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Friday, May 28, 2010

Yunus Speaks on Social Business: Impact without Profit

By Nilima Achwal

Muhammad Yunus on his "a-ha" moment while teaching economic theory at Chittagong University: "My theories are useless, but I am not...if I can be of help to one person each day, I will be a happy person."

Last Friday, I had the opportunity to listen to microfinance guru Muhammad Yunus speak in Chicago, where he was promoting his new book, Building Social Business: The New Kind of Capitalism That Serves Humanity's Most Pressing Needs. The Nobel Peace Prize winner developed the idea of microfinance and started Grameen Bank, which now loans $100 million/month and has a repayment rate upwards of 97%. Then, he diverged into the idea of "social business" with his previous book, Creating a World Without Poverty: Social Business and the Future of Capitalism. Now, Yunus promotes the concept further and describes his own partnerships with Dannon, Adidas, and others as examples of social businesses.

Social business, as defined by Yunus, is a venture whose sole mission is to create a positive impact on society through its good or service, and is thoroughly sustainable, or covers its costs. All profits are re-invested into the company in order to expand and create a greater impact. As with any market-based approach, social businesses increase their efficiency and quality through competition, but on the basis of social impact rather than profit. Social businesses, by the nature of being businesses, can scale up quickly and solve the world's problems.

Yunus envisions a world in which social businesses and for-profit companies thrive side-by-side. Instead of donating to charities, people will have the option to invest in a social business, creating more lasting change than donating to a charity, whose work may be limited by its dependence on funding. Soon, there will emerge a "social stock market" that functions alongside the traditional stock market. Since humans are multi-dimensional beings with aspirations other than just getting rich, unlike the one-dimensional profit-seeking drones as painted by traditional economic theory, most people will invest in both stock markets and choose social businesses on the basis of the social impact they create. There will be no dividends in the social stock market, only the satisfaction of helping to change the world.

Additionally, Yunus challenges us to creatively use social business tackle big issues in the "developed" world. As Moses Lee explained in his post about Detroit, there exist dire problems of access for those in poverty even in the US. Grameen's successes in offering loans to 3,000 borrowers in New York City demonstrate the applicability of BoP concepts to the worst dregs of the developed world. During the 2008 financial meltdown, Grameen accomplished a repayment rate of 99% for average loans of $15,000 in New York.

Yunus even applies his social business concept to seemingly insurmountable challenges. He suggests placing 5% of a welfare fund into a social business venture fund to encourage those on welfare to start social businesses or devising businesses that serve those who need healthcare in the US. He also champions placing 10-15% of charity to Haiti in a social business fund to encourage sustainable solutions and set a precedent for future crisis situations. He declares that solving these challenges is "all about how to use our creative mind."

Yunus argues against any profit at all in a social business; he feels that there is an inherent trade-off between profit and social impact, and that the profit motive will inevitably dominate. I ask you, NextBillion readers---do you think that social businesses are the preferred path to revolutionize the BoP? Perhaps social businesses can change the world more quickly and effectively. After all, a company that only has to cover its costs may have the freedom to implement change on a grander scale. On the other hand, will it be possible to attract investors to a purely social business? We see organizations such as Acumen Fund thriving with a requirement of both financial and social returns. However, we also know that people donate money to charities every year with no expectation of profit, and that those same people could channel their millions into social businesses instead. Nevertheless, maybe the profit motive is a necessary imperative for other ends, like scaling up efficiently.

We want to hear your experiences and opinions---let the debate begin.

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