Last night, I attended a talk at NYU put on by Stern’s Berkely Center for Entrepreneurial Studies. The speaker was Muhammad Yunus, founder of Grameen Bank and winner of the 2006 Nobel Peace Prize. Yunus focused his speech on the idea of “social business,” a topic he covers extensively in his new book, Creating a World Without Poverty: Social Business and the Future of Capitalism.
It was an extremely interesting speech, especially given today’s economic environment and Yunus’ audience of “Sternies,” who are notoriously profit-minded, Wall Street-focused individuals. Yunus, widely regarded as the father of micro-finance, outlined the idea of “social business” in giving us the history of Grameen Bank and its offshoots in food, healthcare, technology, and energy. Basically, social businesses are those that are created with the goal of solving some social need, not with the traditional business goal of maximizing profits. While profitiability is a must—social businesses are distinctly not non-profits and charities that require regular injections of capital—profit maximization is not the ultimate goal.
Professor Yunus made an interesting point in his talk: that profit and wealth are not really an end; they are simply the means to an end. What is the end? Happiness. Yeah, that sounds a little flowery; but I think Yunus is making an important point here. Profits and wealth aren’t worth very much if they’re not used to do something else. What we choose to do with wealth—reinvest, purchase stuff, donate it, grow—are vehicles that are designed to either create more wealth or make us happy.
If you add “social business” to the traditional economic picture, profits can be used to start new entities that can solve basic human problems. Ultimately, Yunus believes, we can eradicate poverty completely.
But let’s back up a second. The success of Yunus’ Grameen companies (“grameen” means “of the village” or “rural” in Yunus’ native Bengali) is proof that his innovative business models actually work. Grameen Bank started out in a small, impoverished Bengali village distributing loans of $27 to 42 different women who were looking to start businesses of some sort. The bank charged a small interest rate, borrowers made payments on a weekly basis, and all returns were re-loaned to additional borrowers. In essence, the borrowers are the owners of the bank. This model scaled up and grew quickly, to the point that Grameen Bank in Bangladesh now has 7.5 million customers on its books (97% of them women), borrowing and lending $100 million per month, on average, with each loan averaging about $200.
Those who “managed” the bank’s operations began requiring that borrowers’ children attend school so that the cycle of poverty and illiteracy could be broken. Today, Yunus is proud to report that 100% of Grameen Bank’s borrowers’ children are in school. Those children completed their basic education, and soon required additional funding to pursue higher education. So Grameen launched scholarship programs and student loans, funded exactly the same way as Grameen Bank’s core operation. Today, 700-800 new Bengali students enter higher education programs each month. It’s astounding.
Grameen also launched a phone company, in order to give impoverished, illiterate villagers access to modern technology and communication tools that have the power to transform lives. Local women were enlisted as salespeople, and mobile phones soon began spreading throughout rural villages across Bangladesh. GrameenPhone is now the largest mobile operator in Bangladesh, with a 55% market share. A network of over 300,000 saleswomen earn a living by selling the phones, SIM cards, and prepaid minutes; and customers are given an affordable tool that connects them to the world. Win, win, win.
Soon, Grameen Shakti was launched to provide people with a source of energy with which to power their phones and other electric devices. Grameen Shakti (GS) sells and installs renewable energy systems for homes in rural villages in Bangladesh. The goal: eliminate the barriers to progress that exist for those lacking electricity, something those of us tend to take for granted as a ‘given’ in wealthier societies. GS used Grameen Bank’s experience to build a financing package based on installment payments to reduce costs and help attain an economy of scale. GS engineers, known as “social engineers,” train women technicians and provide them with employment. Technicians visit every household with a Solar Home System on a monthly basis to do a maintenance check, repair work, and collect the monthly payment for the sytem, which most buyers pay off in 2-3 years. GS really took off when rural clients realized solar home systems are more cost-effective than other conventional sources of energy such as kerosene.
I could go on and on detailing the various businesses and partnerships Grameen has launched in an effort to solve the myriad problems associated with poverty in the third world. A partnership with Danone is bringing low-cost, nutrient-rich yogurt to villages to combat malnutrition; a partnership with Veolia Water is bringing arsenic-free water to villages through the installation of water treatment and bottling plants. Partnerships with pharmaceutical companies, insurance companies, hospitals, and medical equipment manufacturers allow Grameen to enter the healthcare space.
All of these social businesses require an initial capital investment, but are designed to be self-sustaining, value-creating entities once they’re launched. How does Yunus and his team at Grameen do it? They simply focus on solving problems. They look objectively at a problem, set a goal in trying to devise a solution, and figure out the financial matters after the fact.
Yunus challenged all of us at the talk yesterday to, once in a while, take off our “profit-maximizing glasses” and replace them with “social business glasses.” He says we’ll see the world, and its seemingly intractible problems, in a whole new way. And while the idea of social business is a powerful one; I would argue that the same thinking can be applied to innovation. Train yourself to look for solutions, plain and simple. Don’t worry about the business model or the ROI or the possible market share at first. Just focus on the problem. Devise the ideal solution. Then figure out a viable way to making that solution a reality.
Professor Yunus pointed out that we’re all capable of devising such solutions; problem-solving is a capacity that exists within all of us. But we get distracted and suddenly lose sight of the problems we’re trying to solve. That’s where social business and innovation fall apart.
Is it really possible to create a world without poverty? According to Yunus, it absolutely is, and he’s trying to prove that it’s possible by doing so in Bangladesh by 2030. That magnitude of that task aside, Yunus also brings up the importance of proving and showcasing success in order to gain momentum, buy-in, and the permission to replicate that success. Again, this is critical to the practice of innovation as well. People don’t really know what’s possible until you show them. So if you have the vision, and you’ve mapped out the solution, just do it.
For more information, check out Yunus’ new book: Creating a World Without Poverty: Social Business and the Future of Capitalism, and be sure to visit Yunus’ Website for updates on the various Grameen companies and their success.