Many of the problems in the world today persist because of a too-narrow interpretation of capitalism. Most businesses today are run based on the assumption that people are selfish and interested solely in maximizing their own profit. This is a very one-dimensional view of humans who in reality are very multidimensional. As much as selfishness is part of us, so is selflessness, but the selfless dimension is not taken into account in economic theory.
When the microcredit movement was launched in Bangladesh in 1983, people were traditionally deemed too poor to be credit-worthy to receive small loans, enabling them to develop their own businesses. There is something fundamentally wrong with an institution that leaves out more than half the world population because they are not considered credit-worthy. Banks explain that poor people are not credit-worthy but the real question to ask is whether banks are people-worthy? In the context of the total collapse of the financial system today, this question becomes more relevant and urgent.
My colleagues and I at the Grameen Bank in Bangladesh shared the Nobel Prize for our work over the past quarter of a century helping some of the world's poorest people raise themselves out of poverty. Since starting the bank, we have lent more than $7 billion to 8.4 million people. Our repayment rate is 98% and now there are microcredit programs around the world.
The global financial crisis has demonstrated serious shortcomings in areas of the banking system. It's converting the marketplace into a casino. It's no longer business; it's outright gambling, excessive greed and irresponsible capitalism. Whichever way you look at it, it's something to do with the irresponsible behaviour of people in charge of the marketplace. This is where the idea of social business comes in; non-loss, non-dividend companies that address social goals – solving the basic deficiency of present-day capitalism.
Credit markets were originally created to serve human needs, to provide businessess with capital to start or expand, and to enable families to buy homes. In recent years, however, the credit markets have been distorted by a relative handful of people and companies with a different goal in mind — to earn unrealistically high rates of return through clever feats of financial engineering. With the collapse of the housing market in the United States, the whole house of cards has come down. Millions of people around the world who did nothing wrong, played no part in the crisis, are suffering. And the worst effects, as usual, have been felt by the poor.
But the crisis has also presented an opportunity to reform financial institutions. Will history repeat itself after two years or so of suffering, or will we be more cautious, so that when things start moving again, we are not waiting for another, possibly bigger crash?
The concept of microcredit is not limited to poor, developing countries. Even in the richest country in the world, the U.S., there are people who cannot access its financial services; they don't qualify in the eyes of the banking system. So we need a financial system that will address those people. This is where the idea of social business comes in.
A social business seeks to change the world in a self-sustaining way. Charity is a great idea, but its impact is limited by the fact that money spent on charity never comes back to the donor and therefore has no opportunity to do good a second or third time. In a social business, the same amount of money is used again and again.
Individuals and corporations may run social businesses with all or part of their philanthropy money. If the corporate philanthropy money is used by the businesses to create and market goods and services that help people and improve the world, then imagine the impact as the money is recycled repeatedly for social causes. Each person or corporation could create a unique range of social businesses. We can also create social business funds to pool funds from many investors — small, medium, or big — and invest them in social businesses.
Creativity is the heart of social business. Human beings have unlimited creative capacities. Our job is to create a framework within which these capacities can be unleashed and utilized to solve the massive problems that we’ve created over centuries. We have the potential; we simply need the conceptual framework, institutions, and technology. Social business makes the entry to this new world easier.
To connect investors with social businesses, we will need to create a social stock market where only shares of social businesses will be traded. An investor will come to this stock exchange in order to find a social business, which has a mission to his or her liking, just as someone who wants to make money goes to the existing stock market.
To enable a social stock exchange to perform properly, we will need to create rating agencies, standardization of terminology, definitions, impact measurement tools, reporting formats, and new financial publications. Business schools will need to offer courses and business management degrees to train young managers how to manage social businesses in the most efficient manner, and, most of all, to inspire them to become social business entrepreneurs themselves.
These goals may sound impractical but no one would have predicted the current success of microcredit back in the 1970s. Like social business, microcredit started small. It began in one village, and today it’s a global phenomenon because many of us have worked to develop that seed. Social business is developing the same way. The first seeds have already been planted; some are already sprouting and producing wonderful fruits. In Bangladesh, we have created Grameen Danone Foods Ltd., Grameen Veolia Water Ltd., Grameen GC Eye Care Hospital Ltd., Grameen Caledonian College of Nursing, Grameen Shakti Ltd., Grameen UNIQLO Ltd., BASF Grameen Ltd., Grameen Intel Ltd., Grameen Yukiguni Maitake Ltd., Grameen Distribution, Grameen Fabrics and Fashion Ltd., and Grameen Felissimo Ltd. Social businesses have also spread to other corners of the world. Examples include the Holistic Social Business Movement of Caldas (HSBM) in Colombia; Grameen Creative Lab (GCL) in Weisbaden, Germany; Starshea Social Business Solution in Ghana; and Yunus Social Business (YSB) in both Haiti and in Albania.
People are expressing an interest in learning more about the concept of social business. So, we have opened up research centers at locations around the world. They inclue Yunus Center at AIT in Bangkok, Thailand; Yunus Social Business Center at University of Florence in Italy; Muhammad Yunus International Center for Microfinance and Social Business at Okan University in Turkey; Yunus & Shiiki Social Business Research Centre (SBRC) and Grameen Technology Lab (GTL) at Kyushu University in Japan; The Yunus Centre for Social Business and Health at Glasgow Caledonian University in Scotland; and Rikkyo-Grameen Creative Lab (GRCL) at Rikkyo University in Japan.
The challenge now is to spread the seeds to villages, cities, regions, and countries everywhere so that the benefits of social business will have a chance to take root wherever social problems remain unsolved.
Nobel Prize Winner Muhammad Yunus is Founder of Grameen Bank. He wrote this essay for Informilo.