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1-Page Summary of Building Social Business
How Microlending Led to Social Business
Muhammad Yunus was horrified by the famine in Bangladesh. He saw villagers begging for food and decided to do something about it. He took $27 from his own pocket, gave it to a group of borrowers, and told them to pay off their debt. After that experiment worked, he started lending money himself to help people out of poverty by giving loans directly to poor people without charging interest or requiring collateral. His idea proved successful in Bangladesh and inspired microfinance operations around the world.
Muhammad Yunus said that the world’s financial institutions are only helping a small amount of people. They aren’t doing enough to help poor people, and they shouldn’t be because everyone is born with creative gifts, and society should remake its institutions so all people can thrive. To do this, we need to establish social businesses.
In today’s society, there are two types of businesses: for-profit and social. A social business is similar to a typical business in that it must be sustainable and profitable. However, the investors of a social business don’t take any dividends from their investment. Instead, they use those funds to expand or cover contingencies. Governments could also divert money from welfare programs into these businesses because many people donate to charitable causes every year.
The Grameen brand has expanded in Bangladesh to include Grameen Danone (yogurt), Grameen Veolia (drinking water), BASF Grameen (mosquito netting), and Otto Grameen (textiles). The company also develops prevention-oriented clinics, creates nursing colleges, and founded a health sciences university.
Defining Social Business
There are two types of social businesses: Type I, in which investors reinvest profits for social good, and Type II where the business is owned by impoverished people. The first type adheres to seven principles: The business must improve society; it should be financially viable; returns only go back into the company; profits fund expansion; they must be eco-friendly; workers get market salaries with above-standard working conditions and there’s a spirit of positive good will that dictates the motto “do it with joy!”
Social business is not a new form of socialism or communism. It’s an alternative to privatization, which means that the government will give public assets to private companies. Social businesses provide more choice and innovation in the market because they draw on people’s creative capacity and can create solutions for challenges that only governments could handle in ideal circumstances.
Social business avoids combining the profit motive with the desire to do good for three reasons: First, it’s wrong for businesses to exploit people and make money off of them. Second, when a business chooses between profit and social aid, profit always wins. Third, positing social business as a separate kind of endeavor encourages similar outside-the-box approaches. For example, while addressing a need for credit in rural areas, Grameen Bank realized that other obstacles were affecting the poor there. In response they created life pledges which included eating better foods and disposing of waste properly.
Grameen Danone: A Case Study
Grameen and Danone have created a social business in Bangladesh that focuses on creating an affordable yogurt for the country’s children, half of whom are malnourished. The idea was sparked by a conversation between Muhammad Yunus and Franck Riboud, CEO of Paris-based Groupe Danone.
Danone and Grameen Bank experts built a plant that is partly powered by biogas waste converters and solar panels. They used local sweeteners to make yogurt, which was marketed with the help of a cartoon lion as its mascot. The yogurt was priced at 7 cents per cup when it launched in February 2007, below market price of 30 cents at the time.
