In our most recent post, we illustrated the concept of a social business using a few examples of Grameen Bank social businesses. As defined by Prof. Muhammad Yunus, social business can be separated into two types: a “non-loss, non-dividend company … owned by investors who reinvest all profits in expanding and improving the business” and “a profit-making company owned by poor people, either directly or through a trust” (Yunus, 2010).
An example of Type II social business is Grameen Otto Textile Company
in Dhaka, but in lieu of being owned by the employees, the company is owned by Otto Grameen Trust, which distributes its profits for the welfare of the disadvantaged. The impact is two-fold: 1) low-income individuals have employment in a socially and environmentally friendly enterprise and 2) profits from the company impact poor people in the local community through needed social services (Yunus 2010).
Prof. Yunus’ debuted his model of social business in Creating a World Without Poverty (2007) and then further unpacked the idea in Building Social Business (2010), which elaborates on the principles and philosophy of social business, discusses the lessons and challenges learned, and explains practically how to start a social business. Hans Reitz, director of Grameen Creative Lab
(GCL) and Yunus developed seven principles of social business in the 2010 book:
- 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 maximization.
- 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.
- Environmentally conscious.
- Workforce gets market wage with better working conditions.
- …do it with joy.
At the core of Yunus’ philosophy is the idea that “social business is selfless business [and is] dedicated entirely to achieving a social goal” (Yunus in SOCR 2011). Unlike charity, the invested money in both types of social business produces further social returns because by “recycling profits, you can continue expanding to reach more people…. [Furthermore,] owners declare upfront that they will never take any dividend out of the company, [although they do receive their initial investment back, not accounting for inflation]” (Yunus in SOCR 2011).
Yunus, M (2010): Building Social Business: The New Kind of Capitalism that Services Humanity’s Most Pressing Needs, New York: Public Affairs.Yunus, M (2011): “Vision 2050: A Poverty-Free World Social Business – A Step Toward Creating A New Global Economic Order.” The Journal of Social Business, Social Business and New Economics Paradigm, Volume 1, No. 1, January 2011, Scotland: The Centre for Development (CfD).
Reed, L (2011): State of the Microcredit Summit Campaign Report 2011, Washington D. C.: Microcredit Summit Campaign.