Social Business: a new model for bringing biomedical technology to communities in need

Although this site is primarily about biomedical technology that address global healthcare needs, I have decided the expand the scope some, to include discussion on the sustainability of such a proposition. Over the next few weeks, I hope to do several updates on what I’ve been learning as I think and read more about this. The motivation for this exercise is quite straightforward: I am not at all sure that I (or anyone else??) have the final word on the best way to bring biomedical technology to communities in need in a sustainable and humanistic fashion.

This blog entry will briefly discuss the model of “Social Business,” as proposed by Professor Muhammad Yunus, the founder of the Grameen Bank in Bangladesh, and the recipient of the 2006 Nobel Peace Prize. Professor Yunus, better known as the Banker to the Poor, is the father of the concept of microcredit, giving tiny loans to very poor people, whom no conventional bank will consider creditworthy. Based on a unique model of social responsibility (group-based credit primarily to poor women without requiring any collateral), Grameen Bank has been able to become a prosperous business entity with a loan repayment rate of over 95%, which according to the Wall Street Journal is “almost miraculous!” Of course, Yunus did not stop with the Grameen Bank, but went on to develop several other institutions, among them the concept and practice of social business.

Until I read Yunus’s book, “Creating a World Without Poverty,” I was only aware of three models by which a technology could be transferred to a community in need. These would include (1) for-profit business, (2) non-profit organizations (NGOs), (3) governmental and inter-governmental agencies. In terms of bringing new technology into a deserving community, I had thought that non-profit might be the best, since making maximum profit for the shareholders seems intrinsically incompatible with bringing maximal benefit to most people at least cost. Governments, although they have access to enormous power and resources, appear unwieldy.

So, among the above-mentioned options, NGOs seemed to be the best bet. However, at the gut level, I have two strong reservations about traditional NGOs. (1) Any nonprofit agency depends on donor money for its survival. Thus, a large proportion of the time of people running a nonprofit goes in fundraising, rather than doing the work itself. (2) Although it is not universally true, it is very easy for an NGO based in a first world country and working in the developing world, to become paternalistic, often without the players themselves being aware of the subtle dynamics.

Social business, as proposed by Yunus, seems to be one way out of this conundrum. What I liked about the book was the very concrete definition of what constitutes a social business. Simply put, an entity qualifies as a social business if either of the following criteria are met. (1) In the first model, the entity functions at least as a non-loss entity, and aspires to make a profit. However, when a profit is made, it is not paid out to the shareholders as dividends; instead, it is either reinvested in the same business, or used to open a new one. (2) In the second model, dividends are paid; however, in this model, majority shareholders have to qualify as “poor,” based on a previously agreed upon, time- and place-dependent set of criteria. In both cases, the model ensures that the entity is a “business” – i.e., it functions in a competitive marketplace, is answerable to its shareholders and has to abide by standard business practice and ethics. Simultaneously, it ensures that it is “social” – where the stated purpose of the entity is social development and change for the poor people in a given geographical area. When running a social business, the people running it do not have to be torn between conflicting priorities of profit maximization and social good. Additionally, it is easier to find investors for such a venture, since they are ensured a return of their principal within an agreed upon time period. This also opens up the possibility of becoming an investor to people who might be otherwise unable or unwilling to give to charity. The people of the local community benefit both by the work being done by the entity, and the possibility of owning shares in the entity itself.

In conclusion, to an economics/business novice like me, the concept of social business seems like the best of all possible worlds. I would love to get feedback from readers.