Understanding Social Business: A New Paradigm in the Global Economy

Introduction

In today’s rapidly evolving global landscape, traditional notions of profit-driven capitalism are being challenged.
Social business, a concept popularized by Nobel Peace Prize laureate Muhammad Yunus, represents a transformative
approach that intertwines social objectives with sustainable business practices. This article explores the essence
of social business, its defining characteristics, and its potential to address critical global challenges such as
poverty and inequality.

Defining Social Business

Social business is fundamentally a cause-driven enterprise where the primary goal is to achieve one or more
social objectives. Unlike traditional businesses that prioritize profit maximization, social businesses focus on
creating social value. As Yunus explains,

“Social business is a non-loss, non-dividend company dedicated
entirely to the pursuit of social objectives.”

This means that while investors or owners can recoup
their initial investments, they cannot take dividends beyond that point. The emphasis is not on personal gain but
on addressing pressing social issues through entrepreneurial endeavors.

Characteristics of Social Business

• Social Purpose: At the core of social business is the commitment to solving social problems—ranging
  from healthcare for the underprivileged to providing safe drinking water. This is achieved through sustainable business
  models that generate revenue while creating social impact. Yunus highlights,

  “We have to stop looking
  at poverty as a problem. It is a human condition that can be addressed through innovative solutions.”

• Financial Sustainability: A social business must cover its operational costs and generate profits,
  ensuring its viability in the long term. However, the profits are reinvested back into the business rather than
  distributed to owners. The Social Enterprise UK (SEUK) reports that 73% of social enterprises are financially
  sustainable, indicating their potential for long-term impact.
• Clear Impact Measurement: The success of a social business is measured not by financial profits
  but by its impact on society and the environment. Metrics may include the number of beneficiaries served, improvements
  in community health, or increased access to education. The Global Impact Investing Network emphasizes the need for
  rigorous measurement, stating that

  “impact measurement is essential for accountability and continuous
  improvement.”

• Non-Dividend Distribution: One of the defining features of social business is that profits are
  retained within the company to further its social goals. Investors can recover their investments but will not receive
  dividends, which sets social business apart from conventional enterprises. As Yunus articulates,

  “In
  social business, you do not take out money for yourself; you put it back in.”

Welfare Benefits of Social Business

Social business provides a unique solution to persistent global challenges, particularly in addressing poverty
and inequality. By leveraging business principles, social enterprises can create sustainable solutions that empower
marginalized communities. Some key welfare benefits include:

• Economic Empowerment: According to the World Bank, approximately 9.2% of the world’s population
  lived on less than $1.90 a day in 2021. Social businesses provide job opportunities and training for disadvantaged
  individuals, enabling them to become self-sufficient and active participants in the economy. A study by McKinsey &
  Company found that if women were to participate in the economy at the same rate as men, global GDP could increase
  by $28 trillion by 2025.
• Access to Essential Services: In low-income countries, approximately 50% of the population lacks
  access to basic healthcare services. Through innovative products and services, social businesses can improve access
  to healthcare, education, and basic needs for underserved populations. For instance, a social enterprise in Kenya,
  M-KOPA, has provided solar power to over 750,000 homes, helping families save on energy costs and improving their
  quality of life.
• Community Development: A report by the United Nations Development Programme (UNDP) highlights
  that investments in social business can lead to significant improvements in community health and education outcomes,
  fostering an environment of growth and development. For example, the Ashoka Foundation reported that social
  entrepreneurs have created over 3 million jobs globally, contributing to economic stability.

Role of Government in Social Business

Governments play a crucial role in creating an enabling environment for social business to thrive. Their involvement
can take several forms:

• Policy Support: Governments can establish favorable policies that encourage social entrepreneurship.
  This includes tax incentives, grants, and subsidies that specifically target social enterprises. For instance, the
  European Union has committed over €2.5 billion to support social enterprises as part of its broader economic strategy,
  recognizing their potential to drive innovation and social change.
• Capacity Building: Governments can invest in capacity-building initiatives that provide social
  entrepreneurs with the necessary skills and resources to succeed. This can include training programs and access to
  mentorship. For example, the United States Small Business Administration (SBA) offers resources specifically tailored
  for social entrepreneurs, helping them navigate the complexities of starting and managing a business.
• Public Procurement: Governments can prioritize purchasing from social businesses, thereby providing
  them with a stable market and encouraging growth. In Italy, a law mandates that at least 30% of public procurement
  be allocated to social enterprises, fostering economic participation among marginalized groups.
• Creating Legal Frameworks: Establishing clear legal structures for social enterprises can facilitate
  their operation and help define their unique characteristics, making it easier for investors and stakeholders to
  engage. The UK’s Companies Act 2006 allows for the formation of Community Interest Companies (CICs), providing a
  legal framework specifically for social enterprises.

Role of Women in Social Business

Women play a pivotal role in the growth and success of social businesses, particularly in developing countries.
Their contributions can significantly impact community development and poverty alleviation:

• Entrepreneurship: Women entrepreneurs in social business often address social issues directly
  affecting their communities, such as healthcare, education, and clean water access. According to the Global
  Entrepreneurship Monitor (GEM), women are starting businesses at a higher rate than men in several developing
  countries, particularly in sectors related to social impact. Yunus stated,

  “When women are given
  opportunities, they are more likely to invest in their families and communities, creating a ripple effect of
  positive change.”

• Empowerment: Social businesses led by women can empower other women by providing jobs, training,
  and leadership opportunities, promoting gender equality and economic independence. Research shows that investing in
  women-owned businesses can yield a return on investment of up to 24% in developing economies. A report from the
  World Bank found that empowering women entrepreneurs can increase economic growth by an estimated 1.2% annually.
• Community Engagement: Women tend to be more involved in community issues, making them naturalleaders in social enterprises. Their unique perspectives and experiences can drive innovation and improve service
  delivery. The Grameen Bank model, founded by Yunus, has seen tremendous success due to its focus on empowering
  women, with approximately 97% of its borrowers being women.

Conclusion

The potential of social business to create sustainable social impact cannot be overstated. As Muhammad Yunus
aptly put it,

“To eliminate poverty, we have to eliminate the mindset that the poor are inferior and
helpless.”

By embracing the principles of social business, we can redefine success in the business
world, focusing on creating value for society while achieving economic sustainability.

In the face of pressing global challenges, social business stands as a beacon of hope. It not only addresses
immediate needs but also empowers individuals and communities to build a brighter future. With continued support
and collaboration among stakeholders, social business can truly become a transformative force in the global
economy.

As we move forward, it is imperative to recognize that social business is not merely a trend; it is a necessary
evolution in our approach to solving the world’s most pressing issues. By investing in social enterprises and
supporting innovative solutions, we can work together to create a more equitable and sustainable future for all.