By Smita Ram - Rang De Team
28th June is Social Business Day aptly named so after Prof. Yunus’ Birthday — the Father of the ‘social business model.’ Prof. Yunus evolved the concept of social business models and has successfully implemented it across verticals. The Social business model aims to address one or more of the social problems through a sustainable model in contrast to a mere profit maximisation model.
A business, with no profits? Let me try and explain it with the Rang De Business Model as we are a Social Business too!
The problem Rang De is trying to address: Need for low cost microcredit to the poor
The solution: To leverage the internet and the peer to peer model to raise social capital from individuals and bring down the cost of capital to the end user.
The Business model: Rang De relies on the interest earning on every loan. In order to breakeven Rang De will need to disburse a certain volume of loans. At that point, Rang De will no longer be dependent on external grant funding.
The Social Business Model is an effective transition from a typical ‘charity’ model where one is eternally dependent on grants and donations. In this model, dependence on grants and donations is limited to the initial years until the the model starts to generate enough revenues. While it maintains the doggedness of NGOs by being cause oriented, it brings in the elements of a business through an in built revenue model with a focus on sustainability. There are no quick returns in the social business model, thus no quick exits for the investors. This ensures that investors are serious about their investments and are doing it for the right reasons.
Our social investments model works on similar lines. The social investors get a nominal financial return. The field partner NGOs get a cut that is enough to cover their costs and Rang De gets a cut in the interest rate which in the medium term will help the organisation become sustainable. And the borrower pays an affordable interest rate on their loans. Thus making it a win-win for everyone!
Here are the seven principles of social business as quoted in Mr. Yunus’ website:
- Business objective will be to overcome poverty, or one or more problems (such as education, health, technology access, and environment) which threaten people and society and not profit maximization
- Financial and economic sustainability
- Investors get back their investment amount only. No dividend is given beyond investment money
- When investment amount is paid back, company profit stays with the company for expansion and improvement
- Environmentally conscious
- Workforce gets market wage with better working conditions
- …do it with joy
Despite the obvious merits of the model, there is not much awareness about social business models. If you visit the Yunus centre’s website, you will see several partnerships of Grameen that work on a social business model. But as we say at Rang De, the social business model ensures that if one is in it for the right reasons and works hard enough, it protects the interests of all stakeholders. It definitely ain’t for the weak hearted.
You can read all about it here and get inspired!
To create awareness about Social Business Models, participate in our Social Business Day Campaign. If you have been thinking of ways to address problems in a sustainable manner and if your idea is in line with the seven principles of social business, do write on our facebook wall under the post about Social Business Day!