The difficulties associated with a purist version of social entrepreneurship and how it differs form charitable organizations as well as the need to ensure they do not just become self-serving “employment organizations” without any benefit to the communities they are aiming to serve are problems often associated with the concept and Muhammad Yunus is no stranger to these problems:

By Maya Pillai of beyond profit>

Hans Reitz, who co-founded theGrameen Creative Lab with microfinance guru Muhammad Yunus, defines a social business as a “non-loss, non-dividend company with the purpose of solving a social problem.” The Lab officially launched in India earlier this year and brought the concept to an audience already well-versed in the social enterprise space.But is this model the best way to solve social problems?

At the launch event, Reitz explained that the company has a social goal but offers products and services at prices that are self-sustaining. The company’s investors get back only what they invested.

Aarti Wig, who leads the Lab in India, explained that the source of motivation—a selfless desire to do good to the world – separates a social business from other such enterprises. While Yunus acknowledges that profit is important, he asserts it only as a means to an end: to subsidize costs, expand activities and improve product quality for greater social impact. The clincher is that the clear social objective dismisses any conflict in contrary goals of profit and social impact.

But can entrepreneurs just starting up afford to keep profits within the company? Inir Pinheiro, founder of Grassroutes, a rural tourism enterprise based in Mumbai, doesn’t think so. He thinks that ploughing back profits works well only with organizations who already have “a well-established team, good investment and good connections.” Pinheiro adds that such organizations are in “a different ball game, where they can do whatever they want,” versus those starting from scratch, who “struggling with finances, ultimately need to drive business first to get the money.”

Neera Nundy, co-founder of Dasra, too, questions the concept.

“For any social business, profit and social impact go hand-in-hand,” she says. “They can’t be separated. If your social impact and your profit aren’t aligned, and visa versa, then neither is likely to be sustainable for too long.”

Akash Raman, a consultant for Ashoka, thinks that the model limits access to capital and, ultimately, limits social impact.

“Since a social business cannot distribute profit to its investors, the business’ access to capital is reduced, thereby compromising its ability to achieve its social aims,” he said.

But, for many, the fact that the model doesn’t distribute profits is part of its allure.

“I would prefer to work with a social business, as you can get a salary that is enough, while working for an important social cause through a sustainable model,” says Deepa Roongta, an aspiring social entrepreneur in Mumbai.

At the end of the day, Yunus’ social business model adds to the vast concept of social enterprise and offers entrepreneurs another option for creating a business model that will work for their enterprise and their goals.

“It is a step beyond the ‘depending on external funding’ approach of non-profits and of ‘doing well by doing good’ approach of for-profit social enterprises,” said Raman.

Perhaps, this idea is exactly what the social enterprise sector needs at this time: a new choice to compete with the rest. After all, we do like to think business in the social sector, don’t we?

Photo credit: World Economic Forum

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