June 04, 2008
The following is a summary of a report to the Board of Directors of Grameen Foundation regarding social business viability by Khalid Shams, Former Deputy Managing Director, Grameen Bank.
Grameen’s Social Business Initiatives
Grameen Bank has been experimenting with new social business ventures since the early ‘90s. It has effectively used the microfinance platform for launching several social enterprises. Some of these were ‘for-profit’, while others were ‘not-for-profit’ entities, but each had a distinct corporate mandate for social development. Grameen Bank itself would be an example of such a social business enterprise, which provided microfinance related services to the designated rural poor and the bank is also owned solely by the borrowers themselves. Some of the social enterprises were created in direct response to the demand of GB borrowers i.e. the Sixteen Decisions of the bank, as well as the rural poor, for essential services needed for development of health, education, nutrition, and alleviation of poverty.
Some of the enterprises were concerned with extension of new technologies that could directly raise the income and productivity of the poor trapped in such traditional sectors like agriculture, fisheries, rural industry. New ventures were also launched for development of information and communication based technologies.
More recently, Professor Yunus has taken the initiative of setting up “social businesses” that aim to provide nutrition and health services to a targeted client. In these new ventures, after the initial capital costs have been fully recouped, the investors agreed to take only nominal dividends, plowing back all profits for further expansion of the social business. Grameen-Danone Foods Ltd, and the newly formed Grameen Eye Hospitals are the latest examples of more rigorously designed social business models.
Numerous Grameen social enterprises have had both direct and indirect social development impact. They have clearly demonstrated that some of the social objectives of a poverty alleviation program can be achieved in a business like way. But with more to measure than simply the financial bottom line of the conventional company balance sheets, how is the social impact itself assessed? In case of Grameen social enterprises, a successful social business venture may be evaluated on the basis of the following criteria:
A. The social development impact on a targeted clientele group.
B. Profitability of the business venture to ensure sustainability.
C. Application, development and extension of technologies that can raise productivity of the poor.
The Challenge of Developing Viable Business Plans
The developed as well as the developing countries have had long traditions of “philanthrocapitalism” and different business models have been tried out in many countries. Bangladesh has also been an incubator for many social enterprises. But the primary concern right now is to address the massive task of poverty alleviation. A major challenge is to meet the needs of the poor for their social development in a more business like way, to ensure sustainability in the long run. As with any new business venture, there are inherent risks and challenges that must be addressed by a social enterprise.
It is important for such an enterprise to:
- clearly establish both the social and business objectives of the enterprise, providing it with a distinct corporate identity.
- pilot test and develop the modus operandi for providing social services as well as applications of technology necessary for fulfillment of its objectives.
- develop suitable organization, management and delivery systems that will be able to function at grassroots and ensure full corporate accountability to the board of directors.
Recruitment, Placement of Leadership
Senior management and the board of directors must be both professionally competent and at the same time fully committed to the social and business mandate of the enterprise. There must be a realistic plan to recruit and retain the management team, in the given market context.
Raising Equity and Initial Seed Funds
As with any business start-up, but more so with social ventures, raising the seed capital or equity will be the most crucial challenge. Start up costs can be daunting and investors are reluctant to provide the required seed funds as equity capital. A social business, in which investors do not stand to make much of a profit to recoup their initial investments, may face further obstacles in raising the needed capital.
Enterprises with predominantly social objectives such as education and health, generally require endowment funds to meet start up capital costs.
Management of technology-based joint ventures have proven to be a major challenge, but successful ventures have tend to be more profitable in the long run as evidenced by Grameen Telecom, another not-for-profit company and its Village Phone Program.
The Future Prospects
Globally, and in particular in the USA, there is a strong interest in initiating development and poverty alleviation programs through social business ventures. The existing MFIs, including wholesellers of microfinance services like Grameen Foundation, have in many instances successfully scaled up their microcredit operations. These can be leveraged further for launching new social business ventures.