MICROFINANCE

Social Business and Microfinance

There is a new concept related to microfinance that is a tool to fight against poverty in the world: The Social Business. This is a new concept referring to the creation of companies that do not distribute dividends and use their profits to social ends, such as health, poverty, education and environment. The idea is that these companies are self-sufficient and investors can get their investment gradually, but their investment has to be profitable. Mohammed Yunus, 2006 Nobel Peace Prize winner, in his seven principles are postulated to be met:

1. 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; not profit maximization.

2. Financial and economic sustainability

3. Investors get back their investment amount only. No dividend is given beyond investment money.

4. When investment amount is paid back, company profit stays with the company for expansion and improvement.

5. Environmentally conscious

6. Workforce gets market wage with better working conditions...do it with joy [1]

One example of a social business is oGrameen Danone Foods that was founded in 2006 with the objective of providing the poorest children in Bangladesh the necessary nutrients in their diet. This initiative was undertaken together with the Grameen Bank and Danone Group. One of the products they offer is a special yogurt called Shakti Doi powerful means yogurt. This yogurt is offered at a very affordable price for a poor person in Bangladesh (0.05 Euros). Grameen Danone is developed under the seven business principles Yunus and social issues raised by attempting to establish 50 production plants in 10 years in that country, besides providing employment.

Regarding microfinance, Yunus was who founded the Grameen Bank in 1976 with the aim of providing microcredit to the neediest people of Bangladesh. Microloans have enabled many poor people, especially in developing countries, carry out their investments and, thus, generate their own income to live in a dignified manner. While his criticisms are like that solutions should come from the private sector, there is no doubt they have given a tremendous help to all those people. The World Bank estimates there are 7000 institutions engaged in microfinance in the world, helping to nearly 16 million poor people in developing countries [2].

In Costa Rica some institutions are dedicated to fight against poverty, IMAS is an example where the governments work together to provide loans to poor, for economic development or projects such as education, housing and to raise money for direct aid to these poor people. Normally, this money is a gift or donation for those individuals to improve education, health, and agricultural resources. I think the true concept of microfinance does not yet exist in our country. Credits are made for medium businesses or entrepreneurship, but a concept such as microcredit or bank for the poor created by Yunis, nowadays does not exist.

This would require a change in the financial culture of the country by raising awareness of the poorest’s needs ; it is not just charity. It also requires a bridge that allows them be permanently out of poverty, organizations or small banks that provide tiny loans to those poor people to help them start or expand small businesses, and some domestic firms adopting the concept of social businesses since this will take more people out of poverty.

Sources:

http://grameenfoundation.wordpress.com/2008/02/06/creating-a-world-without-poverty/
http://www.muhammadyunus.org/Social-Business/seven-principles-of-social-business/