Earlier this year, Nobel laureate Prof. Muhammad Yunus was the invited guest speaker at MIT’s 142nd commencement. In his prepared remarks to the students he outlined how he started microcredit thirty plus years ago from a simple desire to free villagers near his university in Chittagong from the penalizing interest that they paid to moneylenders.
Today his organization, Grameen Bank, has grown to cover 7.5 million borrowers in Bangladesh, 97 percent of them women. From this beginning he has expanded to provide services and products in a number of areas ranging from health insurance, to affordable cell phone service with Grameen Phone to renewable energy solutions through Grameen Shakti.
Drawing from his successes with these businesses, Prof. Yunus has refined an overarching social business philosophy that he recently published in his latest book “Creating a World Without Poverty – Social Business and the Future of Capitalism“.
Prof. Yunus’ core contention is that by focusing exclusively on profit maximization for shareholders, capitalism tends to simplify human beings into one-dimensional, money-driven creatures. In reality, we all are multi-dimensional beings with interests in our society, our environment as well as our financial well being. His basic proposal is that that businesses need to consider two, sometimes opposing, objectives – maximizing profits and achieving some pre-defined social objective
In his proposed approach, ‘Social Businesses’ would have a primary social objective, would be run just like a for-profit with a goal of generating a sustainable income stream, but, other than repaying the initial investments of its investors, would not return any additional dividends. A Social Business would not be grant based or a charity.
By looking at the overall social issue with a fresh perspective unfettered by profit maximization, Prof. Yunus believes Social Businesses can develop new approaches and processes that can radically improve conditions around the world.
Why would one invest in a Social Business when there is no apparent financial return? Prof. Yunus maintains that many social organizations turn to governmental or foundation sources to provide financial support. Investing those same funds in a Social Business, as opposed to giving it away as a grant, would provide a greater return. Since, by definition, a Social Business is a sustainable entity, it will pay back the initial investment thus freeing up funds to be reinvested in other social endeavors. In addition, establishing Social Businesses to solve societal issues would help foster greater efficiency in the social sector. Encouraging sustainable business models in the social sector creates a virtuous cycle where businesses can help solve major issues while regenerating funds to be reused for other social purposes.
Prof. Yunus’ end vision is a parallel financial environment where there are hundreds of Social Businesses, where social investors can chose between investment alternatives in a dynamic ‘Social Stock Market’ and make informed decisions to channel their funds to support organizations that are making the most social impact.
Click here to see a longer version of this article that I wrote for Lokvani recently.