Long ago, a banker lent money to the working poor; his idea was that those who worked hard would pay to gain money enough to lift themselves out of poverty by acquring the tools they needed to have profitable businesses and a better life. The banker lent relatively small sums to a wide variety of people and was successful beyond all expectation. Eventually, his San Francisco based bank—the Bank of Italy—became the titan of American banking that it is today—the Bank of America.
Fast forward a few generations to the Chair of the Economic Department at Chittagong University, Muhammad Yunus, founder of Grameen Bank and lender to perhaps millions of people in Bangladesh and elsewhere. Yunus theorized a new dimension for capitalism that some may call “re-discovering the poor” the way B of A’s Amadeo Giannini did earlier. What is much more subtle, complex and effective is that Yunus developed a new kind of capitalist model called “Social Business” that includes new dimensions in the traditional capitalist model.
Social Business is an enterprise that seeks to solve a social problem by using business methods. There are two kinds of social business: Type One is a non-loss, non-dividend company devoted to solving a social problem that is owned by investors who reinvest all profits in expanding and improving business. Type Two is a profit-maiking company owned by poor people either directly or through a trust dedicated to a pre-defined social cause. Type One Social Business owners don’t earn profits or dividends or any form of direct financial benefit. Investors can take back their original investment over a period of time they define, though this is not adjusted for inflation or currency fluctuations.
An example of a Type Two is a story that Yunus tells often about one of his first borrowers–an impoverished woman in Bangladesh who borrowed $4 from his Grameen Bank to buy some needed equipment for her husband with which to set him up as a hair dresser. This was a huge sum for the woman; she and her husband paid off the loan over time, though her bankers’ weekly visit. The interest rate maxed at 20 percent. When the $4.80 was repaid, a new entrepreneur able to sustain a family in an independent business existed where there had only been an impoverished family before. Presumably, this economically viable business would continue, perhaps grow and add to the consumer base of the community and nation. Grameen Bank was richer by the amount of interest on the pittance it loaned. Everybody was happy, except for larger banks that wouldn’t deign to loan only four bucks.
If you do some math, you can quickly see that the returns on tiny loans at up to 20 percent can be huge in no time at all, especially if your payback rate is the 98% Yunus claims. In his estimation, the profits from his Grameen Bank can rapidly build wealth in people who never had any disposable income; on a grand scale, it can transform peasants into a sturdy bourgeois class, able to determine their own fates instead of having it imposed on them from above. This makes it worth doing.
More engaging is the Type One social business that Yunus and the Grameen Bank have established with the French company Danone. The yogurt makers were interested in creating nutritional food for the poor in Bangladesh and elsewhere and turned to Grameen Bank for assistance. Yunus was quickly forthcoming, challenging them to produce a cup of yogurt for a nickel, with a cup that was edible. Danone achieved the first part of that equation, reaping business and prestige as well as an enhanced stock price. Should it succeed in making an edible cup for its yogurt, it will transform food production—with profits to match, which means that by solving problems, business can prosper in the long run within traditional capitalist dicta. Both Adam Smith and John Maynard Keynes would be happy as clams.
Locally, the San Diego Foundation for Women and Elan Organic Coffees are partnering to bring Social Business to more women in the third world—and San Diego, by selling fair trade coffees as a way to raise seed money for “microloans” to women who need them. This is a noble effort, based on the ideas of Muhammed Yunus as set out in his book, that vaguely echo the pattern of the B of A’s founder who originally made his seed money out of a produce business down the peninsula from San Francisco more than a century ago. Money, it seems, can be grown of the earth and when placed into the hands of those close to the earth, can help make a reach to the stars that much more attainable for more people and this is a good thing.
Especially during a time of Depression, one may do well to read and meditate on Yunus’ ideas of Social Business and how to bring them about. Just because the times are devoid of money doesn’t mean economics can’t be fun and since no one will pull us out of the economic mire we now wallow in but us, it makes sense to look over some ideas that have some profitable traction built in.
Happy reading.