Writings on Social Entrepeneurship
Rebuilding Through Social Enterpreneurship and Social Business Entrepreneurs are the Solution
By Dr. Muhammad Yunus – Nobel Peace Prize Winner
Rebuilding Through Social Enterpreneurship
On television in Bangladesh, I watched with great sadness the horrors Katrina unleashed on New Orleans and the Gulf Coast. I was so tempted to be there to participate in post-disaster activities, as we have so much experience with these kinds of disasters. But I knew my American friends did, too. Having studied at Vanderbilt and traveled extensively in the affected areas names of places and faces of people were so familiar. A friend of mine from Ecuador even sent me a picture taken in Biloxi 39 years back to remind ourselves that we were there!
The post-Katrina recovery is time to tap the social entrepreneurial spirit of Gulf Coast. Based on lessons from years of disastrous floods and cyclones in Bangladesh, I have witnessed the resilience of people and the power of communities if organized and tapped. We need to remove the obstacles and barriers to unleashing people’s creativity and participation in the reconstruction and rebuilding of their homes, businesses and lives.
In starting a small business or building a house, having collateral and a clean credit report to get a bank loan is often an insurmountable barrier for many people around the world, whether in Karachi or New Orleans. But not in Bangladesh thanks to Grameen Bank and a growing number of microfinance organizations that provide collateral-free loans to the poorest for self employment, small enterprises and housing. And I am happy to report that a growing, global movement of microfinance organizations in more than 100 countries are following suit.
The United Nations declared this the Year of Microcredit to focus attention on the scaling up of this solution. The Microcredit Summit Campaign, launched in 1997 at a time when we were reaching only 7 million people, is ready to announce next year that we have achieved or come very close to reaching 100 million of the world’s poorest families, especially the women, with credit for self employment and other business services by the end of this year. What does this mean for the Gulf Coast?
Credit for self employment and small business enterprises as well as housing finance must be a part of the recovery package for the Gulf Coast. Savings and other financial services should be a part of these programs as they are in good microcredit programs and in Grameen Bank.
There are empowering ways to structure and deliver these programs that respect the dignity and capacity of people. This is critical to preserve, protect and promote. The social capital of the Gulf Coast must be used to rebuild the communities in ways that strengthen it. We can never let it dissolve into violence and chaos again. Grameen works in self-organized groups of five, who then come together in centers of 10 to 12 groups. They become the unit where the business is transacted. They also provide peer support and solidarity. This will be very important during the recovery period. People can help and learn from each other as they embark on the long road to normalcy.
Before Katrina, people in New Orleans were already expressing interest in social entrepreneurship. Not long ago, more than 500 people including the Mayor came to hear a talk at Tulane University about Grameen Bank and other social entrepreneurial initiatives. Before Katrina, people in New Orleans were organizing in groups known as Prosperity Clubs and were exploring starting a Grameen-like program. They had just opened a new branch of a credit union in Central City. They were planning to introduce entrepreneurship into the curriculum in high schools and encourage student ventures.
Even though the area lacked big business, the people knew that they had the strengths within them to foster opportunity where economic apartheid had created deep inequalities and resentment.
I know that Bangladeshis are good credit risks in spite of disasters like floods, because they will always rebuild. They are deeply attached to their villages, their place. I see the same love of ones community coming from the people in the Gulf Coast. This is a resource that must be tapped.
My most important piece of advice: create a Social Business Initiative Fund with a portion of the money being allocated for generating innovative ideas. Social businesses are businesses operated with social objectives, rather than money-making objectives. These are non-loss businesses to maximize benefits to the community without losing money. Encourage local people to come up with business ideas for rebuilding and improving their communities that will also create jobs. Back those social entrepreneurs—people who bring business discipline and metrics to creating positive social change. This will channel entrepreneurial talent not for short-term financial profit and personal gain but for solving social problems and accomplishing a public purpose.
These ideas can draw upon business skills and use market forces. There is no shortage of money. But we need business ideas to make this money work for people. There are many creative ways to use all of the money that the public and government have pledged for the victims of this disaster. Some institutions for change should be capitalized so that they may continue working for generations to come. Now is the time to unleash the spirit of social entrepreneurship.
Social Business Entrepeneurs are the Solution
Capitalism is Interpreted too Narrowly
Many of the problems in the world remain unresolved because we continue to interpret capitalism too narrowly. In this narrow interpretation we create a one-dimensional human being to play the role of entrepreneur. We insulate him from other dimensions of life, such as religious, emotional, political dimnesions. He is dedicated to one mission in his business life — to maximize profit. He is supported by masses of one-dimensional human beings who back him up with their investment money to achieve the same mission. The game of free market works out beautifully with one-dimentional investors and entrepreneurs. We have remained so mesmerized by the success of the free market that we never dared to express any doubt about it. We worked extra hard to transform ourselves, as closely as possible, into the one-dimensional human beings as conceptualized in theory to allow smooth functioning of the free market mechanism.
