II. The Origins of Social Business
III. Defining Social Business
IV. The Grameen Experience
V. The Limits of Social Business
Backgrounds of Social Business, Defining Social Business And the Grameen Experience
A social business is a new type of businesses designed by Professor Muhammad Yunus to serve social purposes. Yunus was a former economics professor at Dhaka University, and the founder and managing director of Grameen Bank (lenders of microcredits to world’s poorest) who won the 2006 Nobel Peace Prize. A social business is an alternative against poverty and its objective is to make the poor participate in the process that helps them get out of that situation of slavery- poverty- by causing them to become micro entrepreneurs who increase their income in order to become independent people. The process will eventually change their living conditions and living standards.
In Yunus’ words (2010, p. 2) there are two kinds of social businesses. The first category is one that is a non-loss, Non-dividend Company whose main purpose is basically a social goal. The second category is a profit making company possessed by poor people devoted to a well-defined social cause. Besides, social businesses must be self-sustaining and its owners have to be dedicated to never take any dividend beyond the return of the original amount they put in the business, Yunus (2010, p. xix). Above all, his book is very amazing as Yunus proposes a new model to solve the problems of poverty, not with more charities but with the creation of social businesses. Charities on the contrary encourage dependence and have not resolved the issue of poverty until now.
In that perspective, Yunus (2010) sustains that for years governments have been incapable of solving the problems of poverty. Conversely, the number of poor people has increased over the years. This clearly illustrates that solving the issue of poverty is not only to be a governmental solution as governments have proved to be incompetent in this respect. Another solution was to be found, it is the one he proposes in his book. In fact, social businesses have become so successful that traditional capitalism is thinking somewhat how to shift the way things have been handled on their part so far. As an illustration, Yunus (2010) thinks that social business is a new type of capitalism that will help humankind to overcome poverty and have a better life.
According to me social businesses might have been a solution to reduce poverty in Bangladesh, even in some other parts of the world, they however are limited. In effect, as those businesses need investors at the first stage of their development, it seems to me that not every investor can be willing to put money in a business where he or she will only recover the initial invested money and no payback dividends in return. In this capitalistic world everybody wants to make money and this is normal. Besides, fighting against poverty cannot only be about creating social businesses every year and everywhere; it should also be however about financing educational programs. What I mean is that governments or charities instead of merely giving things or food to the poor should sponsor a part of educational programs for university students and high school students, even for elementary schools. Such aid to education will help them become better human beings and possibly able them to have good jobs and create businesses. Education is the better means for socialization; it implies that thanks to education you can leave poverty and become an important person, we have plenty of documented stories about it. In addition, my view is that education is at the basis of any development in any country that is where another limit of social businesses lies into because Yunus (2010) mentioned nowhere education as to be another way to fight against poverty. He only promotes the setup of social businesses which I admit worked, nevertheless are not mostly the best ways to fight against poverty but solely one of the solutions among many. Obviously, I mean that we have many options to reduce the spread of poverty; Yunus (2010) has found that one of the solutions is the creation of social businesses, although it seems to me that he believes that they are the only solution. Conversely, another option among many is to promote education, what Yunus (2010) has not taken into consideration. It appears that for him, social businesses are the perfect solution to hamper poverty in serving the poor. In the purpose of discussing the book submitted to my analysis, I have selected three specific topics to debate on. I will discuss the origins of social business, then what a social business is and finally the Grameen experience. In addition to these topics, I will argue a fourth point, because Professor Yunus pretends that social business is a perfect system, meanwhile through my research and findings, I discovered that the system has limitations. I will therefore debate on the limits of social businesses.
II. The Backgrounds of Social Business
Yunus was Professor of Economics in Bangladesh when his frustration with local banks erupted because they did not want to borrow money to the poor. In fact, the banks did not consider poor people as to be eligible to pay back money if they were given loans because they had no financial resources. It was a woman called Sufiya Begum, from a village named Jobra who explained to Yunus about the difficulties she encountered. As the majorities of the villagers, she counted upon the local moneylender for the money she needed to purchase the bamboo for the chairs she crafted. Unfortunately, he would only provide her with the money on condition that she decided to sell him all of her production, and at a price he would himself agree. That price proved to be dramatically low. Accordingly, despite the fact that she was working hard, she even became poorer than ever, imprisoned in poverty, including forty-two other villagers. Subsequently, all of them faced the same difficult condition although they had borrowed a total sum of money reaching less than $27 from the moneylender. In contrast, conventional banks could not lend them money because they had no credit histories and no guarantee to offer, and were unable to even fill out the necessary official procedure because they were uneducated.
For these reasons, Yunus (2010) mentioned that he decided to lend them the $27 from his own financial resources and recovered it a week later. Nonetheless, bankers still were reluctant to lend money to poor people despite such similar experiences, in so much as they could not consider them as possible clients. They especially did not want to challenge their own paradigm, that is to say that loans could not be granted without guarantee. Due to that situation, a devoted bank had to be founded. In this respect, Yunus (2010) stated that he made the decision not to turn his back on the poor and set up his own bank that he called Grameen Bank, meaning “village bank”. Grameen Bank’s business model was exceptional in a sense that it brought some changes and innovations in the banking sector. First, the major objective of the bank is to get the poor out of poverty by lending small amount of money enough to budget money-making business activities, such as rice-husking, machine repairing, purchasing rickshaws, buying milk cows, goats, cloth, pottery etc. Second, the bank breaks down the rules of bureaucratic control.
