Social Business corrects all constraints of nonprofit organizations. It also fill the gap that exists within capitalism which offers free market as a room for profit-maximizing businesses only. No room for businesses that aim to achieve specific social goals.
Social Business is therefore, a kind of business that designed to meet certain social goal(s). Prof.Muhammad Yunus describe social business as “non loss and non dividend business” and he developed seven principles of social business based on his experience at Grameen Bank, a bank that he founded to make small loans to the poor people. These principles are;
- 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.
- 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.
- Gender sensitive and environmentally conscious.
- Workers earn market wage with better working conditions.
- ..do it with joy.
Social business model was built on the fact that a human being (entrepreneur) is not one-dimensional being who seeks to earn profit only in the market. He/she can harness the opportunity of free market to pursues other goals other than making personal profits. Social business is a business that totally dedicated to solve social and environmental problems.
Its business organizational structure, this new business is basically the same as existing traditional for-profit companies. But it differs in objectives. Like other businesses, it employ workers, create goods or services, and provides these to customers for a price consistent with its objective. But its underlying objective-and the criterion by which it should be evaluated, is to create social benefits for those whose lives touches.
It may earn profit, but the investors who support it do not take any profit out of the company except recouping an amount equivalent to their original investment over a period of time. A social business is a company that is cause-driven rather than profit-driven, with the potential to act as a change agent in the world.
Therefore, a social business is not charity or any form nonprofit organizations that to a large extent depend on charitable donations, foundation grants or government support to implement their programs. And in many cases, most charitable organizations, nonprofit organization and foundations do not recover their total costs so called ‘break-even’. Social business however, is a business in every sense. It has to recover its full costs while achieving its social objective.
A social business creates products or services that provide social benefit. It pursues this goal by charging a price or fee for the products or services it creates. Its self-sustaining.
How can the products or services sold by social business create social benefits ? There are countless ways to do it, for example imagine:
- A social business that makes small loans to the poor without collaterals.
- A social business that manufactures and sells high-quality, nutritious food products at very low prices to a targeted market of poor and underfed children.
- A social business that develops renewable-energy systems and sells them at reasonable prices to rural communities that otherwise can’t afford access to energy.
- A social business that recycles and reuses garbage, sewage, and other waste products that would otherwise generate pollution in poor or politically powerless neighbourhoods.
As pointed out, any social-objective-driven project that charges a price or fee for its products or services but cannot cover its costs fully does not qualify as a social business. As long as it has to rely on subsidies and donations to cover its losses, such organization remains in the category of a Charity. But once such project achieves full cost recovery, on sustained basis, it graduates into another world of business. Only then can it be called a Social Business.
Another important way that social business differs from a charity or an NGO or a non profit group is that, social business like traditional for- profit companies, It has owners who are entitled to recoup their investments. Depending on legal requirement, in Tanzania this business can best be registered as corporation.
Yet, unlike charity or NGO or any nonprofit groups where funds given cannot be recouped, in social business investors get back their initial investment and remain the owners. Therefore, investing in social business is great deal. Once after initial investment there is no need to pump in money every year as social business is self -sustaining, self-propelling, self-perpetuating, and self-expanding.
Kinds of Social Business
Holding ‘social goal’ as a target of any social business, Prof.Muhammad Yunus proposes two kinds of social businesses. The first is based on the description above- a non loss, non dividend business that create products and services to maximize social benefit rather than maximizing profit.
The Second type of social business aims to maximize profit but its owned by the poor or disadvantaged. In this case, the social benefit is derived from the fact that the dividends (profit distributed to owners) and equity growth produced by the business will go to benefit the poor, thereby helping them to reduce their poverty or any social ills facing them.
So you can notice that the difference between the two is, in the first type its nature of products or services that create social benefit. With the second type its ownership of a business that create social benefit.
Well, my intention is to familliarize the concept of social business among Tanzanians especially young visionary social entrepreneurs who seek for sustainable means of changing our country’s social challenges. I’m sure that there are many social businesses out there..that work to improve people’s lives. But yet, many are unaware about kind of business they are doing. Yet, the concept or business model is still young worldwide.
The model was coined officially in early 1980s by Bangradeshi university professor of economics called Prof. Muhammad Yunus who following great femine that hit Bangladesh in 1974 and killed many people, he felt emptyness of teaching elagant economic theories in the class while outside people are starving. He wanted to empower local people especially women with micro credits so that they can start their own initiatives and thereby pull themselves out poverty. Unfortunately many commercial banks do not provide loans to the poor people simply because they’ve no collaterals. After many years of trials, 1883 he founded Grammen Bank (Village Bank) porpularly known as a Banker to the Poor that advances micro credits to poor especially women without collateral, just on handshake basis. Today, Gameen Bank gives loans to over seven million people, 97% of whom are women, in over 78,000 villages in Bangladesh. And worldwide there so many Grameen-like programs established including the so called ‘Village Community Bank’ (VICOBA) in Tanzania.
Prof. Yunus’s Dream is total eradication of poverty from the world. Grameen Bank he claims “is a message of hope, a programme for putting poverty into a museum so that one day our children will visit and ask how we could have allowed such terrible thing to go on for so long”-Banker to the Poor.
In 2006 Prof Yunus and Grameen Bank won Nobel Peace Prize and recently, World Bank acknowledged that this Grameen business approach has allowed millions of individuals to work their way out of poverty with dignity.
Are you Inspired ? Have you read the part one of this article ? Drop your comment bellow or write to me via Email:
Banker to the Poor (Muhammad Yunus & A. Jolis)
Creating a World Without Poverty: Social Business and the Future of Capitalism (Muhammad Yunus)