Economic theory postulates that you are contributing to the society and the world in the best possible manner if you just concentrate on squeezing out the maximum for your self. When you get your maximum, everybody else will get their maximum.
As we devotedly follow this policy sometimes doubts appear in our mind whether we are doing the right thing. Things don’t look so good around us. We quickly brush off our doubts by saying all these bad things happen because of “market failures”; well-functioning markets cannot produce unpleasant results.
I think things are going wrong not because of “market failure.” It is much deeper than that. Let us be brave and admit that it is because of “conceptualization failure.” More specifically, it is the failure to capture the essence of a human being in our theory. Everyday human beings are not one-dimensional entities, they are excitingly multi-dimensional and indeed very colourful. Their emotions, beliefs, priorities, behaviour patterns can be more aptly described by drawing analogy with the basic colours and millions of colours and shades they produce.
Social Business Entrepreneurs Can Play a Big Role in the Market
Suppose we postulate a world with two kinds of people, both one-dimensional, but having different objectives. One type is the existing type, i.e. profit maximizing type. The second type is a new type, those who are not interested in profit-maximization. They are totally committed to make a difference to the world. They are social-objective driven. They want to give a better chance in life to other people. They want to achieve their objective through creating/supporting sustainable business enterprises. Their businesses may or may not earn profit, but like any other business they must not incur losses. They create a new class of business which we may describe as “non-loss” business.
Can we find the second type of person in the real world? Yes, we can. Aren’t we familiar with “do-gooders?” Do-gooders are the same people who are referred to as “social entrepreneurs” in formal parlance. Social entrepreneurism is an integral part of human history. Most people take pleasure in helping others. All religions encourage this quality in human beings. Governments reward them by giving tax breaks. Special legal facilities are created for them so that they can create legal entitites to pursue their objectives.
Some social entrepreneurs (SE) use money to achieve their objectives, some just give away their time, talent, skill or such other contributions which are useful to others. Those who use money may or may not try to recover part or all of the money they put into their work by charging a fee or price.
We may classify the SEs who use money into four types:
1. No cost recovery
2. Some cost recovery
3. Full cost recovery
4. More than full cost recovery
Once a SE operates at 100% or beyond the cost recovery point he has entered the business world with limitless possibilities. This is a moment worth celebrating. He has overcome the graviational force of financial dependence and now is ready for space flight! This is the critical moment of significant institutional transformation. He has moved from the world of philanthropy to the world of business. To distinguish him from the first two types of SEs listed above, we’ll call him “social business entrepreneur” (SBE).
With the introduction of SBEs, the market place becomes more interesting and competitive. Interesting because two different kinds of objectives are now at play creating two different sets of frameworks for price determination. Competitive because there are more players now than before. These new players can be equally aggressive and enterprising in achieving their goals as the other entrepreneurs.
SBEs can become very powerful players in the national and international economy. Today if we add up the assets of all the SBEs of the world, it would not add up to be even an ultra-thin slice of the global economy. It is not because they basically lack growth potential, but because conceptually we neither recognized their existence, nor made any room for them in the market. They are considered freaks, and kept outside the mainstream economy. We do not pay attention to them, because our eyes are blinded by the theories taught in our schools.
If SBEs exist in the real world, it makes no sense why we should not make room for them in our conceptual framework. Once we recognize them with supportive insitutions, policies, regulations, norms, and rules will come into being to help them become mainstream.
Market is always considered to be an utterly incapable institution to address social problems. To the contrary, market is recognized as an institution significantly contributing to creating social problems (environmental hazards, inequality, health, unemployment, ghettoes, crimes, etc.). Since market has no capacity to solve social problems, this responsibility is handed over to the State. This arrangement was considered as the only solution until command economies were created where the State took over everything, abolishing the market.
But this did not last long. With command economies gone we are back to the artificial division of work between the market and the State. In this arrangement the market is turned into an exclusive playground of the personal gain seekers, overwhelmingly ignoring the common interest of communities and the world as a whole.
With the economy expanding at an unforeseen speed, personal wealth reaching unimaginable heights, technological innovations making this speed faster and faster, globalilzation threatening to wipe out the weak economies and the poor people from the economic map, it is time to consider the case of SBEs more seriously than we ever did before. Not only is it not necessary to leave the market solely to the personal-gain seekers, it is extremely harmful to mankind as a whole to do that. It is time to move away from the narrow interpretation of capitalism and broaden the concept of market by giving full recognition to SBEs. Once this is done SBEs can flood the market and make the market work for social goals as efficiently as it does for personal goals.
