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An insight into Social Business

 

Abstract

 

The aim of this article is to study the phenomenon of social business and gain an understanding of their nature, operations, objectives and implications by using the book “Building Social Business” by Professor Dr Yunus .The article also investigates the criticisms of social business and difference between social business and CSR. Finally the article discusses the sustainability and future of social business.

Introduction

Social business is a cause-driven business. In a social business, the investors/owners can gradually recoup the money invested, but cannot take any dividend beyond that point. Purpose of the investment is purely to achieve one or more social objectives through the operation of the company, no personal gain is desired by the investors. The company must cover all costs and make profit, at the same time achieve the social objective, in a business way. The impact of the business on people or environment, rather the amount of profit made in a given period measures the success of social business. Sustainability of the company indicates that it is running as a business. The objective of the company is to achieve social goal/s. Social business is about making complete sacrifice of financial reward from business. It is about total delinking from the old framework of business. It is not about accommodation of new objectives within the existing framework. Unless this total delinking from personal financial gain can be established you'll never discover the power of real social business. Sometimes you can set up a technically correct social business with the purpose of making profit through your other companies by selling products or services to this social business company. This will be a clear sabotage of the concept. There may be many other subtle ways by which one can weaken the concept and practice of social business. Genuine social business investors must make all efforts so that he does not walk into this trap unwittingly.

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 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

Social business VS CSR (Corporate social responsibility)

There are many interrelated terms often used which may be thought of as synonyms to Social Business. Such as:

  • Social Entrepreneurship • Non-Profit Organizations • Foundations • NGO • Cooperative • Social Marketing • Corporate Social Responsibility

Many people get confused between CSR and Social business but the two are totally different things. Social Business- its goal is to solve a social problem by using business methods, including sale of products and services. There are two kinds of social businesses, Type I and Type II.

Type I Social Business This kind of social business is a non-loss, non-dividend devoted to solving social problem and owned by investors who reinvest all profits in expanding and improving the business. The investors can take back their original investment over a period of time, but cannot take any profit.

Type II Social Business This kind of Social Business is a profit making company, owned by poor people, either directly or through a trust that is dedicated to a predefined social cause. Since the profits are directed towards poor people, this profit is automatically serving a social cause. The Grameen Bank, which has the poor people as its depositors and customers, is an example of this kind of social business.

Corporate Social Responsibility: CSR practices are those done by profit maximizing firms in order to fulfill their ‘responsibilities' towards the society. Hence, out of their whole profit, they may dedicate about 5% to CSR activities, whilst the remaining 95% will be for themselves. Although there is nothing wrong with the concept, it does not have anything to do with social business. A social business is designed to solve a social problem rather than contributing part of it for the society.

Future of social business

Tthe concept is not foolproof and it would be foolish to think so. However, it is still at a very premature stage and requires careful attention. Nevertheless, with time, experience and exposure it can prove to be a very strong weapon to combat if not all- some of the social issues the world is facing. At the time, it is also understood that all companies will not be interested to pursue this model but in its short span, it has already shown that significant number of companies see the promise this concept holds.

We feel that any small step taken towards the betterment of the society should be wholeheartedly welcomed by all. Unfortunately for Professor Yunus, such is not the case and it is felt that he is constantly under politically orchestrated attacks. In order to protect him from such defamation, eminent people from across the world have formed ‘Friends of Grameen,' a voluntary association that aims to promote micro-credit and social business. It can be hoped that under such a protective umbrella, social business can spread its wings and reach newer heights to solve social problems.

Criticism

In the rapidly changing business world, many concepts emerge, evolve and decline at a pace faster than their own evolution. This has led to the development of innumerable business jargons whose rate of awareness and acceptance varies from country to country. One such buzzword happens to be 'Social Business', a concept developed by Professor Mohammed Yunus, the Founder of the Grameen Bank and the pioneer in formalizing the practice of micro credit. For his contribution in the field of micro credit and poverty alleviation, Prof Yunus won the Nobel Peace Prize in 2006. The concept and its models have been used all over the world with much success, it still garners significant criticism stating that in reality, it is actually charging the poor a much higher rate of interest than normal. Given the strength of criticism micro credit received, despite it being a globally accepted practice and making its founder win the Nobel Prize, it is not wrong to assume that the second revolutionary concept developed by Prof Yunus called Social Business, may also attract similar kind of criticism.

Is social business sustainable?

A social business requires the society’s participation and such model offers possibility that after a period of incentives and encouragement, government or donor support, it would be possible to be sustainable by itself. It is sustainable because people find it convenient and valuable, profitable because it no longer depends on the funding and just, because it powerfully changes people’s lives. I believe creating a sustainable social business lies on two things 1) the right people and 2) having a good business sense. The right people know what they are doing, know about the community and the culture, and know what the community needs. Having a good business sense means not just measuring the profits but counting how many people are helping.

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