New Type of Businesses Pursue Social Goals and Profit

A new type of business is focused on making a difference in society as well as making a profit. Mike O'Sullivan reports, so-called social businesses are linking investors in the industrial world and entrepreneurs in developing countries.

Social businesses are taking aim at problems that range from environmental pollution to health care. Better World Books of South Bend, Indiana, targets illiteracy. The company, founded in 2002, collects used books from college libraries and bookstores. It resells them and gives part of its revenue to such programs as Books for Africa.

Other efforts link cash-starved entrepreneurs in the developing world to investors in the rich world. The Calvert Social Investment Foundation has partnered with the Internet site eBay to create the company MicroPlace. It sells securities to investors in wealthy countries and, working through micro-lenders in the developing world, makes loans to small businesses in such places as Tanzania, Kenya, Bolivia, Cambodia and Tajikistan.

Foundation director Shari Berenbach says MicroPlace is opening up the field of social investing.

"We're making it possible for people to invest in, really, units as small as $100, where those funds are then being used to finance micro-finance all across the globe. So it's all about opening up and democratizing and making it possible for all kinds of individuals to invest in social business," she said.

Berenbach spoke on a panel at the Milken Institute Global Conference, an annual business forum, together with a man who pioneered the micro-credit concept, Bangladesh banker Muhammad Yunus. Yunus and his Grameen Bank shared the 2006 Nobel Peace Prize for efforts in economic and social development. The bank began by making tiny loans, for example, helping women in rural villages to buy a mobile phone and set up a small-scale telecom company.

Grameen has since launched a number of joint ventures with major corporations. One project with Intel is creating information technology for the poor. Yunus has also partnered with food processor Danone, known as Dannon in the United States, to produce a yogurt.

"But this is a social purpose-yogurt because there are millions of malnourished children in Bangladesh. What we have done in this company, we picked up all the micronutrients which are missing in those malnourished children, put it in the yogurt, and then make it very cheap so that the poorest children can afford it," he said.

Grameen has also teamed up with the French water company Veolia to provide clean drinking water for the poor in Bangladesh. Yunus says these projects have a greater impact than simple charity.

"That's the beauty of the business. [The] charity collar works only once. Once you have done it, it goes. It never comes back. But if you put this whole thing into a social business format, money recycles," he said.

Some social businesses are profit-making enterprises that return part of their revenue - say, five or 10 percent - to social development. Others, like the Grameen Bank, are grass-roots cooperatives that reinvest their profits in the community.

Some social businesses offer investors a financial return, and others repay investors only the principal. As with any enterprise, social businesses can lack transparency and have problems with fraud and corruption, but these experts say that with the right safeguards, they can fill an important role in economic development.

Some social investment projects have had their growing pains. The online site "Kiva" channels millions of dollars in loans to small enterprises in the developing world, showcasing entrepreneurs and allowing visitors to the website to choose businesses to invest in. However, the effort, which was founded in San Francisco in 2005, had more investors for a time than projects in need of funding.

The John D. and Catherine T. MacArthur Foundation makes both charitable grants and community investments, and Foundation official Debra Schwartz says social business needs the right kind of management.

"It requires a special kind of institution that has creativity and resilience and systems in operation, so it has to have those business disciplines that make it a viable enterprise or business," she said.

In Bangladesh, Muhammad Yunus and Grameen enterprises have branched out into fisheries, irrigation, textiles, education and other fields. Yunus sees new areas opening up, and says he is exploring the possibility of social businesses in medical care and health insurance.