MICROFINANCE PAPER WRAP-UP: “Building Social Business Models: Lesson from the Grameen Experience” by Muhammad Yunus, Bertrand Moingeon, and Laurence Lehmann-Ortega.

Written by Muhammad Yunus, Bertrand Moingeon, and Laurence Lehmann-Ortega. HEC International Business School. Paris. February 2009. 27 pages. Working Paper – 913. http://www.microfinancegateway.org/gm/document-1.9.39135/Building%20Social%20Business%20Models.pdf

The authors show, according to data from the World Bank, that 1.4 billion people in the world were living below the poverty line of $1.25 in 2005. Though the Millennium Development Goals aspire to meet certain objectives by 2015, it is estimated that in 2015, one billion people will still be living in absolute poverty. The authors, thus, conclude that governments, NPOs, multilateral institutions, and existing for-profit companies are insufficient to solve issues of poverty. Governments tend to be inefficient and prone to corruption, NPOs are highly dependent on donations for funding, multilateral institutions have not made a sufficient impact on poverty alleviation, and for-profit companies that claim to exhibit corporate social responsibility (CSR) will always prioritize financial profit over all else. Therefore, the authors justify the need for “social businesses” that integrate aspects of both profit-maximizing companies and socially-motivated NPOs.

The paper first defines the concept of a “social business.” The concept of social businesses has risen from the experiences of the Grameen Group, a network of 27 organizations linked to the Grameen Bank of Bangladesh. Social businesses borrow aspects of structure, functions, and objectives from both profit-maximizing companies and NPOs. They are similar to NPOs in that they prioritize societal improvements, and operate like for-profit businesses in that they aim to recover their cost of operations to maintain self-sustainability. However, social businesses only rely on investors at the beginning of a development project, and unlike for-profit businesses, revenues generated are not distributed to shareholders, but rather reinvested in the business to benefit their social cause.

The authors first provide an example of what they consider a successful social business model. Grameen Danone Food Limited (GDFL) is introduced as one of the Grameen Group’s ventures, and is considered one of the first “social business” experiments. It was created in 2006 as a joint venture between the Grameen Group and the French Groupe Danone, one of the world’s leading healthy food companies, in order to “bring health through food to a maximum number of people.”

The paper then introduces general recommendations on how to build effective social business models. For each recommendation, the authors provide empirical examples, drawing from the experiences of organizations linked to the Grameen Bank. (1) They recommend that social businesses challenge conventional business models, by coming up with new, innovative business models that will provide high quality products at low costs, and make services affordable for low-income consumers. (2) Businesses ought to find complementary organizations to set up long-term partnerships with, in order to leverage and broaden both expertise and resources. (3) The authors also suggest undertaking a continuous experimentation process, which is considered one of the best ways to fine-tune aspects of a business model.

The authors also offer more specific examples on how to maintain the priority of social profit while also keeping stakeholders in mind. (1) The models must be designed to favor social profit-oriented shareholders. They must be reframed to favor all stakeholders that support the company’s social mission, instead of merely shareholders, customers, partners, and suppliers. (2) The authors emphasize the importance of clearly specifying the social objectives, criteria, and constraints of the business. Without this, the company’s objective may be unclear to investors, since it plans to aim for both financial profit and social benefits. (3) The model must make adjustments to the traditional business model framework to reflect the company’s social goals.

The authors conclude by saying that creating social business models is a difficult but possible process. They believe that there will be a growing interest in the sector since the Grameen group and institutions will encourage others to consider similar ventures and learn from each other.

By Radhika Chandrasekhar, Research Assistant

Bibliography

[1] “Building Social Business Models: Lesson from the Grameen Experience” by Muhammad Yunus, Bertrand Moingeon, and Laurence Lehmann-Ortega. February 2009. Working Paper – 913. 1.9.39135/Building%20Social%20Business%20Models.pdf

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