Can social business transform Bangladesh's fight against poverty and disasters?
Social business raises an important question: could it offer a sustainable, long-term solution for Bangladesh's challenges with poverty and recurring disasters?
Bangladesh, ranked as the seventh most disaster- and risk-prone country globally according to the Global Climate Risk Index 2021, regularly faces catastrophic events that highlight its vulnerability to climate change and natural disasters.
Cyclone Sidr in 2007 and the recent devastating floods in August 2024 underscore the recurrent threats to the nation. In August alone, the floods led to substantial financial losses, widespread displacement, and extensive damage to agriculture and infrastructure. The disaster resulted in 74 deaths, impacted nearly a million people, and incurred an economic loss of Tk14,269 crore, according to the Disaster Management and Relief Adviser on 17 September 2024.
Traditional approaches to disaster relief and poverty reduction, such as government aid, charity, and foreign direct investment, have had limited success, providing only short-term relief. Nobel laureate and Honourable Chief Adviser to Bangladesh's interim government, Dr Muhammad Yunus, has introduced social business as a potential game-changer.
This innovative model aims to address social issues by reinvesting profits to expand its impact. Beyond the employment generation, environmental sustainability, and wealth distribution it promotes, social business raises an important question: could it offer a sustainable, long-term solution for Bangladesh's challenges with poverty and recurring disasters?
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Understanding social business
Social businesses merge characteristics of for-profit and non-profit organizations. Like conventional businesses, they are financially self-sufficient, generating revenue to cover operational costs. However, unlike for-profit ventures, social businesses reinvest profits to further their social mission rather than distributing dividends to shareholders. This model shares the social focus of non-profits but achieves its goals through sustainable business practices without relying on donations.
Consider the example of a microcredit revolving fund—such an approach can have a lasting impact on poverty alleviation while enhancing the financial sustainability of microfinance institutions (MFIs). Dr. Muhammad Yunus, who pioneered the concept of microcredit, also champions the idea of social business.
As of June 2023, Bangladeshi MFIs have accumulated a surplus of Tk53,729 crore, representing 33% of their total funding, which underscores their financial sustainability.
The promise of social business for poverty alleviation
Dr Yunus's social business model presents a viable alternative to both capitalism and charity. Profits are reinvested to expand the company's reach and impact, allowing these businesses to grow sustainably over time. Social businesses address structural poverty by offering products and services that improve livelihoods and well-being, such as affordable healthcare, education, clean energy, and microfinance.
The success of Grameen Bank, a pioneering social business in microfinance, serves as a global model. By providing microloans to individuals without access to traditional banking, Grameen Bank has empowered millions to start businesses, improve their living conditions, and lift themselves out of poverty. This model promotes self-sufficiency rather than dependency on periodic aid or charity.
While Grameen Bank is predominantly owned by its borrowers, primarily poor rural women, microfinance institutions (MFIs) in Bangladesh operate as non-profit voluntary organizations. Grameen Bank emphasizes poverty alleviation and social development through group lending with social collateral. MFIs, on the other hand, often offer a range of services, including microcredit and welfare funds, funded by both local and international donations.
The key difference lies in their structure and regulation—while Grameen Bank reinvests profits into the community or shares them with borrower-owners, MFIs focus on broader social development activities.
Social businesses as mission-driven enterprises
At the core of social business is a mission-driven approach. Unlike profit-driven companies, social businesses aim to address critical issues like poverty, poor health, and education. This approach sets them apart from charitable organizations that often rely on temporary, donation-based interventions. Social businesses, by contrast, are designed to be self-sustaining and scalable, allowing them to make a lasting impact.
However, while the potential of social business is promising, it has its limitations. Critics argue that while social businesses improve individual lives, they may not address the deeply entrenched causes of poverty, such as unfair labor practices and lack of market access. Systemic challenges often require broader political and economic reforms that social businesses alone cannot implement. Therefore, the effectiveness of social businesses in reducing poverty may depend on complementary government actions and regulatory support.
