Social business is a business dedicated to solving social, economic and environmental problems that have long plagued human kind- hunger, homelessness, disease, pollution, ignorance etc. It is a new kind of capitalism enterprise, very different from the traditional profit-maximizing organization which describes practically all private companies in the world today . Social business is not a charitable organization. It is an organization that actually engages in sales of products and services, it also help empower poor people by lending them financial aids as well as sell essential products or services to them at cheaper rate.
Social business is very distinct from the traditional profit-maximizing business or a not-for–profit organization (which relies on charitable philanthropic donations). It is also not the same thing as “social enterprise”, or socially responsible business, which generally describes varieties of profit- maximizing companies. According to Yunus Muhammad, “a social business is outside the profit seeking world. Its goal is to solve a social problem by using business methods, including the creation and sale of products or services”.
Below are some examples of social business:
Grameen Danone; a company that works to solve the problem of malnutrition in children from poor families, through sales of affordable yogurt, fortified with micronutrients.
Grameen Veolia water; an organization which addresses the problem of arsenic- contaminated drinking water through sales of affordable pure water to the poor, at a price they can afford.
BASF Grameen; a company that helps in reducing mosquito borne disease by producing and marketing treated mosquito net.
Social business assist in solving social problems through business methods. The two types of social business are; ‘Type I’ and ‘Type II’ social business.
‘Type I’ social business is a non-loss, non-dividend company devoted to solving social problem. It is owned by investors who invest all profits in expanding and improving the business. Grameen Danone , a nutritional company which solves malnutrition problem through sales of affordable yogurt fortified with micro-nutrients is an example of a ‘Type 1’ social business.
‘Type II’ social business is a profit-making company owned by the poor either directly or through a trust that is dedicated to a predefined cause, whose profit is used to alleviate poverty. Grameen Bank is an example of a Type II social business. It is owned by poor people who are both depositors and customers.
Investors and owners in a‘ Type 1’ social business do not earn profit, dividend or any type of financial benefits. Investors in social business are only allowed to take back the original amount they invested over a period of defined-time. The invested amount is not increased even during inflation, as any kind of increase in the amount going to the investors, beyond the original amount invested, disqualifies the business from being a social business.
There are seven core principles that guides social business; they are:
- The business objective, which is to overcome poverty, or one or more problems such as (education, health, technology access, and environment) that threaten people and society- not to maximize profit.
- The company will attain financial and economic sustainability.
- Investors get back only their investment amount. No dividend is given beyond the return of original investment.
- When investment amount is paid back, profit stays with the company for expansion and improvement.
- The company will be environmentally conscious.
- The work force gets market wage with better-than-standard working conditions.
- Do it with joy!!!
It is very important not to confuse social business with social entrepreneurship. Social entrepreneurship relates to a person. It is as an initiative of social consequences created by an entrepreneur with a social vision. This initiative maybe non-economic initiative, charity initiative or a business initiative with or without personal profit. Some social entrepreneurs house their projects within a traditional non-governmental organizations (NGOs), while others are involved in not- for-profit organizations . Social business is very specific. It is a non-loss, non-dividend company with a social objective. Although a social business may pursue goals similar to that of social entrepreneurs, its business structure makes it unique and distinctive.
A non-profit organization is not a social business because it is a foundation, a charitable organization created to disburse funds from one or more donor who seek to create social benefits through their giving. A foundation is not financially self sustaining, it does not generate any income through business activities, and does not have an ‘owner’ the way a social business does. However, a foundation could own a social business, as long as the social business shares the same objective with the NGO. A foundation which invest in social business will be much more profitable because the business will create social benefits, and also generate income to sustain itself.
Foundation usually gives a grants to traditional NGOs. The money is used to establish or support charitable programs, and hopefully, its provides some benefits to the community, after which the money is soon spent, and in most cases the NGO applies for another grants to continue its work .
Written by Vera Aigbonoga