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Social business, as the term had once been commonly used, was first defined by Nobel Peace Prize laureate Prof. Muhammad Yunus and is described in his books Creating a world without poverty—Social Business and the future of capitalism and Building Social Business—The new kind of capitalism that serves humanity's most pressing needs.
In these books, Yunus defined a Social Business a business:
- Created and designed to address a social problem
- A non-loss, non-dividend company, i.e.
- It is financially self-sustainable and
- Profits realized by the business are reinvested in the business itself (or used to start other social businesses), with the aim of increasing social impact, for example expanding the company’s reach, improving the products or services or in other ways subsidizing the social mission.
Unlike a profit-maximizing business, the prime aim of a Social Business is not to maximize profits (although generating profits is desired). Furthermore, business owners are not receiving any dividend out of the business profits, if any.
On the other hand, unlike a non-profit, a Social Business is not dependent on donations or on private or public grants to survive and to operate, because, as any other business, it is self-sustainable. Furthermore, unlike a non-profit, where funds are spent only once on the field, funds in a Social Business are invested to increase and improve the business' operations on the field on an indefinite basis. Per Yunus' quote: "A charity dollar has only one life; a Social Business dollar can be invested over and over again."
Seven Principles of Social Business
These were developed by Prof. Muhammad Yunus and Hans Reitz, the co-founder of Grameen Creative Lab:
- Business objective will be to overcome poverty, or one or more problems (such as education, health, technology access, and environment) which threaten people and society; not profit maximization
- Financial and economic sustainability
- Investors get back their investment amount only; no dividend is given beyond investment money
- When investment amount is paid back, company profit stays with the company for expansion and improvement
- Environmentally conscious
- Workforce gets market wage with better working conditions
- Do it with joy
Social Businesses such as microcredit have been criticized for glossing over the disadvantages of the business relationship. BBC News reported that poor consumers partake in social businesses without thinking over the consequences. And that the consequences of failure can be harsh and are never shown by the media.
AntiCSR explained that there is no real criteria to be a social business, other than to claim to address a social problem. Some businesses use the social business label to mimic a charity and avoid criticism. Others use the label to improve their brand image and gain customers. AntiCSR also argued that the definition of a Social Business is vague. Yunus, for example, stresses the concept as a 'non-dividend paying company', where only the original investment is returned. This ignores the time value of money. Furthermore, the managers or owners of the firm can take large amounts of salary and other expenses and still remain a 'non-dividend' company. The other principles of a social business are also vague and subjective, such as 'environmentally conscious' and 'better working conditions'.
- Impact Investing
- Social entrepreneur
- Social entrepreneurship
- Social enterprise
- Double bottom line
- Triple bottom line
- List of social enterprises
- Yunus, Muhammad (2009). Creating a World Without Poverty: Social Business and the Future of Capitalism. PublicAffairs. p. 320. ISBN 978-1-58648-667-9.
- Jäger, Urs (2010). Managing Social Businesses. Mission, Governance, Strategy and Accountability. Palgrave Macmillan. p. 256. ISBN 978-0-230-25254-7.
- Yunus Muhammad, Moingeon Bertrand, Laurence Lehmann-Ortega (2010), "Building Social Business Models: Lessons from the Grameen Experience”, April-June, vol 43, n° 2-3, Long Range Planning, p. 308-325"
- Yunus, Muhammad (2011). Building Social Business: The New Kind of Capitalism that Serves Humanity's Most Pressing Needs. PublicAffairs. p. 256. ISBN 978-1-58648-956-4.
- Wimmer, Nancy (2012). Green Energy for a Billion Poor: How Grameen Shakti Created a Winning Model for Social Business. MCRE Verlag. p. 226. ISBN 3-943310-00-0.
- AntiCSR, "Social Business Criticism"
- Melik, James, BBC News (2010), "Microcredit 'death trap' for Bangladesh's poor"