Social Business - Is the Debate Going to Follow the Footsteps of Microcredit
By Abdul Hannan Chowdhury
In the rapidly changing business world, many concepts emerge, evolve and decline at pace faster than their own evolution. This has led to the development of innumerable business jargons whose rate of awareness and acceptance varies from country to country. One such buzzword happens to be ‘Social Business', a concept developed by Professor Mohammed Yunus, the Founder of the Grameen Bank and the pioneer in formalizing the practice of Microcredit. For his contribution in the field of microcredit and poverty alleviation, Professor Yunus won the Nobel Peace Price in 2006.
However, this novel concept did not fail to attract the attention and scrutiny of critics and there still is rampant debate regarding the effectiveness of Microcredit. Although, the concept and its models have been used all over the world with much success, it still garners significant criticism stating that in reality, it is actually charging the poor a much higher rate of interest than normal.
The criticisms reached a pinnacle last December when a Norwegian television documentary showcased that Professor Yunus illegally diverted Grameen money which was later clarified both by Grameen Bank and the Norwegian Government as investigations led to no evidence of misuse of funds. However, the documentary gathered vehement reactions from the local press and the government who left no stone unturned to criticise Mohammed Yunus and his endeavours.
Given the strength of retaliation micro-credit received, despite it being a globally accepted practice and making its founder win the Nobel Prize, it is not wrong to assume that the second revolutionary concept developed by Professor Yunus called Social Business, will attract similar kind of criticism
Social Business is a new kind of business model proposed by Dr. Yunus, where the business would be running to earn profit in order to solve a social problem. The reason it is more likely to attract negative publicity is because there is a lot of confusion regarding its true meaning. At the same time, the connection of micro-credit and its various loopholes make some people easily assume that this is another one of ‘fashionable' concept designed to cheat the poor. However, it is imperative for one to study the concept in greater detail before coming to wayward conclusions.What is a Social Business
A social business is a new kind of business. Its goal is to solve a social problem by using business methods, including sale of products and services. There are two kinds of social businesses, Type I and Type II.
Type I Social Business
This kind of social business is a non-loss, non-dividend devoted to solving social problem and owned by investors who reinvest all profits in expanding and improving the business. The investors can take back their original investment over a period of time, but cannot take any profit.
Type II Social Business
This kind of Social Business is a profit making company, owned by poor people, either directly or through a trust that is dedicated to a predefined social cause. Since the profits are directed towards poor people, this profit is automatically serving a social cause. The Grameen Bank, which has the poor people as its depositors and customers, is an example of this kind of social business.
What a Social Business IS NOT
There are many interrelated terms often used which may be thought of as synonyms to Social Business.
- Social Entrepreneurship:
Social Entrepreneurship relates to a person. It describes an initiative of social consequences created by an entrepreneur with social visions. This initiative may be a non economic initiative, a charity initiative, a business initiative, with or without a personal motive. Some entrepreneurs house their projects with traditional NGOs, while others can go with for profit activities.
A social business is a specific type of business, non-loss, non-dividend company with a social objective. A social business may pursue goals similar to that of a social enterprise, but its business model is unique and that's what sets it apart.
- Non-Profit Organizations:
- Foundations: These are charitable organizations created to disburse funds from one or more donors who seek to create social benefits through their giving. It is NOT a social business as its not financially self sustaining and does not generate any income from its activities and it does not have an owner.
- NGO: NGOs do a lot of good for the world but they are heavily reliant on donors. They do not have investors or owners. This makes them a weak model. It forces the NGO leaders spend a lot of time in trying to attract and gather funds. Also they have the perennial problem of running out of cash. However, a social business is designed to be self sustainable. The power of the business to endlessly recycle its profits gives it the opportunity to have a much greater impact than even the best run charity.
- Other Related Terms
- Cooperative: A cooperative is owned by its members. It is run for profit to benefit the member shareholders. Some co-ops do create social benefits. For example there are housing co-ops that make affordable homes for working class people, food co-ops that make nutritious food for the poor. However, they still run like a traditional profit maximizing business. Their structure is to generate as much individual profit as they can. There is nothing wrong with them...but they aren't social businesses.
- Social Marketing: Social marketing focuses mostly on marketing campaigns for the benefit of the society. With increased problems and crises in the world, it has become important for stakeholders to build awareness against myriad issues starting from anti-smoking campaigns to campaigns to stop global warming and so forth. Despite having similar names, social marketing really has nothing to do with the concept of social business
- Corporate Social Responsibility: CSR practices are those done by profit maximizing firms in order to fulfil their ‘responsibilities' towards the society. Hence, out of their whole profit, they may dedicate about 5% to CSR activities, whilst the remaining 95% will be for themselves. Although there is nothing wrong with the concept, it does not have anything to do with social business. A social business is designed to solve a social problem rather than contributing part of it for the society.
Social Business & Profit
Some people ask, why not combine the power of profit and social good, or ‘Doing well by doing good'. To some people, the idea of profit may make them more passionate about doing social good. Social businesses are not anti-profit making. However, it is a new category of business where the profit earned is reinvested into the company. It does not stipulate the end of the familiar profit maximizing model. Rather, it widens the market by giving a new option to consumers, employees and entrepreneurs. It brings a new dimension to the business world and a new feeling of social awareness among businesspeople.
Scope of Social Business
Although the concept is relatively new, it has received a lot of international attention. The pioneer of such a business is Grameen Danone Foods Limited where the French dairy giant Danone joined hands with Grameen to launch fortified yoghurt for the malnourished children of Bangladesh. This endeavour later rolled on to numerous other initiatives with multinationals like Veolia, Adidas who are happy to invest part of their profits for overall social well-being. At the same time, the concept also attracted a lot of academic institutions as a new business model and prominent institutions like HEC Paris, Glasgow Caledonian Univeristy, European School of Business, California State University, Kyoto University, National University of Singapore, Asian Institute of Technology and North South University in Bangladesh have started initiatives ranging from certificates to research in this area. The Grameen Danone venture was also written as a case for students both from HEC Paris and the Harvard Business School.
Of course the concept is not foolproof and it would be foolish to think so. However, it is still at a very premature stage and requires careful attention. Nevertheless, with time, experience and exposure it can prove to be a very strong weapon to combat if not all-some of the social issues the world is facing. At the time, it is also understood that all companies will not be interested to pursue this model but in its short span, it has already shown that significant number of companies see the promise this concept holds.
We feel that any small step taken towards the betterment of the society should be wholeheartedly welcomed by all. Unfortunately for Professor Yunus, such is not the case and it is felt that he is constantly under politically orchestrated attacks. In order to protect him from such defamation, eminent people from across the world have formed ‘Friends of Grameen,' a voluntary association that aims to promote micro-credit and social business. It can be hoped that under such a protective umbrella, social business can spread its wings and reach newer heights to solve social problems.
Abdul Hannan Chowdhury, PhD, is Professor, School of Business; Director, BBA Program and Director, Career & Professional Development Services at North South University
