Koyuki Lowe
Introduction
In today’s profit-driven market, social entrepreneurship has emerged as a transformative force, challenging the status quo of business models by blending market efficiency with societal impact. This model uses commercial strategies to create sustainable solutions to pressing social and environmental issues while maintaining profitability. Social entrepreneurs – from micro-finance institutions supporting marginalized communities to clean-tech start-ups combating climate change – show how economic and social responsibility may reinforce one another by utilizing market mechanisms and reinvesting profits. As impact investing gains traction and consumers demand greater corporate transparency, social entrepreneurship is expected to become a key business strategy, representing a new form of stakeholder capitalism.
Social Entrepreneurship
Social entrepreneurship is an approach adopted by “individuals and organisations that use a business logic in a novel and entrepreneurial way to improve the situation of segments of the population that are excluded, marginalized, or suffering and are themselves not capable of changing this situation” (Saebi, et al., 2019). This approach provides an appropriate model for tackling societal issues and maintaining financial stability. In addition, Zahra & Wright (2016) have identified five themes that are essential to social entrepreneurship, and
its alignment with business operations:
(1) The stakeholders involved, such as entrepreneurs, institutions, and established or start-up firms.
(2) The activities and behaviour of the entrepreneur – these range from productive to dysfunctional (Baumol, 1996), and could provide employment for the labour market or could create societal value.
(3) Formats which social entrepreneurship can adopt: non-profits organizations based on social impact, for-profit enterprises balancing profit with social goals, hybrid organizations, cooperative s with democratic ownership, impact funds, Community Interest Companies (CICs), public-private
partnerships for collaborative social goals, and B Corporations.
(4) How entrepreneurship affects macroeconomic stability, such as GDP, or on a more tangible level, how it impacts individuals and communities in general.
(5) Measuring impact to include social impact measures like happiness and societal development rather than the traditional means of growth and financial statements (Zahra & Wright, 2015).
Social entrepreneurship is still a relatively new phenomena in the business world, despite its expanding reach worldwide. A 2015 survey conducted over 58 countries found that although 7.6% of entrepreneurs founded commercial start-ups, only 3.2% were involved in socially oriented businesses (HEC, 2019). This contrast exemplifies the potential lying in the social enterprise sector. Paradoxically, while social enterprises often emerge in markets characterised by destitute institutions and unmet social needs, the highest ratios of activities “post-start-up operational” phase and “start-up” phase are found in economically advanced nations with robust institutional frameworks (Figure 2) (Bosma, et al., 2016). This suggests that although social entrepreneurship arises as a response to market failures, its longevity is dependent on supportive and enabling
systems.
Grameen Bank
Grameen Bank serves as a prime example of a social enterprise that successfully strikes a balance between micro-finance profit-making and social impact. Interest on loans, which range from 10% to 15%, is how the bank generates revenue and is competitive in the micro-finance industry (Mainsah, 2024). This seemingly high rate is accounted for by the operational costs of managing multiple small loans in rural areas and the lack of collateral. Throughout its existence, Grameen Bank has raised money from a variety of sources throughout its development: initially dependent on donor organizations, its funding model has evolved to include funding from centrals, government-backed bonds, and most importantly, deposits from its borrowers.
The bank's unique group lending system stems from where loans are made - from small groups of borrowers cross guaranteeing each other's debts. Typically, two out of five prospective borrowers are granted loans; the remaining members are only given loans if and when the first two borrowers meet the terms of repayment within a probationary time period (Khandker, 1994). Peer pressure effectively replaces traditional collateral, lowering default risk associated with the lack of collateral, while also encouraging accountability and community responsibility, particularly among women, who account for 97% of borrowers. The bank and its clients’ financial security is further strengthened by the mandatory savings program.
By achieving a significant 98% payback rate and maintaining financial sustainability despite catering to the traditionally "unbankable" population, Grameen Bank proves that addressing social needs and being profitability are not mutually exclusive (Sachs, 2005). This model has not only increased access to credit for the rural poor but has also proven that financial institutions may be effective agents of socioeconomic value without having to bear the costs of high interest associated with predatory lending.
Access to credit is based on reasonable terms, such as the group lending system and weekly-installment payments, with reasonably long terms of loans, enabling the poor to build on their existing skills to earn better income in each cycle of loans. With the help of these loans, people are provided with the opportunity to start their own businesses or expand their agriculture, which creates income and allows borrowers to repay their
debts in a positive feedback loop.
Addressing Social & Environmental Issues
The government of Malawi's national innovation strategy exemplifies the power of public-private partnerships in addressing important social challenges through partnership with social entrepreneurs at VillageReach successfully scaling a market-driven solution for its healthcare accessibility crisis (Pearson, 2021). The Cha Pa Foni (CCPF) initiative, a “community-based health hotline” bridges the gap in health and nutrition information via zero-rate calls to hired nurse hotline operators, using a market-driven solution to address the healthcare accessibility crisis. This triple bottom line business model aligns with the UN’s Sustainable Development Goals (SDGs) – in particular Goal 3 (good health and wellbeing) - demonstrating the power of social entrepreneurship when strategically partnered with public sector objectives.
Closing Remarks
In the business landscape, social entrepreneurship demonstrates that balance can be struck between significant societal change and financial viability, as exemplified by Grameen Bank's successful micro-finance strategy. Companies such as these are changing conventional business paradigms through innovative, market-based solutions and by working with governments and other stakeholders. With its ongoing development. Social entrepreneurship offers a viable option to close the gap between conventional business models and the urgent need for social and environmental progress.
Bibliography
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