‘As if being awarded the Nobel Peace Prize weren’t enough’

May 28, 2008

The Milken Institute discusses the “Creating a world without poverty’ as an event:
As if being awarded the Nobel Peace Prize weren’t enough, Muhammad Yunus has set his sights on a new goal: turning the entire current cannon of business thought on its head. As captured in his latest book, Creating a World Without Poverty, Yunus is determined to bring about a tremendous change in our current understanding of what it really means to turn a profit.

Speaking to a standing-room-only crowd at the Milken Institute, he outlined his past innovations in micro-credit – which have provided the poorest citizens of Bangladesh with previously unheard-of access to credit, breaking the cycle of poverty for thousands of families in rural and urban areas alike.

Building on the lessons and successes of Grameen Bank and Grameenphone (for more on this, see Muhammad Yunus and Mike Milken: A Conversation), Yunus is now turning his attention to the development of “social businesses” – a revolutionary concept that measures return on investment in social outcomes rather than financial gain. Such outcomes might include the number of children with improved health, the gallons of potable water delivered to regions with unsafe water supplies, or the kilowatts of energy powering a village that previously had no electricity.

According to Yunus, current economic and financial philosophy misses the entirety and the potential of human beings.

“Economics has discarded everything that makes humans interesting,” he said, noting that “Human beings are much bigger than money machines,” he said.

While the profit motive is part of the picture, the fundamental desire to do good has been overlooked by academics and practitioners alike. Yunus insists that this impulse has a place in economics—and he characterizes the missing piece of the puzzle as “non-loss, non-dividend companies.”

Funding a social business is not like donating to charity. Yunus believes that social business investors can and should expect to recover their initial outlay. The return on that investment, however, will not be a financial dividend, but a tangible social benefit. The business still has the imperative to be successful in order to repay its initial investors and to grow the operation, but its ultimate success will be measured by how well it achieves its stated social objective. As an additional benefit, the recouped initial investment can be recycled into new social businesses over and over.

Yunus pointed to a successful social business that is already up and running: a venture established by Grameen Bank and Dannone. The company produces an affordable yogurt enriched with nutrients that are desperately needed by impoverished children in Bangladesh. Grameen Bank and Dannone will be able to recover their investment in the enterprise, but both seek a rate of return measured in healthier children, not as a percentage of profits. While there is no direct profit from this endeavor, Yunus commented on the incredible public relations boost for Dannone since the project’s inception.

Additional markets ripe for the social business model include clean water, housing, vaccines and energy. Yunus noted that there is a tremendous energy shortage in rural Bangladesh; 70 percent of the population has no access to electricity. At the Milken Institute Forum, he challenged his audience to develop a solar panel that could be sell for $1.50, as opposed to the current price of $3.00. Unlike many other technologies, solar panels have not seen a price drop. “This technology is stuck,” observed Yunus.

Nevertheless, solar panels represent a tremendous opportunity for launching a social business. Yunus promises that if a company out there can figure out how to provide the product at the lower price, he will put solar panels in every home in Bangladesh. This would not only improve the lives of 70 percent of the Bangladeshi population—but do it with a clean, renewable energy source.

Yunus does not see social businesses as a concept that is limited to Bangladesh or the developing world. He believes it can work right here in the United States—and he noted that if he were to develop a new U.S. social business, he would concentrate on providing health insurance to the uninsured. The social business model might be the perfect solution, since the current profit model has not been able to provide the service.

“Profit maximizers will never get here, because you don’t make money,” Yunus said on the subject.

Milken Institute
January 18, 2008

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