Social Business: Harnessing the power of business for social good

Some yogurts pack more punch than just fruit at the bottom. While most of us wouldn’t typically think of yogurt as a tool to fight social injustice, add in a few extra nutrients and it becomes a formidable tool in the fight against malnutrition.

UNICEF estimates that malnutrition accounts for over one-third of all child deaths in developing countries, and the children who do survive are more susceptible to illness and mental and physical disabilities. Grameen Danone Foods is a company that was specifically set up to tackle malnutrition by selling nutrient-fortified yogurt to the poor. The yogurt it sells doesn’t just earn a profit, it also helps children get more of the nutrients they need. It's also a great example of a social business.

Social businesses are defined as “non-dividend companies created to solve social problems.” Grameen Danone is one such business. Its mission to reduce poverty by improving child nutrition outweighs the importance of financial returns. Despite this order of priorities, however, its business model allows them to cover their costs.

The concept of social business was invented by Dr. Muhammed Yunus in 2005. Within social businesses, costs must be covered through revenue generation, and initial investors are paid back only their investment amount and nothing more. Profits are instead reinvested into the business, and/or the local community, in order to expand the business and ultimately do more good. In a world where over 1 billion people live below the extreme poverty line on an income of US$1.25 or less per day, we here at Kiva believe social businesses will play a key role in solving some of the world’s most pressing problems.

Aside from sustainability, another key element of social business is treating the people you are seeking to serve as clients, not beneficiaries. In the case of Grameen Danone, its primary market is Bangladeshi children under age 5. In Bangladesh, 50% of children suffer from moderate to severe malnutrition. As such, Grameen Danone’s yogurt product is specifically designed around the nutritional deficiencies these children face. Each yogurt sells for the equivalent of 8 U.S. cents, making it affordable to even the poorest populations. And, this model seems to be working -- studies have since shown that children who eat one of these yogurts per day for a year demonstrate improvement in IQ and growth indicators.

Social businesses also strive to incorporate sustainability and social orientation into all of their business processes. At Grameen Danone, a solar water heater is used for production, biodegradable containers are used as packaging, and ingredients are sourced from local smallholder farmers who are offered additional benefits in the form of micro-credit and training to improve crop yields. In terms of distribution, yogurts are sold door-to-door, providing saleswomen with a 10% commission and stable employment. Since the company's launch, it has created 1,600 jobs within a 30-mile radius of the original plant in Bogra, and it's now planning to expand the model to new regions and create an even bigger global impact.

Dr. Yunus outlines the following core principles that are essential to any social business:

1. Business objective is to overcome poverty, or one or more problems (such as lack of education, poor health, limited technology access, and environmental damage) that threaten people and society; not profit maximization.
2. Financial and economic sustainability.
3. Investors get back their original investment amount only. No dividend is given beyond investment money.
4. When investment amount is paid back, company profit stays with the company for expansion and improvement.
5. Environmentally conscious.
6. Workforce gets market wage with better working conditions.
7. …do it with joy!

Here at Kiva, we’re very excited about what social businesses can do in the areas we care about. We are in a unique position to offer financing through larger loans to help these non-dividend businesses scale and reach greater populations. More on this coming soon!

For a deeper dive into social businesses, check out this blog post by Social Business World. And as always, you can contact us with questions or thoughts at blog@kiva.org. We’d love to hear from you!