New Horizons for Poverty Alleviation: Beyond Microcredit

In the next posts we want to draw your attention to how microcredit in combination with other sectors like business, insurance, and healthcare can boost the efficacy of poverty alleviation initiatives and advance the second Microcredit Summit Campaign goal of ensuring that 100 million families rising above the US $1.25 per day purchasing power parity threshold by 2015.

Grameen’s latest cutting-edge initiatives pivot on Prof. Muhammad Yunus’ model of social businesses created to solve specific social problems without using charity. He distinguishes the model between 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).

Grameen Danone FoodsGrameen-Veolia Water Ltd., and BASF Grameen, Ltd. are Type I social businesses because their primary goal is to solve a problem, not make a profit. Grameen Danone Food fights child malnutrition through an affordable nutrient-enriched yogurt called Shokti Doi. Grameen-Veolia Water Ltd. improves access to clean drinking water by selling low cost, locally treated water to rural villages in Bangladesh. BASF Grameen combats malaria and child and maternal malnutrition by selling bug-repellent impregnated mosquito nets and dietary supplement sachets.

These three businesses were created with investment funds, which will be returned to the investors’ at zero interest. Success will be measured on their effectiveness in solving the targeted social problem, not on their financial return. However, each business will have to be managed efficiently to be sustainable and replicable.

As of last year Grameen Danone Foods, which began selling Shokti Doi yogurt in 2007, has not broken even. As Yunus described in his book Building Social Business, start-up social ventures require a steep learning curve and “growing pains” are inevitable. After analysis, Grameen Danone concluded that they needed to repackage their product and develop a two-tier system to sell the yogurt at an affordable price for the urban and rural populations. The 60 gram container is sold at 7 taka (USD 0.10), reasonable in the rural area, and the 80 gram container is sold at 12 taka (USD 0.16), high for the rural regions, but affordable in the capital Dhaka.

Check back in two weeks when we discuss Type II social business.

Yunus, M (2010): Building Social Business: The New Kind of Capitalism that Services Humanity’s Most Pressing Needs, New York: Public Affairs.