A social business is 100% dedicated to solving social or environmental problems. It is a non-dividend company set up to solve a specific human problem. It operates like a normal company except for one main difference: 100% of company profits are reinvested into continuing the social mission.
And how is this different to a charity? A social business has a sustainable business model to deliver its mission. It is not reliant on grants or donations: instead it focuses on sales and generating diverse revenues. Crucially, the success of a social business is measured by its ability to solve social or environmental problems, not the amount of profit generated.
The concept of social business was pioneered by Nobel Peace Prize Laureate Professor Muhammad Yunus. He is a renowned Bangladeshi economist and founder of the Grameen Bank, which pioneered the concept of microcredit.
In 1976, he initiated his first microcredit experiment, personally providing small loans to impoverished villagers to empower them as entrepreneurs. His objective was to help poor people escape from poverty by providing loans on terms suitable to them and by teaching them a few sound financial principles so they could support themselves.
For his work providing small loans to entrepreneurs too poor to qualify for traditional bank loans, Yunus and Grameen Bank were jointly awarded the Nobel Peace Prize in 2006. The Grameen Bank, in essence, was a business designed to solve a pressing social problem.
Yunus developed the concept further and proposed a new form of business he termed “social business.” He subsequently propagated this model worldwide, initiating a global movement where businesses are dedicated to solving societal issues.
“I am proposing to create another kind of business, based on the selflessness that is in all of us. I am calling it social business.” Nobel Peace Laureate, Muhammad Yunus
The seven principles guiding social business as defined by Muhammad Yunus are straightforward:
- Social mission: The primary objective is to eradicate poverty or address social problems in areas such as health, education, technology access or environmental sustainability. Maximising profit is not the goal.
- Economic viability: The business must be financially and economically sustainable.
- Limited dividend: Investors can only recoup their investments; no dividends are distributed beyond this amount.
- Profit reinvestment: Once investments are recovered, profits are reinvested in the business for improvement and expansion.
- Social responsibility: Environmental sustainability and gender equality are promoted.
- Fair compensation: Employees receive market wages and favourable working conditions.
- Do it with joy: The endeavor is approached with enthusiasm and positivity.
These principles contrast with a profit-maximising business, where creating shareholder value is the prime objective. A social business aims to create social benefits rather than shareholder wealth.
For example, Grameen-Danone Foods is a social business joint venture between Grameen Bank and the French dairy company Danone. It provides affordable nutrition to malnourished children in Bangladesh. It produces and sells yogurt fortified with micronutrients at an affordable price, with the goal of alleviating malnutrition, not maximising profits.
The social business model also differs from a traditional non-profit or charity. Rather than relying on donations and grants, a social business is financially self-sustaining. This gives the business much more freedom to plan and execute its social mission. The business can operate with flexibility according to what the environment needs rather than being constrained by donor requirements or fundraising needs.
Image credit: Kick4Life
