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The 'social entrepreneurship1 conundrum

Ahmad Ibrahim
WHEN the idea of microcredit first came to the fore, it captured the imagination of millions. Here was a way to tie in business and development together to finally put poverty in a museum. As many put it, then, it was one of the kinder faces of capitalism, an ideal which has effectively left many destitute and living in decrepit conditions. And so it took the world by storm and since then we have come a long way. Microcredit now forms one of the fundamental pillars of our developing society and has been praised the world over for providing sustenance, mobilising the resources of the extreme poor and empowering women. It is not without its detractors, who often say it is not enough to raise the poor out of their conditions and is just a temporary band-aid over a deep wound. Still, the general census remains that the world would have been much worse off without microcredit, whatever its drawbacks.
By 2013, 'the kinder face of capitalism' began to incorporate another dimension to its features - that of social businesses. Grameen Bank's new mantra, as stated by Dr. Yunus himself, is to make sure that its borrowers remind themselves, "We are not job-seekers, we are job-givers." Grameen Bank's Nobin Udyokta (Nil) or New Entrepreneurs programme focuses on shifting the path of its bor-rowers from traditional jobs to entrepreneurship. The idea of social businesses puts their priority on tackling and solving a problem rather than on the profits of the business. According to Dr. Yunus, "If someone can be persuaded to only keep 1% profit, they can also be persuaded to keep 0% profit." The investor does not take any dividend apart from the amount of money he invested and stops taking dividends once that amount has been paid. In other words, it presents a perfect setting of altruistic utopia whereby social development can thrive.
However, on closer viewing, there
appear to be several pitfalls in the idea of a social business. The first one is this - the entrepreneur, the heartstring of the business, the brains on whose ideas the business is set, may have no shares in his business. "He can be the managing partner or a paid manager of the business owned by the investor," says Dr. Yunus (The Daily Star, June 10). This means that even after the investor has received his share of the invested amount as dividend, he still owns the business. But since the idea of a social business is to make entrepreneurs out of the people, the investor then sells his shares to the entrepre-neur to make him the principal owner of his own business. In real terms, it is a heavy burden for the person to pay after having already paid the original invested amount. It effectively means that, in theory, there might be little or no money left for the entrepreneur after all his debts and shares are paid for. What is more, the NU programme only accepts those whose families already have a borrowing history of at least seven years from Grameen Bank. There will already be a significant amount of debt for the household. Is it wise to push them into more debt?
And what of the investor? Social business guidelines, according to Dr. Yunus, dictate that the investor is entitled to sell his shares at market value or face value of the shares. If the investor sells his shares at the market value, then he cannot hold on to the extra earning over the face value that he has received. This amount has to be reinvested into another social business or the same business. This is perhaps the biggest loophole in social business programmes that will cause lending firms such as Grameen Bank to rake in millions in profit. The investor has already by now recouped the original loan through dividend and has now also sold his shares and, with the extra money he has received, he can dive into another social business - and the cycle can go on and on following the principle of diminishing returns until Tk. 1 of investment has effectively turned into Tk.l lakh. In Grameen Bank's NU programme, the investor receives a 20%
share transfer fee over the face value of the shares. Even if this is free from increasing interest rates on loans, it provides a loophole for a firm to make exponential profit from a small original sum. It is the perfect example of the multiplier effect being put into use.
According to Dr. Yunus, Grameen Bank plans to consolidate the NU programme by deepening its institutional infrastructure. What are the implications of this? For one, it stands to create a generation of borrowers who will stand to pay back exorbitant amounts of money in order to own a business that was their idea to begin with. It stands to earn Grameen Bank a lot of money and will result in a further widening of the income disparity between the poor and the rich 1%. It stands to create the illusion of cash flow amongst the entrepreneurs who might be mired in a deeper cycle of poverty because of it.
At this point it is pertinent to question whether the people implementing this model have taken into account its likely implications and whether they believe it will solve social problems rather than create a debt-ridden situation of development where the poor remain continually stuck in their cycles of poverty. As it stands, this model falls in nicely with the ethos of capitalism and it might just be that the 'kind face of capitalism' is really just a mask hiding a reality of opportunism. The writer is Editorial Assistant, The Daily Star. (Views expressed are the writer's own.)