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Feb 20, 2010

Social Business

Posted by PutraDinar

As define by Professor Dr. Muhammad Yunus, social business is a non loss and non dividend kind of businesses with the social objective. It means that, in social business, the investors and the owners can slowly earned back the money that they invested but without taking any dividend beyond that point. The major purpose of the investment is mainly to achieve the social objectives with no personal gain through the operation of the company. Other than that, by practicing the social business, the company has to cover the cost which incurred and also simultaneously achieving the social objectives such as housing for the poor, healthcare for the poor, financial services for the poor, nutrition for malnourished children, providing safe drinking water in a business way. In order to measures the success of social business, is firstly to observe the impact of the business on the people or environment rather than focuses on the total profit that have been made in a given period. The company’s objective must mainly focuses to achieve social goals.

According to Muhammad Yunus, there is one kind of business that we know about as we study in the economic theory which called business of profit maximization. To him this statement is very narrowing of interpretation which presents human being as money making machine or more or less like a robot in which they have no other thoughts than maximizing money. In real life, human being is much bigger than that, they want to make money, to be good to people, to make significant differences to the world or solve the problem that they see around them. But all this are not included in the business world. What he is trying to clarify is that, in order to justify the totality of human being, somehow he needs to create one more kind of business besides the existing type of business of making money. The other business is business making good to people without any idea of benefiting yourself.

As we know that, the first type of business is profit maximizing business in which that business is all about you and you want money to come to you in other words you are the center of the business activities. The second type of business is in which you are not the feature of the business and everything is about others and to help others who somebody other than yourself. Human being is multidimensional being not single dimensional being, likes to make money and that’s all they can do. This is what missing in the theoretical framework of capitalism that cause problem such as poverty, health, environment, disease and also the nutrition of the people which all this need have been ignore because the type of business that they are using right now by its nature do not pay attention to this. So, there is the need of other type business which will address these issues. Social business has two type of business, the non loss and non dividend business which has been explained and the profit maximizing business which is similar to other regular profit maximizing business but the business is own by the poor people because it is directly benefiting the poor people which also a social business because it helps them to get out from poverty. There is one of the questions that have been directed to Muhammad Yunus which is why would someone invest in social business? he replied that if people compare by giving money to charity with investing in social business, probably they will be attracted with the features of social business because with charity, if somebody donate some amount of money, they can only use it once to achieve the goal they desire but if you can design it as social business with the same purpose, that money can be work again and again because business money recycles, it comes back to you, you recover your cost, you create an institutions, it has its own life, it continues forever and ever.

Muhammad Yunus became involved in the poverty issue not as a policymaker or a researcher. He became involved because poverty was all around him, and he could not miss it for just one second. In 1974, with the backdrop of a terrible food shortage in Bangladesh, he found it difficult to teach elegant theories of economics in the university classroom because he suddenly felt the emptiness of those theories in the face of crushing hunger and poverty. He really wanted to do something instant to help people around him even though if it was just one human being in order to make them get through another day with a little more ease. Moreover, this depressing situation had brought him face to face with the poor people’s struggle to find the smallest amounts of money to support their efforts to lengthen out a living. There is this one day, he was shocked to discover a woman in the village who borrowed less than a dollar from the money lender with one condition that the money lender would have the exclusive right to buy all she produces at the price he decides. This, to Muhammad Yunus was a way of recruiting slave labor.

Therefore, from here he decides to make a list of the victims of this money lending “business” in the village and it had the names of 42 victims who borrowed a total amount of US $27. When Muhammad Yunus offered US $27 from his own pocket to these victims, he saw an excitement from the face of all these people by this small action and got him to further involve in it. So, he said that, if he could make so many people so happy with such a tiny amount of money, why not do more of it? the first thing that he did was to persuade the bank located in the campus to lend the money to poor but sadly it doesn’t work because the bank said that the poor were not creditworthy until after failed for several months, he offered himself to become a guarantor for the loans to the poor and was shocked by result because the poor paid back their loans, on time, everytime! But still he kept facing with difficulties in expanding the program through the existing banks. That was when he decided to create a separate bank for the poor, and in 1983, he finally succeeded in doing that. He named it Grameen Bank or Village Bank.
The key features of a social business are to achieve specific social goals by solving social and environmental problems. Other than that, the organizational structure has the same basic as profit maximizing business such as employs workers, creating goods and services and the prices are consistent with objectives except that objectives are social benefits. Furthermore, it is a cause driven rather than profit driven which means that they form a business for the purpose of social benefit. Profits may be earned but it can’t be taken out of the company by the investors who support it beyond recouping an amount equivalent to the amount originally invested. Lastly, full cost recovery while achieving social and environmental benefits and it is not charity or non profit.

Hamizah Azmi

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