Social Business vs. Nonprofits vs. Traditional Business
It’s financial sustainability based on income that differentiates Social Business from traditional NGO & Government programs.
And it’s the prioritization of social good above profits that separates Social Business from capitalist business as usual.
Social Business Financing
In addition to Purpose & Income, Financing is another area that needs to be carefully considered in forming Social Businesses. Just as government, business, nonprofits, and Social Business are best suited to serving different needs; within the high-level Social Business framework, variation (including financing options) is useful for adapting to specific contexts.
Grameen’s Social Business Model, where investors lend money and are paid back their principal (but no dividend/interest/etc.), is a great way to multiply the impact of philanthropic dollars whether they be from individuals, foundations, corporations, or governments, as this enables any profits to be 100% reinvested into sustaining and growing the Social Business. A related model is also being used effectively by Kiva (consumer generated finance-end is based on no-interest loans, though intermediary microfinance institutions that distribute this capital to beneficiaries are generally charging significant interest).
Increasing Social Impact by Expanding Financing Pool
However, there are also situations where providing some level of dividends to investors can be beneficial for Social Businesses and furthering their social impact, such as increasing the pool of potential financing needed to experiment & scale (Social Investment Funds, Vendor/Customer Loans), and bringing previously excluded groups to the table to fairly recognize and motivate them for their contributions to the mission (Employee Ownership/ Profit Sharing, Community Partnerships). For example, Acumen Fund flexibly provides capital in a variety of ways including debt with interest, equity, profit-linked returns, royalties, guarantees, etc., and uses the returns to invest in other organizations (nonprofits, small & large companies) serving the “base of the pyramid”. Of course when money comes into play, it’s important to institutionalize values, processes, & culture that keep the mission sacred—such as founding/principle-based leadership, coop boards, and purpose-based organizational structures such as B-Corporations that legally commit to transparently pursuing & meeting various social & environmental standards.
KEY TAKEAWAY: To maximize the Social Impact of Social Business, we should consider financing mechanisms beyond interest-free loans (which is currently a required constraint as defined in Principle #3 of Grameen Creative Lab's Social Business Principles). Various currently submitted ideas for this challenge would potentially benefit from this approach, and 3 previous inspirations (linked to on the right) have also raised possibilities around innovating the model of Social Business as defined for this challenge.