Exploring types of social businesses
Social businesses are generally classified into two types based on their structure and impact. Type 1 social businesses are non-dividend enterprises entirely dedicated to addressing social problems, with profits reinvested to maintain their social mission. Type 2 social businesses allow limited profit distribution, with at least 75% of equity held by the poor or social organizations. This structure ensures that social goals remain a priority, even in profit-distributing ventures.
The scalability of these types varies. Type 1 businesses may be better suited to poverty alleviation due to their full reinvestment model, while Type 2 businesses could attract more private-sector investment. Organizations like NGOs and non-profits can also transition into social businesses, combining financial sustainability with social missions to amplify their impact.
Social business in disaster management
While poverty alleviation is a clear focus for social businesses, their role in disaster management is a promising frontier. Natural disasters, such as floods and cyclones, intensify poverty by exacerbating vulnerabilities. While charity often addresses immediate needs in the aftermath, social businesses offer a path to long-term resilience once emergency phases pass.
Following Haiti's 2010 earthquake, social business funds were established to support sustainable development. In Bangladesh, where floods are recurrent, social businesses could provide lasting solutions. For example, they could develop flood-resistant housing using sustainable materials and innovative designs, offering affordable homes to flood-prone communities and reinvesting profits to extend the impact.
Social businesses can also promote disaster-resilient agricultural practices. Flood-resistant crops or alternative farming techniques like aquaponics can help farmers maintain stability amid adverse weather. These initiatives can secure food supplies and economic resilience in disaster-affected regions, with profits reinvested into agricultural innovations.
Clean water and sanitation represent additional areas for impact. Social businesses can develop affordable filtration systems, like solar-powered units or portable water filters, for vulnerable communities. Profits from these ventures can expand production, making these life-saving technologies accessible in remote areas.
The role of government and public-private partnerships
Government support is critical for the growth of social businesses, especially in poverty alleviation and disaster management. Governments can offer tax incentives, low-interest loans, and establish legal frameworks to prioritize social missions over profit. Public-private partnerships further accelerate impact by combining the resources and infrastructure of the government with the innovative potential of social businesses. Collaborations in disaster management, for instance, can streamline emergency response and provide sustainable solutions to affected communities.
Case study: Grameen Caledonian College of Nursing
The Grameen Caledonian College of Nursing exemplifies the social business model's impact. Although not disaster-focused, it trains nurses and reinvests profits into expanding its operations, addressing healthcare needs sustainably. Similar models, such as Grameen Danone (nutritious food), Grameen Veolia (safe drinking water), and Grameen Shakti (renewable energy), illustrate how social businesses can tackle essential needs while creating a lasting impact through profit reinvestment.
Scaling social business for greater impact
For social businesses to drive widespread change, scaling and adapting to new challenges is essential. Technology, such as mobile platforms, artificial intelligence, and data analytics, can enhance efficiency, service delivery, and impact measurement. Innovative financing models, like impact bonds, blended finance, and crowdfunding, can reduce reliance on donations or government aid, enabling social businesses to scale sustainably.
In sectors like renewable energy, healthcare, and education, social businesses can drive significant change. Ventures that provide solar energy products or biogas plants, for example, can meet the demand for clean energy in off-grid communities, reinvesting profits to create jobs and stimulate local economies.
Social business offers a promising alternative to charity-based aid and profit-driven enterprises in addressing poverty and disaster management. By reinvesting profits into expanding social impact, these businesses provide sustainable, market-based solutions to pressing challenges in low-income communities. However, the success of social businesses depends on community engagement, robust business models, and regulatory support.
While social businesses are not a cure-all for poverty or disaster management, they represent an essential component of a broader strategy. When complemented by government actions, partnerships, and systemic reforms, social businesses hold the potential to drive significant social change, offering hope for a more sustainable and equitable future.
Md Rabiul Islam is an Assistant Director at the Microcredit Regulatory Authority.
Mamtajul Jannat is an Economic Researcher.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.
