“I do things which I know nothing about and I throw myself at them.”
You have to admire the entrepreneurial spirit of Professor Muhammad Yunus, speaking two weeks ago at a convention in Bangkok to a gathering of 20,000 people.
Unremarkably I suppose, Prof Yunus’ speech was not unlike the lectures I had sat through during my college days, and I found myself scribbling down notes in short-hand, trying to capture the little gems of ideas that he so effortlessly tossed our way.
For those who don’t know (and you can catch yourself up here and here), Muhammad Yunus is the venerable ‘father of microfinance’ and founder of the Grameen Bank – for which he and the Bank won the Nobel Peace Prize in 2006. Most recently, Prof Yunus has become a vocal proponent for what he calls ‘social business‘; creating businesses that exist to serve and employ the poor, rather than make profit.
After meeting the man himself and doing a little digging of my own, the question I am left with is this: is Yunus’ model of non-dividend, essentially non-profit social business the most efficient way to create social impact and help the poor, or is it really just a new form of charity?
Prof Yunus insists that investors in social businesses should only recoup the principal on their investments, without any profit. This is enshrined as one of the “seven principles of social business” he has crafted, where is states that, “Investors get back the investment amount only. No dividend is given beyond investment money”.
Some in the microfinance and social business space see this as a radical view, as many prefer to think of social business as a way that entrepreneurial individuals and companies can do good and make a profit.
Yunus gives examples of the numerous partnerships and joint ventures that he has brokered with big business – including venture between Danone and Grameen Bank to create dessert snacks rich in essential multivitamins for children, as well as the €1 Nike shoe and the affordable sanitary napkin designed by Uniqlo, all of which target the extreme poor.
Undoubtedly, these public-partnerships are transforming charity by approaching the poor as a customer – a far more empowering position than beneficiary. It is clear though that these are all global companies that can afford to do social business ‘at cost’, only recouping their initial investment and not making a profit on the products.
Yunus’ philosophy of social business is limited to the realm of the biggest and wealthiest companies with extra cash to spend to create social impact. Arguably, many more of these innovative joint ventures would occur with for-profit businesses of all sizes if they were able to measure their success by the social impact and the financial return. With 1.4 billion people still living in extreme poverty (that is less than US$1.25 per day), it is unclear how social business by Yunus’ definition can be scaled up to meet these needs.
On the other hand, the greatest challenge to social business as a profit-making venture is a moral one. For how can we ensure that business – which has traditionally been about maximizing profits regardless of the social or environmental impact – does not take advantage of the world’s poorest and most vulnerable people?
According to Elizabeth Rhyne, for-profit social enterprises are already challenging the assumption that non-profits are inherently more virtuous. Many microfinance institutions for example, have morphed from non-profit to for-profit enterprises to increase their access to capital and scale up their social impact. These for-profit enterprises write into their corporate documents a commitment to their customers (the extreme poor) as well as investors. While investors in these social enterprises may sometimes (though not necessarily) expect a below market rate of return, they do expect a significant SROI (social return on investment).
In the world of philanthropy, major foundations like the Bill and Melinda Gates Foundation regularly give grants to for-profit enterprises to create social impact, recognizing the valuable role that social entrepreneurs can play in scaling up business solutions to social problems, without relying on a constant stream of donor funding.
New for-profit legal structures for social enterprises like L3C (low-profit enterprise) or B Corp (benefit corporation) in the US also provide a vital legal framework and oversight of socially-conscious business practices to build trust in profitable businesses with a social mission. Below is B Corp’s ‘declaration of interdependence’ that its members commit to, placing business at the service of ‘shareholders and stakeholders’.
Prof Muhammad Yunus’ concept of social business that serves the poor as a customer and B Corps’ definition of enterprise that can serve ‘stakeholders and shareholders’ are both pushing towards a future where business and social impact collide. Yet in practical business terms, they differ greatly.
In my view, if we want to create a corporate landscape where businesses integrate being “good” into the core of their business, and charities find enterprising ways to fund their activities and attract and retain the best staff, “profit” – measured by a financial and social return – needs to be part of the equation.
When Professor Yunus ended his speech in Bangkok with the resounding call – “let’s decide to put poverty in the museum!” – it was certainly rousing. But we may disagree on how that is going to be achieved.
take a breath 