HM: Here are his seven principles of social business:
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 is paid back, company profit stays with the company for expansion and improvement.
Workforce gets market wage with better working conditions.
Do it with joy!- Advertisement -
Investors who invest in a social business get their initial loan back, but interest-free. So, it is a way to recycle their charity.
JB: Where did all these ideas come from?
HM: This idea came about as he was trying to help the people he was working with. At first, it wasn't more than just solving problems in a very straightforward business way. He was providing services that a new government with a huge population - and a significant number of those deeply impoverished - could not do. I don't think he had a word for it until he was visiting France in 2005 and the head of Danone, Frank Riboud, invited him to lunch. It was during lunch that the idea of Grameen Danone was born. At the meeting, Yunus proposed that Danone would put up the money to start a venture in Bangladesh to help the malnourished children. They would help create the product, do the research and work together to run it. They ended lunch with a deal in place.
He called Mr. Riboud the next day to make sure they were clear on the terms, because he wasn't certain that Mr. Riboud had really wanted to agree to creating a business that would bring Danone zero profit. Mr. Riboud assured him that he had understood perfectly.
Since then, Yunus has written two books* on the topic and formalized the idea. His version of social business is quite strict in that investors should get zero profit from the company. And I wouldn't be surprised if he draws such a firm line in the sand because he's seen so many microcredit groups start off with good intentions, but then have veered off to charge higher interest rates than even the money lenders he was trying to get away from. He wants to make sure that social business stays pure so that it can not be greenwashed.
A lot of people think that social business may be more complicated than other business but, in reality, these are all just really simple solutions. And, since you don't have to focus on profit maximization to make your investors happy, you can just focus on what your clients need. The biggest challenges are probably getting the initial investment and then figuring out efficient ways to scale. And certainly, in Bangladesh, because of the large population of impoverished people, they have a large clientele, which allows for such growth.
Village kids smiling by Still shot courtesy of http://bonsaimovie.com
JB: Let's take a break here, Holly. We'll have lots more to talk about in the next two installments of this interview. Readers, I hope you'll join us.