Social entrepreneurship is the activity of a social entrepreneur. A social entrepreneur is one who recognizes a social problem and uses business principles to organize, create, and manage a venture to bring about social change. Social entrepreneurs are usually individuals with novel solutions to society’s pressing problems. Some social entrepreneurs often work through nonprofits and citizen groups, while most are now working in the private and governmental sectors.
Whereas a business entrepreneur measures performance in terms of profits and rates of return on investment, a social entrepreneur additionally includes the impact he has on society as well – the so-called double bottom line. The main aim of a social entrepreneurship is to further social and environmental goals for a good cause. In its purest form, social entrepreneurships are non-profits that reinvest the profits generated to further the social goal. Most social enterprises are built on business models that combine a revenue-generating objective with a social-value-generating structure or component. Social entrepreneurships redefine entrepreneurship as we know by adding a social component.
One well known contemporary social entrepreneur is Muhammad Yunus who founded the Grameen Bank in Bangladesh, and who was awarded a Nobel Peace Prize in 2006. His work was built initially on the concept of offering credit to those who were unable to obtain loan from conventional sources such as banks to undertake small business ventures. Subsequently, a new microcredit industry mushroomed in developing countries, most claiming that they are able to lend money profitably to the poor to enable them to start or run small businesses. However, there is some degree of skepticism about their motive, business practices, performance, and benefit offered to the poor.
I would like to offer some clarity to this field. Social entrepreneurship can be in many areas that offer products and services to improve consumer safety, environmentally friendly choices, poverty alleviation, and other worthwhile initiatives. There is no doubt that many of these ventures are valuable to the economy and the society in general. However, the problem arises when some of these initiatives claim that they are designed to alleviate poverty as their main goal. Such claims often attract public support and investment from the philanthropic community, but they do not necessarily meet the minimum criteria for claiming as a poverty alleviation enterprise.
In my opinion, for-profit ventures that claim to be social entrepreneurships to alleviate poverty must meet at least one of the following criteria:
- Employ and/or train proportionately significant number of poor people in its main business activity (e.g.: making mosquito nets, pottery, processing vegetables, etc.) instead of simply using them as cheap manual labor, such as sweepers, porters, etc.
- Produce/offer essential products and/or services (healthcare, education, housing, food, clean water, etc.) to poor people (those below income of $2 per day) at affordable prices.
- Make credit available to poor people at reasonable rates (no higher than twice the rate charged by banks to their credit worthy clients) for personal or business uses.
- Offer technical, material and/or financial assistance to the poor to enable them to engage in family-run businesses, with returns to investors generated in the form of products produced from those activities (milk production from cows and buffalos, tailoring of items such as designer quilts and cushions that may be sold at high prices to the affluent community, etc.).
Further, the cost incurred by the beneficiary for the product/service obtained must be affordable and reasonable; not to place any such constraint to qualify as a social entrepreneur serving the poor would be to accept exploitation of and extortion from the poor in the name of social good, as is the case of local money lenders who charge exorbitantly high interest rates to those who badly need loans to meet emergencies.
Investors must differentiate between those for-profit business ventures that are set up in poor areas or employ low-wage labor from other activities that are clearly designed also to improve the lives of poor people at the true “bottom of the pyramid.” Without making such a distinction, every business that operates in deprived communities or sells products and services to the poor and the not-so-poor will be termed social entrepreneurships in poverty alleviation.