The idea of social business was given by Prof. Muhammad Yunus of Bangladesh. It was unique because unlike other concepts or businesses that were serving the society for namesake, social business was based on certain principles. These principles are seven in number and are called the principles of social business.
Like any other principle, the seven principles of social business define the purpose of a social business and its modus operandi. They outline the priority sectors for any organisation or individual that aims to venture into the field and also define the how the financials would be managed.
The first principle of social business defines the purpose of existence for any social business. It states that the business objective for a social business will be to overcome poverty or deal with some problem like education, nutrition, healthcare, environment and enabling technology access for the downtrodden and not just profit or share holders wealth maximization.
The second principle talks about the financial and economic sustainability. This is both from the perspective of the organisation and those who it aims to serve. Any social business is disallowed to take funds from outside like grants or NGO. Those who run the business are supposed to invest.
The third principle governs the return on investment. Investors in a social business are disallowed to take money beyond their investment. No dividend is given on the investment.
Amount earned over and above the investment is supposed to be reinvested back in for scaling the business and for improvement. Expansion here is aimed at reaching out to more number of people or to improvise the quality of services.
Social businesses are supposed to be responsible to the well being of the environment. They are to play a major role in betterment of the environment either directly or indirectly. Indirectly means through their operations they will ensure that they do no harm to the environment.
Those working with the business as its employees will get a fair compensation, which is in accordance with the industry benchmark. In addition the workforce will get better working conditions.
Since social business is not with the objective of profit maximization. Therefore only those who have a passion for contributing to the society and the environment will run a social business. This means that business will run in an environment of joy and not stress.
These seven principles were given by Prof. Muhammad Yunus in collaboration with Hans Reitz who is also the co-founder of the Grameen creative Lab. These principles are very simple in nature and easy to follow. They are important because they draw a distinction between social business and other businesses carried out in the name of contributing to social welfare.
The seven principles of social business are followed world over by organisations that either promote or run social businesses. Ashoka, the Omidyar network, NIKA water company in U.S, Grameen Bank in Bangladesh are examples of such organisations.