise as dividends.
3. A business may also be classed as a social business if is owned by the poor, and therefore the profits directly work to achieve the social objectives of the business, hence this second definition.

It is often owned by the poor or disadvantaged (dividends and financial growth return to the poor where their fiscal situations are helped bringing them out of poverty): e.g. women, young people or long-term unemployed.

A social business is driven to bring about change while pursuing sustainability. Although from a strictly profit-maximizing perspective it seems inappropriate to pursue a goal other than profit, social business’s aim is to achieve certain social and environmental goals.

Others, including Catalyst Fund Management & Research, argue that there is no benefit in restricting a company's ability to distribute profit to investors and that this may in fact serve to reduce a business's access to much-needed capital. Capital restrictions may then compromise the company's ability to achieve its social aims.[1]

Professor Dr. Muhammad Yunus, a key proponent of the social business model, argues that capitalism is too narrowly defined. The concept of the individual as being solely focused on profit maximizing ignores other aspects of life, religious, ethical, emotional, and political. Failures of this system to address vital needs, that are commonly regarded as market failures are actually conceptualization failures, i.e. failures to capture the essence of a human being in economic theory.

Yunus postulates a new world of business in which profit-maximizing enterprises and social-benefit-maximizing enterprises coexist. In addition, a social business would operate much like a profit-maximizing business in that the company as a whole grows financially and gains profits. The only difference is that the company's shareholders and investors would be re-accumulating their initial investment as opposed to receiving dividends. He calls the latter social business.

Key ingredients to the success of the approach are education, institutions to make social businesses visible in the market place (a social stock market), rating agencies, appropriate impact assessment tools, indices to understand which social business is doing more and/or better than other social businesses so that social investors are correctly guided. The industry will need its Social Wall Street Journal and Social Financial Times.

Features and goals

A social business is featured to be as follows :

• To be designed and operated to pass on all the benefits to the consumers.
• To be operated without incurring losses.
• To be operated competing with Profit Maximizing Enterprises (PMEs).

Profit making by an SBE shall be consistent and desirable because:

• To generate enough surplus to pay back the invested capital to the investors as early as possible.
• To generate surplus for — (i) Expansion, (ii) Improvement of quality, (iii) Increasing efficiency through introducing new technology, (iii) Innovative marketing to reach the deeper layers of low-income people and disadvantaged communities and (v) Undertake research and experimentation to improve and diversify products and services.

Seven Principles of Social Business

These ^[1] were developed by Prof. Muhammad Yunus at the World Economic Forum in Davos, January 2009

• Business objective will be to overcome poverty, or one or more problems (such as education, health, technology access, and environment) which threaten people and society; not profit maximization

• Financial and economic sustainability

• Investors get back their investment amount only. No dividend is given beyond investment money

• When investment amount is paid back, company profit stays with the company for expansion and improvement

• Environmentally conscious

• Workforce gets market wage with better working conditions

• …do it with joy

Grameen Danone

Grameen Danone ^[2] is the first project implemented as a joint venture between Grameen Trust and the Danone Groupe. As many as fifty dairy plants are to be established under this project. The first plant was inaugurated on 7 November 07 by French football icon Zinedine Zidane. It is a small plant on only 7,000 sq ft (650 m²) at an area cost of USD 1.00 million approximately. Its production capacity is 3,000 kg yogurt per day with a maximum of 10.000 kg. Currently its production of yogurt is designed for children but it is suitable for adults. Yogurt is manufactured from fresh milk, cornstarch, date molasses, sugar and micro nutrients (vitamin, iron. protein, iodine, zinc, calcium, etc). The product is branded “SHOKTI DOI”, meaning 'energy yogurt’. A single 80-gram cup provides 30 percent of a child’s daily requirements of vitamin, iron, zinc and iodine. The cost of production is approximately 5 cents (USD) per cup which is sold for Taka 7 only. Rural women as well as tiny shops in rural areas are engaged in the product selling process. In order to procure milk from local sources, the project is actively considering developing about 500 mini-dairy farms with 3-5 cows each. Such farms will be supported with micro credit by Grameen Companies and the Grameen Bank.^[3]

See also

• Market failures
• Micro credit
• Social entrepreneur
• Social entrepreneurship
• Social enterprise
• Double bottom line
• Triple bottom line
• List of social enterprises
• Sustainopreneurship

References

• Yunus Centre Website
• Yunus, Muhammad, Social Business Entrepeneurs Are the Solution
• Fleischer, Daniel (2001), thesis Profit with a conscience, can business be good? London School of Economics and Political Science
• Yunus, Muhammad (2008), Creating a World Without Poverty: Social Business and the Future of Capitalism

External links

• Yunus Nobel Peace Prize lecture
• Muhammad Yunus: Building Social Business Ventures Video at youtube.com
• The Grameen Creative Lab
• YunuSphere - Expanding Dr. Yunus' Sphere of Influence - Proposing "Usury-Free Banking" as "Social Business"
• ClearlySo.com - "the first online marketplace for social business, enterprise and investment".
• Catalyst Fund Management and Research
• Socialinvestments.com
• LAMA Development and Cooperation Agency
• Social Business - A Step Toward Creating a New Economic and Social Order, Second Annual Professor Hiren Mukerjee Parliamentary Memorial Lecture