In effect, Yunus (2010) indicates that local Grameen branch managers- a branch typically cover 15 to 22 villagers- first visit the villages and detect the potential customers, such clientele is constituted in groups of five. Loans are granted to the rest of the group only if the first two borrowers pay back the borrowed money plus interest within six weeks. We can therefore notice that Grameen bank questions a lot of standard banking assumptions, as for example the beliefs that credits cannot be given without guarantee and that entrepreneurship is a rare quality among the poor.
Understanding the origins of social business is fundamental before moving forward. The pioneer of microcredit, Professor Yunus is a patent example that old paradigms can shift when they are no more depicting reality. We can first see that Yunus as professor of economics tried to find out a solution to cope with the striking problem of poverty. He wanted to try out a fact: if money is lent to the poor, can they repay it? His frustration that local bankers did not want to borrow money to the poor was great, this is why when Sufiya Begum reported to him the way the moneylender was treating her and the rest of the villagers he decided to take action.
The moneylender attitude is to be analyzed. We can see that as banks were reluctant to give loans to peasants or villagers or simply put to the poor, the moneylender was the only option available. For those people to survive they had to go and borrow money from the moneylender, unluckily they could not even decide the price they could sell their goods- in their case, bamboos for the crafting of chairs- because the moneylender’s condition to lend money was that those poor had to sell him back those bamboos at a price he would decide. As a result, the poor became even more miserable and were trapped between the banks that could not lend them money and the moneylender who was exploiting them. It is in that perspective that Yunus decided to do something.
What is fascinating is the experience Yunus tried out, that is the fact that he lent money ($27) to the woman and the forty-two villagers from his pocket and they were able to pay him back within a week. From that experience he tried to convince conventional banks to lend money to the poor, but they would be reluctant because according to those banks the poor could not offer any collateral. Out of frustration, Yunus (2010) explained how he decided to create a business model that would serve the poor: the Grameen Bank. It is incredible how innovative is the bank in a sense that the same was designed to give microcredits to poor people and see how they would manage the money and repay the bank. The Grameen Bank thought that instead of lending big amount of money to the poor, it was better to lend them small loans, sufficient for the sustainability of their small businesses. I believe that lending small loans to the poor in order to see whether they had an entrepreneurial spirit is actually noble because if the poor could first began to manage small amount of money and more importantly by repaying their loans to the Grameen Bank, there is no doubt that the poor could also handle important amounts of money.
Therefore, the ability of the poor to pay back the different granted loans and their capacity to grow and sustain their businesses proved in fact that they were good entrepreneurs. The only thing they requested from the bankers in the 1970s was that thing anybody who wants to found a business needs: capital. From the Grameen experience, we can see that at the very moment those particular “businesspeople” acquired the capital, they started to be independent and eventually self-sustained as we shall see in the next section. The experience also suggests that the entrepreneurial spirit has nothing to do with poverty or wealth; it is a question of talent. And those Bangladeshi peasants had that talent.
Another amazing thing about the Grameen Bank is how the bank approached the villagers and started forming groups of five people among the future “customers”. The idea to give loans to two people out of five as a way to draw the attention of the villagers on their obligation to repay their loans proved to be great. I would like to clarify that microcredit is for micro projects not for bid ones, those peasants had to understand that in order for them to have a value added, they had to use the loans for the very purpose they were given to them and that they had to be productive for them to pay them back and possibly ask for others for the enhancement of their businesses. If the first two were able to repay their loans plus interests within three weeks, then the other three left of the initial groups of five were given at their turn loans for their projects. At the difference of traditional banks whose aim is to get people in a sort of financial jail, microcredits were meant to help the poor get out of poverty and enhance their entrepreneurial spirit. The experience proved to be successful. As a result, the Grameen Bank is currently a countrywide bank in Bangladesh that assists over 8 million borrowers, the majority of which are women.
Normally, the Grameen Bank would lend money to both women and men but realized that children of borrowers benefited much more when the borrower was the mother rather than the father because of cultural practices. For instance, men would use the borrowed money on themselves meanwhile the women would use the borrowed money on their children for food and education. Positioning women as responsible for finances has endowed many of them with the ability to found small businesses and become Grameen Ladies.
The behavior of the father in the Bangladeshi culture to only spend the borrowed money on himself is not only about Bangladesh. That phenomenon is as well a reality in Africa. When microcredits arrived lately in my country in 2005, microfinance institutions were not careful about to whom they really had to lend money to. They wanted to make money by granting small loans to a great number of people. Although the experience proved to be a success, a category of their clientele failed, mostly men because they would spend their money in drinking and have had difficulties to pay back their loans. So microcredit institutions, though newly arrived in my country at the time decided to check on people in their multiple projects. In other words, once they had lent money they would check out if the lent money was spent for the purpose it was given. They would weekly come and see how people’s businesses worked and see somehow to help.
The fact that women were more productive in Bangladesh is not only something of the Bangladeshi culture. Because women are more sensitive beings than men, when men might spend their money on themselves or in drinking, women naturally tend to think about the future of their children. This future includes their education, health, cloths etc. The same behavior is manifest here in Gabon. Let me take an illustration, microcredit institutions approached women who sell products in our local markets. These products include bananas, tomatoes, pineapples, peanuts, peppers, and so on. When those women were giving capital to develop their businesses, not only did they pay back their loans, but also they behaved exactly as those Bangladeshi women: send their children to school by paying their education fees, some even succeed to send their children to European universities, other became independent by not solely relying on men as the unique braid winners.
- Quote paper
- Dr. Jean Cédric Obame Emane (Author), 2016, Building Social Business by Professor Muhammad YUNUS. Analyzing the Advantages and the Limits of Microcredits, Munich, GRIN Verlag, https://www.grin.com/document/437226