Drew Field
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Creating a World Without Poverty: Social Business and the Future of Capitalism, Muhammad Yunus, Public Affairs, 2007


Muhammad Yunus is a hero to those of us who seek to broaden the ownership of business.  As a Bangladeshi economics professor, he wanted to do something about the crushing hunger and poverty he saw around him.  He gathered 42 borrowers from the village near his campus and lent them a total of $27 from his own pocket.  He followed that by guaranteeing bank loans to the poor.  In 1983, he started Grameen Bank, which shared with him the 2006 Nobel Peace Prize.  The results, from his acceptance speech:


“Today, Grameen Bank gives loans to nearly 7.0 million poor people, 97 percent of whom are women, in 73,000 villages in Bangladesh. . . . Since it opened the bank has given out loans totaling about US $6.0 billion.  The repayment rate is 99 percent.  Grameen Bank routinely makes a profit. . . . 58 percent of our borrowers have crossed the poverty line.”


Grameen Bank has become the model for a worldwide microcredit movement.  By 2006, microloans had been extended to 100 million of the world’s poorest families.


In this book, Professor Yunus argues for a new structure, the “social business,” which is “a business that pays no dividends.  It sells products at prices that make it self-sustaining.  The owners of the company can get back the amount they’ve invested in the company over a period of time, but no profit is paid to investors in the form of dividends.  Instead, any profit made stays in the business—to finance expansion, to create new products or services, and to do more good for the world.”


Governments, charities and “profit-maximizing businesses” are not enough to solve the problems of poverty, disease and environmental degradation, Professor Yunus argues;  “we need a new type of business that pursues goals other than making personal profit—a business that is totally dedicated to solving social and environmental problems.”


He makes a distinction between social businesses and “socially-responsible” businesses, which are intended to serve a social objective, while making a profit.   They have a fatal flaw, according to Professor Yunus, because their executives “will gradually inch toward the profit-maximization goal, no matter how the company’s mission is designed.”  (We’ve helped many socially-responsible businesses raise capital directly from their communities.  In our experience, the community shareowners have not pushed for profit.  Their average investment has been about $1,000 and they are most interested in seeing the business achieve its long-term objective of meeting a human need.  However, it has been the founder/managers who have often succumbed to selling the business for a large personal gain or diversifying toward areas of greater expected profits.)


The social business is intended to make a profit, but not to pay dividends.  It would plan to pay back the amount invested over time, which might be from five to 20 years.  Shareowners would continue to own the business after they were repaid their investment. The motive of making a profit on the shares would be replaced by pride in achieving a social objective.  Many of the investors would be individuals and institutions that make charitable gifts.  They would see the benefits from a business that was to return their funds, which they could use to invest in more social businesses.  (However, earning enough after-tax profits to cash out investors in five to 20 years is a big hurdle for a new business.  It could put the social business at a real competitive disadvantage in pricing its products and services.  Most U.S. businesses don’t pay any dividends, while many others keep dividends at less than a three percent yield on the shares’ market value.)


“Who will invest in a social business?”   This question is a section of the book.  The answer given is that money will come from people who would otherwise support charities, as well as from charitable foundations and from businesses that fund charitable activities.  A tax exemption could provide government support for social businesses.  Shares in social businesses would be traded in aftermarkets, with the value determined by “the social benefit produced,” rather than profit expectations.


What about capital needs larger than those served by Grameen Bank and the microcredit movement?  The book lists some 25 members of the “Grameen Family of Companies,” which include social businesses and support organizations.  Grameen Fund provides venture capital, taking a 51% equity ownership.  Grameen Business Promotion Company guarantees loans from Grameen Bank of up to $10,000 or more.  Grameen has recently entered joint ventures with Danone, the world’s largest yogurt company, and Intel. 


A huge potential project described is “to create world-class port facilities for the growing economies of Bangladesh as well as her neighbors, and to build a network of superhighways to connect those countries with the port facilities.”  The money would come from “social investors” or donor countries, who would later sell the project to a trust.  In turn, the trust would sell “shadow shares” to poor people.  These “shadow shares” would not represent ownership of the facilities but would entitle holders to any dividends declared by the trust board.  Shares could be purchased on credit, to be paid from dividends.  The shares could only be sold back to the trust.  (If this project goes forward, perhaps Professor Yunus would consider having the shares be direct ownership, with voting rights, so that the poor families could be part of a community of business owners.)


Grameen Bank’s great success flies against some basic economic assumptions, according to Professor Yunus.  One is that “all people are motivated purely by the desire to maximize profit.”  (By “fear and greed,” in Wall Street terms.)  Another “is the assumption that the solution to poverty lies in creating employment for all.”  Self-employment is the alternative supported by Grameen Bank.  Millions of its borrowers have crossed the poverty line because they now have earnings from both their labor and their invested capital.  (The next progression is when individuals have enough income from their capital alone that they don’t need to sell their labor.  They can be the ones who devote their time, and discretionary investment income, to solving social problems.)


There is a brief section in the book that describes a second kind of social business, one “owned by the poor or disadvantaged” where “the social benefit is derived from the fact that the dividends and equity growth . . . will go to benefit the poor.”  Grameen Bank itself is “a social business by virtue of its ownership structure,” since 94% of its shares are held by its borrowers.  In 2006, it earned $20 million and paid dividends to its shareowners.


The error of most programs to alleviate poverty, Professor Yunus writes, is that they assume that providing jobs and job skills is what is needed.  “But if you spend enough time living among the poor, you discover that their poverty arises from the fact that they cannot retain the genuine results of their labor.  And the reason for this is clear:  They have no control over capital.  The poor work for the benefit of someone else who controls the capital.”  (Beyond microcredit could be broadening the ownership of capital so that the formerly poor can become independent of the return on their labor.)