Thursday, October 30, 2008

The limits of social business

I will be talking about Social Business in Cairo later in November. I post this as areminder to myself. (Thanks Muna)

Social business enterprises - maximising social benefits or maximising profits? The case of Grameen-Danone Foods Limited

Authors: Ghalib,A.K.; Hossain,F.
Produced by: Brooks World Poverty Institute, University of Manchester (2008)

In a deeply unequal and increasingly fragile world, some people are calling for a more socially responsive form of capitalism. Others are already exploring ways of operatationalising such a concept. One such experiment has just taken off in Bangladesh involving the local Grameen Bank and Groupe Danone, a leading French multinational. A new paper brought out by the Brooks World Poverty Institute at the University of Manchester examines how this initiative is different from traditional joint ventures and what its future plans are.

While delivering the Nobel Peace Prize Lecture in 2006, Muhammed Yunus defined a social business enterprise (SBE) as a business with primarily social objectives, whose surpluses are principally reinvested in the business or in the community rather than just accumulated as profits.

The basic features of a SBE are that it:

* adopts the principle of benefit maximization rather than profit maximisation
* operates without incurring losses while serving disadvantaged people and the planet
* is nonetheless serious about investing in expansion, innovation and increasing productivity
* competes with profit maximising enterprises as well as other SBEs for market efficiency
* generates enough surplus to pay back the invested capital to the investors as early as possible

In April 2007, Grameen-Danone Foods Limited (GDFL), a milk-processing SBE that produces fortified yoghurt, began operating out of Betgari, an area 220 km northwest of Dhaka. GDFL is currently:

* providing nutrition at affordable prices to the rural population
* helping to create independent businesses and several hundred local jobs in farming, food processing, sales, marketing and distribution
* using environmentally clean technology

At the same time, some of the challenges faced include the fact that:

* profit margins are low
* yoghurt is difficult to distribute and market due to its perishable nature
* customer outreach is still narrow
* trained local human resources to run operations are scarce
* the yoghurt's exact health benefits still need to be verified

Some of the challenges are likely to be addressed by GDFL's future plans. These include:

* breaking into the urban market
* setting up two more facilities by the end of 2008 and at least 50 more in the next 10 years

In the meantime, the Grameen Bank has also just launched two SBEs outside Bangladesh: Grameen Capital India in partnership with Citibank and the ICICI Bank and Grameen-Jameel Pan Arab Microfinance in partnership with the Abdul Jameel Latif Jameel Group of Saudi Arabia.

Available online at:⊂=pov


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