I while back I wrote a review of Muhammad Yunus’ book, Creating a World Without Poverty (that link will take you there), in which he introduced the idea of a “social business.” These businesses are established for social purposes rather than to make a profit, although making a “profit” of sorts is often important as a way to expand them. Yunus did this himself with his Grameen Bank, which makes micro-loans to lift people out of poverty, and a company that makes cheap yogurt to employ poor women in Bangladesh while getting proper nutrition to children.

I received an email from someone who read my review and was skeptical of the idea of a social business. She pointed out that if Yunnus and others do too much for the poor they effectively take over government functions, leaving political leaders free to neglect or never build essential programs. She also thinks this leads to too much power for Yunnus and organizations like his Grameen Bank. She thought that the interest rates charged by Grameen Bank are outrageous, and, finally, that the term “social business” was just a meaningless play on words since all business is done for our own selfish reasons. My response:

You make some good points. I personally wouldn’t worry about private organizations doing what a government should be doing though. If it needs to be done then it is best that someone does it. As for the power, it is a real possibility that he could gain a lot of power, but how it is used is the issue, and governments in general don’t have a better history than any other groups or individuals on that count. In fact, as poorly as some corporation might behave, without the power of force–which only governments have–private companies or organizations at least have to get their power by actually providing something people want and choose voluntarily.

You are right about the term “social business” being somewhat of a play on words, but I think it still makes a valid distinction. Even if we do everything for selfish reasons (and I don’t think that’s a problem–I feel a selfish interest in having a better world for as many people as possible–self interest expands to include others as we mature, but that’s a different and long philosophical discussion), there is a clear difference between having profit as the ultimate goal of a business versus some other purpose.

As for the interest, I think it is a matter of context. First, perhaps there was some confusion. The repayment rate of 98.6% I referred to was the amount of the loans that were repaid, not the interest rate. Grammeen bank does charge high interest, but closer to 20% annually. I know from personal experience and reflection that the rate is not all that matters. It is about the true usefulness of the loan. I once loaned a friend $100 with $7 interest due per month (84% annual interest–far higher than Grameen Bank), and he paid it back in a month. What did he get for that $7–or 84% annual interest? He was able to buy drywall stilts so he could accept a job offer and he was soon making good money working. I think we have to give people some credit for knowing when a loan makes sense for them. Had my friend paid me $100 in interest he still was going to be better off than if he couldn’t take that job. In the case of Grameen Bank there is another point, which is that it takes some minimum amount of money to process loans (hiring employees, keeping records, collecting), and so with small loans the interest rate has to be higher. But again, if a simple $100 loan to buy a bicycle with baskets means easier access to markets for selling produce, and so means a family can make $25 more per month — $300 more per year — for all the years to come, where is the problem with them paying $20 or even $30 in interest?

I am sometimes torn about these issues at times too. I think, for example, that the rent-to-own furniture stores here take advantage of people who don’t know better, putting them into debt. The check-cashing places do even worse, perhaps. But on the other hand, I hate to claim that I know better than those borrowers what is good for them, and they are never forced to borrow, so they must have their reasons. Bad ones much of the time, perhaps, but then I can’t see it as my decision to make for them, nor do I gain the right to make their decisions for them by voting for politicians who then make rules limiting the kinds of financial arrangements people and businesses can make.

Anyhow, thank you for the email and the thoughts on social business.