Banker to the Poor (28 page)

By contrast, when two social businesses compete for investors, the competition is based not on future profit maximization but on social benefits achieved. Each social business will claim that it is better positioned to serve the people and the planet than its rival, and it will develop and publicize a business plan to support that claim. Would-be social investors will scrutinize those claims carefully. After all, they are planning to invest their money with the goal of benefiting society, and they will want to be sure that their investment does the greatest possible good. Just as a profit-minded investor seeks to maximize expectations of future dividends and equity growth, a social investor wants to find out how close the company is getting in solving the social problem it is addressing.

Thus, competing social businesses will push each other to improve their efficiency and to serve the people and the planet better. This is one of the great powers of the social-business concept: It brings the advantages of free-market competition into the world of social improvement.

Competition in the marketplace of ideas almost always has a powerful positive impact. When a large number of people are vying to do the best possible job of developing and refining an idea—and when the flow of money toward them and their company depends on the outcome of the competition—the overall level of everyone's performance rises dramatically. We see this beneficial effect of competition in many arenas. Intense competition among makers of personal computers, for example, has caused the price of PCs to fall dramatically even as their speed, power, and other features have improved. The rise of Japanese manufacturers of cars and electronic products forced U.S. and European companies to improve the quality of their goods so as to compete for both customers and investors.

By creating a competitive marketplace for social-benefit investing, the concept of social business brings the same kind of positive pressure to bear among those who seek to serve the disadvantaged people of the world.

Competition among social businesses will be different in quality than competition among PMBs. PMB competition is about making more money. If you lose, you get financially hurt. Social business competition will be about pride, about establishing which is the best team to achieve the social objective. Competitors will remain friends. They will learn from each other. They can merge with each other at any time to become a stronger social force. Social businesses are friends dedicated to the same or similar causes. They collaborate to achieve their social goals. They will feel happy to see another social business entering the same area of business, rather than getting worried.

To attract investors, I propose the creation of a separate stock market, which could be called the social stock market. Only social businesses will be listed there. The existence of a public marketplace for trading shares in social businesses will have many benefits. It will create liquidity, making it easy for shareholders to move in and out of social investments, just as they currently do with investments in PMBs. It will generate public scrutiny and evaluation of social businesses, providing a layer of "natural regulation" to supplement any government regulation that will need to be be created to avoid the usual problems of the market place—deception, false reporting, inflated claims, disguised businesses, and so on. And it will raise the public profile of the social-business concept, attracting even more money and energy from investors and entrepreneurs alike.

Two Kinds of Social Businesses

At this stage in the development of the concept of social business, we can only glimpse its general outlines. In the years to come, as social businesses begin to spring up around the world, new features and forms of social business will undoubtedly be developed. But from today's vantage point, I propose two possible kinds of social businesses.

The first I have already described: Companies that focus on providing a social benefit rather than on maximizing profit for the owners, and that are owned by investors who seek social benefits such as poverty reduction, healthcare for the poor, social justice, global sustainability, and so on, seeking psychological, emotional, and spiritual satisfactions rather than financial reward.

The second operates in a rather different fashion: Profit-maximizing businesses that are owned by the poor or disadvantaged. In this case, the social benefit is derived from the fact that the dividends and equity growth produced by the PMB will go to benefit the poor, thereby helping them to reduce their poverty or even escape it altogether.

Notice the differences between these two kinds of social businesses. In the first case, it is the nature of the products, services, or operating systems of the business that creates the social benefit. This kind of social business might provide food, housing, health care, education, or other worthwhile goods to help the poor; it might clean up the environment, reduce social inequities, or work to alleviate ills such as drug and alcohol abuse, domestic violence, unemployment, or crime. Any business that can achieve objectives like these while covering its costs through the sales of goods or services
and
that pays no financial dividend to its investors can be classified as a social business.

With the second type of social business, goods or services produced might or might not create a social benefit. The social benefit created by this kind of company comes from its ownership. Because the ownership of shares of the business belongs to the poor or disadvantaged (as defined by specific, transparent criteria developed and enforced by the company directors), any financial benefit generated by the company's operations will go to help those in need.

Imagine that a poor rural region of a country is separated from the main commercial centers by a river too deep, wide, and wild to be forded by pedestrians or ordinary vehicles. The only way to cross this river is by ferry, which provides expensive, slow, and intermittent service. As a result, the area's poor and low-income residents face economic and social handicaps that depress their incomes, reduce availability of affordable goods, and lower their access to education, health care, and other vital services. In our example, we assume that the national and local governments are unable to address the problem because of lack of funds, political indifference, or other shortcomings. (Although this is a hypothetical example, it accurately describes conditions in much of the developing world.)

Now suppose a private company is formed to build a new highway and a safe, modern bridge to connect the rural area with the commercial center of the country. This company could be structured as a social business in two ways.

First, it could provide access to poor and low-income residents at a discounted toll, while charging a commercial toll to middle-and upper-class residents and to large commercial organizations. (Obviously some kind of means-testing procedure would be needed to verify the eligibility of poor people for the discounted toll; perhaps the same kind of ID card that is used to indicate eligibility for government welfare could be accepted by the toll-takers.) The toll revenues would cover the costs of building, operating, and maintaining the bridge and highway, and, over time, they could be used to repay the funds initially provided by investors. However, those investors would receive no further profits. If profits beyond this are generated by the tolls, they could be used to build additional infrastructure to benefit the rural community—more roads and bridges, for example, or perhaps some social businesses to stimulate the local economy and create jobs.

Second, ownership of the bridge-and-highway company could actually be put in the hands of the poor and lower-income residents of the rural area. This could be done through the sale of low-priced shares, purchased by them with loans provided by microcredit organizations or through credit that is later recouped from the profit of the company. Profits generated by tolls could
either
be invested in new infrastructure projects or paid in the form of dividends to the poor and lower-income residents who own the company, thereby benefiting them in direct financial fashion.

Grameen Bank makes small loans available without collateral and at a reasonable cost to the poor, thereby enabling them to start or expand tiny businesses and ultimately lift themselves out of poverty. Grameen Bank would be a regular PMB if it were owned by well-off investors. But it is not. Grameen Bank is owned by the poor: Ninety-four percent of the ownership shares of the institution are held by the borrowers themselves.

Thus, Grameen Bank is a social business by virtue of its ownership structure. If a big bank like Grameen can be owned by poor women in Bangladesh, any big company can be owned by poor people, if we seriously come up with practical ownership-management models.

And yes, a social business could also combine
both
forms of benefit to the poor: It could follow a business plan designed to produce social benefits through the nature of the goods and services it creates and sells
and also
be owned by the poor or disadvantaged.

Social business is a new idea. But those who have learned about it so far have responded with enthusiasm and excitement. I believe it has the potential to change our world in a fundamental way, liberating the creative energies of millions of people and helping produce solutions to our most serious social problems.

You may contact Professor Yunus and the Grameen Bank at:

Professor Muhammad Yunus

Grameen Bank

Mirpur Two

Dhaka 1216

Bangladesh

Fax: 8802–8013559

E-mail:
[email protected]

Website:
www.grameen.com

Tim Campbell

Muhammad Yunus
was born in Chittagong, a seaport in Bangladesh. The third of fourteen children, he was educated at Dhaka University and was awarded a Fulbright scholarship to study economics at Vanderbilt University. He then served as chairman of the economics department at Chittagong University before devoting his life to providing financial and social services to the poorest of the poor. He is the founder and managing director of Grameen Bank and the author of
Creating a World Without Poverty
. Yunus and Grameen Bank are winners of the 2006 Nobel Peace Prize.

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