Social Stock Market
How do we encourage the creation of SBEs? What are the steps that we need to take to facilitate the SBEs to take up bigger and bigger chunks of market share?
First we must recognize the SBEs in our theory. Students must learn that businesses are of two kinds: a) business to make money, and b) business to do good to others. Young people must learn that they have a choice to make — which kind of entrepreneur they would like to be? If we broaden the interpretation of capitalism even more, they’ll have a wider choice of mixing these two basic types of proportions just right for their own taste.
Second, we must make the SBEs and social business investors visible in the market place. As long as SBEs operate within the cultural environment of present stock markets they’ll remain restricted by the existing norms and lingo of trading. SBEs must develop their own norms, standards, measurements, evaluation criteria, and terminology. This can be achieved only if we create a separate stock market for social business enterprises and investors. We can call it Social Stock Market. Investors will come here to invest their money for the cause they believe in, and in the company they think is doing the best in achieving a particular mission. There may be some companies listed in this social stock market who are excellent in achieving their mission at the same time making very attractive profit on the side. Obviously these companies will attract both kinds of investors, social-goal oriented as well as personal-gain oriented.
Making profit will not disqualify an enterprise to be a social business enterprise. Basic deciding factor for this will be whether the social goal remains to be an enterprise’s over-arching goal, and it is clearly reflected in its decision-making. There will be a well-defined stringent entry and exit criteria for a company to qualify to be listed in the social stock market and to lose that status. Soon companies will emerge which will succeed in mixing both social goals and personal goals. There will be decision-rules to decide up to what point they still qualify to enter the social stock market, and at what point they must leave it. Investors must remain convinced that companies listed in the social stock market are truly social business enterprises.
Along with the creation of the Social Stock Market we’ll need to create rating agencies, appropriate impact assessment tools, indices to undertand which social business enterprise is doing more and/or better than others — so that social investors are correctly guided. This industry will need its Social Wall Street Journal and Social Financial Times to bring out all the exciting, as well as the terrible, news stories and analyses to keep the social entrepreneurs and investors properly informed and forewarned.
Within business schools we can start producing social MBAs to meet the demand of the SBEs as well as preparing young people to become SBEs themselves. I think young people will respond very enthusiastically to the challenge of making serious contributions to the world by becoming SBEs.
We’ll need to arrange financing for SBEs. New bank branches specializing in financing social business ventures will have to come up. New “angels” will have to show up on the scene. Social Venture Capitalists will have to join hands with the SBEs.
How to Make a Start
One good way to get started with creating social business enterprises would be to launch a design competition for social business enterprises. There can be local competition, regional competition and global competition. Prizes for the successful designs will come in the shape of financing for the enterprises, or as partnership for implementing the projects.
All submitted social business proposals can be published so that these can become the starting points for the designers in the next cycles, or ideas for someone who wants to start a social business enterprise.
Social Stock Market itself can be started by a SBE as social business enterprise. One business school, or several business schools can join hands to launch this as a project and start serious business transactions.
Let us not expect that a social business enterprise will come up, from its very birth, with all the answers to a social problem. Most likely, it will proceed in steps. Each step may lead to the next level of achievement. Grameen Bank is a good example in this regard. In creating Grameen bank I never had a blue-print to follow. I moved one step at a time, always thinking this step will be my last step. But it was not. That one step led me to another step, a step which looked so interesting that is was difficult to walk away from. I faced this situation at every turn.
I started my work by giving small amounts of money to a few poor people without any collateral. Then I realized how good the people felt about it. I needed more money to expand the program. To access bank money, I offered myself as a guarantor. To get support from another bank, I converted my project as the bank’s project. Later, I turned it into a central bank project. Over time I saw that the best strategy would be to create an independent bank to do the work that we do. So we did. We converted the project into a formal bank, borrowing money form the central bank to lend money to the borrowers. Since donors became interested in our work, and wanted to support us, we borrowerd and received grants from international donors. At one stage we decided to be self-reliant. This led us to focus on generating money interanlly by collecting deposits. Now Grameen Bank has more money in depostis than it lends out ot borrowers. It lends out half a billion dollars a year, in loans averaging under $200, to 4.5 million borrowers, without collateral, and maintains a 99 per cent repayment record.
We introduced may programs in the bank — housing loans, student loans, pension funds, loans to purchase mobile phones to become the village telephone ladies, loans to beggars to become door-to-door salesmen. One came after another.
If we create the right environment, SBEs can take up significant market share and make the market an exciting place for fighting social battles in ever innovative and effective ways.
Let’s get serious about social business entrepreneurs. They can brighten up this gloomy world.
