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Social Business and MicrofinanceEssay

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Social Business and Microfinance

Micro-finance and Social Business

Micro-finance has become a 'hot topic' for many, including those of us who simply want to help others. For example, the online site KIVA (n.d.) enables one to make a micro-loan with only a $25 investment. This investment of $25 is then paid back, and can be loaned again to another individual; repeat ad infinitum. This is a site that I've used myself, as well as others of my acquaintance. The initial $25 has now financed 19 loans, for a total of $500 invested; the most recent is all but paid back, although often only $2-3 in a payment. Potential loss if not paid back is minimal, and the potential gain in helping others would appear to be significant. However, there are perhaps deeper aspects to micro-finance, as addressed by Martin & Osberg (2007) and by Zahra et al. (2009). Their opinions are the focus of this report, an examination of micro-finance and the 'hidden aspects'.

Martin & Osberg

In their 2007 paper, Martin & Osberg discuss the rising phenomenon of 'social entrepreneurship', and seek to contrast it with 'traditional social services', in order to precisely define the terms and their significance. They begin with the definition of entrepreneurship as 'value creation' and move to the idea that an entrepreneur 'drives economic progress' through success so that other entrepreneurs become active and 'agents of change' (Martin & Osberg, 2007). Entrepreneurship is further linked to opportunity, and the talent or ability to act upon an idea, regardless of potential risks. From this foundation, entrepreneurship is defined as a concatenation of personal traits of the entrepreneur, the said opportunity, and the action leading to a result.

To explore their definition, Martin & Osberg (2007) present 'case studies' of several entrepreneurs. In each case, they see the situation which created the opportunity as arising from a 'sub-optimal equilibrium', in which the situation in a particular arena is unsatisfactory, but there is no apparent solution. Whereas the vast majority experiencing the unsatisfactory situation will choose to simply tolerate it, the entrepreneur is the individual who has the personal traits to see the problem as an opportunity to create a solution. Furthermore, Martin & Osbert (2007) define the personal traits as 'inspiration, creativity, direct action, courage, and fortitude', stating that these traits are 'fundamental to the process of innovation'. Using E-bay, Apple Computers, Snugli baby carriers, and FedEx as examples of successful entrepreneurship, creating entire new realities from separate avenues, the route of the entrepreneur is defined.

How then do 'social entrepreneurs' differ? Martin & Osberg (2007) state that the difference is not one of profit vs. altruism, given that the examples cited did not (wholly) stem from a desire for 'profit' but rather from a desire to address untenable situations. Rather, the difference lies in what Martin & Osberg (2007) call 'the value proposition': that the value for the business entrepreneur does ultimately lie in financial gain whereas the value for the social entrepreneur lies instead in a dream of 'social transformation', or the 'primacy of social benefit'. For example, the research of Tucker et al. (2014), while internally defined as 'social entrepreneurship', in their work with HIV/syphilis would not be classified as true 'social entrepreneurs' by Martin & Osberg. Similarly, the relatively new phenomenon of 'self-employed nurses' (Wall, 2014) would also be outside the limits of their definition (Martin & Osberg, 2007). Perhaps a final example of what is 'not social entrepreneurship' might be the efforts by the National Academies of Science (Eds., 2012), to increase participation of women as scientists and engineers in 'entrepreneurship'.

As defined by Martin & Osberg (2007), social entrepreneurship has three components: (a) the situation in which individuals are financially unable to transform dis-satisfactory life-situations on their own; (b) recognition that this situation can be an opportunity for change, concomitant with the creative actions and inspiration typical of an entrepreneur (vide supra); and (c) actions that alter the situation in such a way as to not only help the initial individuals but also potentially a greater segment of society as a whole.

Credit for the origination of 'micro-finance' goes to Muhammed Yunas, founder of Grameen Bank in Bangladesh, and winner of the 2006 Nobel Peace Prize (Nobel, n.d.). Dr. Yunas, an economics professor who studied and taught in the United States, was 'fueled by the belief that credit is a fundamental human right' (Nobel, n.d.). He began providing small loans to local individuals (specifically women, a highly dis-advantaged group in Bangladesh), teaching them the principles of finance so that they could better help themselves. This work has become the model for a global 'micro-finance' movement, with the end goal of helping individuals rise out of their circumstances of poverty, concomitantly helping the society in which they live. Yunas has also continued to be active on global fronts, being a member of several committees on rights for women as well as being on the United Nations Advisory Council for Sustainable Economic Development (Noble, n.d.).

In terms of the arguments by Martin and Osberg (2007), Yunas recognized an 'unstable equilibrium', the poor people (women) of Bangladesh, who could not attain conventional bank funding and were forced to seek street-funding at exorbitant interest rates. He began by loaning $27 of his own money to 42 women in a local village; they fully repaid the loan, using the funds for self-development such as improving sewing skills and developing local markets for their goods. A single sewing machine could uplift not only one woman, but many others, from poverty, helping their children and the local community simultaneously, with the initial loan not only being repaid, but being multiplied in terms of lives served.

In considering social entrepreneurs, Martin & Osberg (2007) also discuss what is not included in the category: charitable and health-related provisions to third-world countries, or social activists such as Gandhi. While these programs help individuals, and the community, they are not characterized in the same way as 'transforming' situations in the manner so aptly shown by Yunas. This argument is slightly more difficult to follow, and seems rather far afield from micro-finance (as well as being overly focused on profit motive, despite disclaimers to the contrary). The best Martin & Osberg have to offer is that social activists have their own arena, and changing their name to 'social entrepreneurs' might discredit the gains they've made in terms of social reorganization.

On my own part, it would appear that the actual act of micro-finance by Yunas is distinct from social activism, which would be activities such as 'let's help the poor of Bangladesh by protesting over low or absent wages', or protesting to 'force' big banks to loan to them, and etc. What Yunas did was direct, even though small in scale: he provided individuals, once again, with a 'hand up', and not a 'hand out'. Loaning the funds to a village group of women to purchase a sewing machine, then used by these women in shifts to make marketable items, enabled these women to learn how to handle finances, learn how to plan and create, learn how to act in and of themselves and ultimately learn how make a difference through their own personal strengths. In a nutshell, Yunas provided not only the starter loan, but also access to education, which I would argue is ultimately the real driver for any change. Nowhere is it stated, nor even implied, that a motivating factor for Yunas was personal profit, and the very definition of entrepreneur implies 'profit'.

In summation, Martin & Osberg return to the aims of their essay, to define 'social entrepreneurship' and thus bring it into the forefront of societal dialogues in clear-cut terms. The end result of their essay is a definition of a social entrepreneur as an individual whose actions address a situation of marginalization through use of creative personal traits resulting in an altered situation benefiting not only the situation and individuals but also society as a whole, and with a profit to boot. The latter is clear from the opening paragraphs of their work, as they describe an entrepreneur who doesn't make a profit as a 'failure' (Martin & Osberg, 2007).

Zahra et al. (2009)

The intent of the work by Zahra and colleagues (2009) is also to define 'social entrepreneurship', as well as to evaluate its social contributions along with 'ethical concerns'. Writing in the Journal of Business Venturing, Zahra et al.'s (2009) work begins with a different perspective than that of Martin & Osberg (2009). The first of these is to view 'entrepreneurship' from a business model, with a focus on creation of 'social wealth' (Zahra et al., 2009). The initial focus of their article immediately addresses the business, rather than the social, perspective. Zahra et al. (2009) define social entrepreneurship as including processes and activities that utilize opportunities to increase social wealth through innovation in current or novel organizations. As well, social wealth is seen to be a part of 'total wealth'; the latter… [END OF PREVIEW]

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