Social businesses are born as an alternative to help solve the problems linked to the condition of poverty, through business entrepreneurship that, following market mechanisms (optimize resources, competitive strategies, product sales, financial sustainability, etc.), present as their main objective to solve social problems and not to maximize profits, through the production and sale of goods or services that satisfy a priority need of vulnerable social sectors, from financially self-sustainable mechanisms. It is this concept created and promoted by Prof. Muhammad Yunus, the main foundation to define and give meaning to an academic and professional postgraduate program in social business.+
In the words of Prof. Yunus, the principles of social business are:
- 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.
- 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.
- Gender sensitive and environmentally conscious.
- Workforce gets market wage with better working conditions.
- Do it with joy.
There are two kinds of social business. The first are companies that focus on providing a social benefit rather than on maximizing profit for the owners, and that are owned by investors who seek social benefits such as poverty reduction, health care for the poor, social justice, global sustainability, and so on, seeking psychological, emotional, and spiritual satisfactions rather than financial reward. The second operates in a rather different fashion: profit maximizing businesses that are owned by the poor or disadvantaged. In this case, the social benefit is derived from the fact that the dividends and equity growth produced by the profit maximizing businesses will go to benefit the poor, thereby helping them to reduce their poverty or even escape it altogether.
In this sense, in the first case, it is nature of the products, services, or operating systems of the business that creates the social benefit. This kind of social business might provide food, housing, health care, education, or other worthwhile goods to help the poor. With the second type of social business, goods or service produced might or might not create a social benefit. The social benefit created by this kind of company comes from its ownership. Because the ownership of shares of the business belongs to the poor or disadvantaged, any financial benefit generated by the company's operations will go to help those in need.