Monday, September 26, 2011

Muhammad Yunus’s New Idea: How Big Business Can Have a Big Social Impact

NAVA THAKURIA

IN 2006, Nobel laureate Muhammad Yunus, the founder of Grameen Bank in Bangladesh, had what he described as a “casual lunch” with Franck Riboud, the chairman and chief executive officer of the Groupe Danone dairy giant, in Paris.

From that lunch has grown an idea perhaps even more radical than microlending, which Yunus developed to transform lending for millions of poor, most of them women, across much of the developing world.

The Groupe Danone experiment most closely describes how Yunus’s vision works. Yunus worked with Danone to form Grameen Danone Foods to produce inexpensive yogurt for malnourished children. Hundreds of thousands of Bangladeshi children in rural areas suffer from severe malnutrition, which weakens their immune systems and affects their growth and school attendance. The Grameen Danone product is designed to provide key nutrients like protein, vitamins, iron, calcium, zinc, etc.

“It took just a few minutes to convince [Riboud] that an investment in a social business is a worthwhile thing for Danone shareholders, even though it will not give any personal dividend to them,” Yunus says. “He agreed to the proposition immediately. It took somewhat more time to fix up the modalities, the product, the financing, tax and regulatory issues, new yardsticks for evaluating business and many other such details.”

Production started in February 2007 at the first factory at Bogra, 50 kilometers north of Dhaka. In line with Yunus’s vision, it was constructed in an environmentally friendly manner, harvesting rainwater to reduce the pressure on groundwater. Solar energy runs various machines.

It was Grameen’s first such partnership, set up with initial capital of $1 million. Danone was a lure for other companies to come forward to work with the Grameen family. So far, those that have followed include the French company Veolia Water to form Grameen Veolia Water, BASF of Germany to form BASF Grameen, Intel to form Grameen Intel and Adidas Group to form Grameen Adidas.

Yunus’s vision requires companies like Danone and the others to set up what amount to parallel companies that are aimed at achieving one or more social goals. The companies must cover all costs and make a profit while at the same time achieving social objectives such as improving health care, housing and financial services for the poor, nutrition for malnourished children, the provision of safe drinking water and the development of renewable energy.

While the parallel companies, like Grameen Danone, are allowed to make a profit, the investors can only recoup their original investment. The profit stays with the parallel company for expansion and improvement to work for financial and economic sustainability in an environmentally friendly ambiance. The work force gets market wages with better working conditions.

Yunus was removed from Grameen Bank in May, ostensibly because at the age of 71 he had exceeded the country’s statutory age limit to head the bank, which he formed in 1983 to provide micro-loans to the poor. However, it is widely believed that Sheikh Hasina, the country’s prime minister, drove him out of the bank for her own political reasons despite his revered worldwide status as banker to the poor.

It hasn’t slowed him down. He remains the policy maker for many Grameen sister concerns devoted to various initiatives like drinking water, yogurt for malnourished children, cellphones, solar power for rural homes and many others.

There may be two types of social business companies, Yunus says. The first focuses on businesses dealing with social objectives only with a no-loss, no-dividend structure. The second may be profitable so long as it is owned by the poor and the disadvantaged, who can gain through receiving direct dividends or by some indirect benefits.

“It brings a new dimension to the business world, and a new feeling of social awareness among the business community,” Yunus says. “I am not opposed to making profit. Even social businesses are allowed to make profit with the condition that the profit stays with the company; the owners will not take profit beyond the amount equivalent to investment.”

He is not asking business leaders to give up any of their other businesses, nor is he insisting that they create social businesses alongside their conventional ones although, as with Danone, the partnership with the Grameen enterprises certainly fulfills that role.

“All I am saying, if you are worrying about a social problem, I have a message for you, you can make a significant contribution in resolving the problem,” he says. “You can do both: conventional business and social business. It is up to you to decide whether you want to do such thing or not. Nobody will raise an accusing finger at you if you do no such thing. But you may feel happy if you do it.

“Why isn’t it practical to run businesses with some profit and some social benefit, ‘doing well by doing good,’ as it is popularly described? Of course, it can be done. I am never against it. But I am trying to go to the ultimate point where you don’t make any profit for yourself at all. This is easy to identify, easy to handle in day to day decision making.”

Yunus describes it as analogous to a person in a no-smoking building who is arguing: “Why can’t I be allowed to take just one small puff?”

“The answer is simple — it destroys the attitude. Similarly, Muslims do not eat or drink until the sunset in the month of Ramadan. It simply destroys the strength of the mental commitment. Social business is about making a complete sacrifice of financial reward from business. It is about totally de-linking from the old framework. It is not about accommodating new objectives within the existing framework. Unless this total de-linking from personal financial gain can be established you’ll never discover the power of real social business.”

By defining entrepreneurship more broadly, he says, it is possible to change the character of capitalism radically and solve many social and economic problems within the scope of the free market.

Fortunately, he says, there is a desire among many to lend a hand through charity, for addressing poverty and other social problems. These days concern is usually expressed in the shape of nonprofits and NGOs. There are multilateral and bilateral aid organizations sponsored by rich governments. But, he says, he has reservations about charity and typical corporate social responsibility initiatives.

While there is nothing wrong with donations, charity and traditional corporate social responsibility, Yunus claims their effect is too often a single-shot affair. The poor have to wait until the donors come around again. It generates dependency on the donor community and it doesn’t build economies in underdeveloped countries, which face multiple problems. Neither governments nor charities from other nations can solve these problems, he says. A combination of capitalism, with business leaders helping the poor to establish their own businesses, would work better. This is social business.

First published in The Jakarta Globe, September 26, 2011
Nava Thakuria is a journalist based in Assam, India