Following the author’s recent article regarding capitalism and anti-capitalism as approaches to sub-Saharan Africa’s development, this article considers the alternative approach put forward by Nobel Peace Prize winner Mohammad Yunus, of social business.

Dr. Yunus (pictured with Nobel prize) conceived social business through working for 30 years to help the poor to help themselves.

It began back in the 1970’s when he began lending small amounts of money to the poor, after he realised the difficulty they had in raising even tiny amounts of capital. This was due to the standard approach of official moneylenders, such as banks, of considering the poor not credit worthy. Where the poor could borrow money, they were forced into unfair agreements, which meant that they could never really profit in the long run.

‘The banker’s rules struck me as arbitrary and counterproductive. In effect, they meant that the bank would lend money only to people who already had money…[Therefore many people relied on the local moneylender who] would only give [them] money if [they] agreed to sell him all [they] produced at a price he would decide… on terms like these, it was virtually impossible to work [their] way out of poverty.’ (pg 46-47)

After much work, and overcoming many difficulties with bureaucracy, Dr. Yunus founded Grameen Bank, which became the world’s first social business. The purpose of the bank was to allow people to work themselves out of poverty, by getting small loans with no collateral, to give people the chance they need. Incredibly he found that the repayment rate was 99%, and the number of people who are no longer under the poverty line because of Grameen Bank totals around 58% of their seven million customers. (pg 240)

Social business is a system which, put simply, is exactly the same as any profit-led business, except for one element – rather than the motivation being profit, the motivation is to help the people the business caters for.

‘Entrepreneurs will set up social businesses not to achieve limited personal gain but to pursue specific social goals.’ (pg 21)

Social businesses are not charities, they do not rely on donations, and they are self-sustaining. Neither are they a socialist approach in the traditional sense, they are not based on anti-capitalist beliefs nor is the approach against capitalism or globalisation.

‘Globalisation, as a general business principle, can bring more benefits to the poor than any alternative. But without proper oversight and guidelnes, globalisation has the potential to be highly destructive.’ (pg 5)

He discusses the benefits that capitalism has brought through its free markets, technological and scientific advancements, wealth and other equally positive things. But he also considers the other side, the fact that half of the world lives on less than $2 per day. So whilst capitalism has incredible benefits, it also has massive downfalls that simply cannot continue.

‘There are many things that free markets do well… we see evidence of great wealth… technological innovation [and] scientific discovery… To be sure, capitalism is thriving…, but not everyone is benefiting… The divide between the North and South – between the world’s richest and the rest – has widened.’ (pgs 3-4)

To consider how capitalism can be improved, he argues that humans are multi-dimensional, and whilst profit is one motivation, people have other motives too, such as caring for the environment or helping the poor. This, as he points out, is evident in the huge sums of money donated to charities every year.

‘The many billions of dollars that people around the world donate to charitable causes every year demonstrates that they have a hunger to give money in a way that will benefit other human beings.’

Social business is not trying to replace capitalism, instead it is trying to build upon it, and improve it. Dr. Yunus recognises the need for motivation and for a society that includes profit-led business (which he calls ‘PMB’ – profit maximising business), but also recognises that there is the need for change.

‘To make the structure of capitalism complete, we need to introduce another kind of business – one that recognises the multi-dimensional nature of human beings.’ (pg 21)

What if instead of being given to charities, that money was given to social businesses? Rather than the money being spent and the charity always needing more, a social business would use that money to generate more money, and would not require continual funding. It would need investment at the initial set up as with any business, and if it was a success it would then generate money from that, would pay back the investors, and would be able to sustain itself and grow. The benefits of a social business would expand as the company grew, and the money invested would eventually make much more of an impact that if it had been given to charity.

‘…Investing in a social business has several enormous differences from philanthropy. First, the business one creates with social business is self-sustaining… You get more social benefits for you money. Second, investors… get their money back. They can reinvest in the same or a different social business…’ (pg 25)

So how would social business actually work?
As mentioned previously, all elements of a traditional business would apply, apart from the profit-motive. Therefore, all aspects of a business that relates to profit would need to change.

There are two types of social business that Dr. Yunus suggests (pg28-30). The first is one where investors start a business aimed at helping a group of people or a cause. An example would be a bus service that allowed people in remote rural areas to travel very cheaply to work. No dividends would be paid to the investors, they would get their original investment back, but would receive no profit. Any profit made by the business would be put back in, to help its customers more, for example by making the bus fares cheaper, or providing more buses. Therefore, there would be no shares, and the motivation of the investors would not be to make a profit.

The second type of social business would be one where the poor themselves owned the company, and all profit went to them. In this instance, the company would have shares, but they would only be able to be sold to the poor, and would not be able to be sold on to non-poor people.

These two cases are not mutually exclusive. Grameen Bank is an example of a company whose services help the poor by lending them small sums of money, and it is also owned by those same borrowers.

Dr. Yunus is not suggesting that these types of businesses should replace profit-led business, rather that they can both exist, and compete with each other. There should be several differences though, one of the most significant being that social businesses should have their own stock market, where value would be measured by the amount of good the company is doing, rather than how much money it is making.

One of the key questions with social businesses is who would actually start a social business? There are several possibilities here according to Dr. Yunus (pg 38-39).

Firstly, companies who are currently profit-led could start a separate social business enterprise with the profits they make. This has actually already happened with the Grameen Danone partnership, and there are apparently other large corporations interested.

Secondly, young people may create social businesses rather than pofit-led ones. This is something Dr. Yunus is particularly keen on. He believes young people are motivated to help the world, and currently are frustrated with the lack of ability to do so.

‘Young people around the world, particularly in rich countries, will find the concept of social business very appealing… When you grow up with ready access to the consumer goods of the world, earning a lot of money isn’t a particularly inspiring goal. Social business can fill this void.’ (pg 39)

Also, charities, entrepreneurs who have already made lots of money, wealthy retired people and programs like the World Bank may start social businesses.

In conclusion, it does seem that perhaps the foundations of social business make it a real potential new system. The fact that it builds on the current system by recognising both the benefits and downfalls of capitalism, and the fact that it accounts for human nature do seem to make it a strong idea.

If we consider Grameen Bank in terms of its social success, the signs are positive. As noted earlier, many people have risen out of poverty because of the Bank, many others are still being helped, and the company has made a profit every year of its existence (except for three years), all of which goes to the poor. The recognition of its success through the Nobel Peace Prize demonstrates that there is a belief in Dr. Yunus’ concept. And if Grameen Danone succeeds (it is possibly too early to tell) then it will likely convince others to start similar projects.

Clearly, there will be no overnight change, but there are already social businesses in existence, however they have to work within current business practices. If governments will recognise this new form of business, and encourage it, then perhaps the large-scale benefits could be realised within just a few decades.

All references are from ‘Creating a World Without Poverty’ by Mohammad Yunus (2007 USA: PublicAffairs)

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