THE ERA of SOCIAL ENTREPRENEURSHIP

HOW SOCIETY, ECONOMY and PEACE STUDIES CAN BE PARTNERS in FIGHTING INEQUALITY

SABRIN RAHMANMASTERS OF PEACE AND CONFLICT STUDIES (MPACS)

CENTRE FOR PEACE AND CONFLICT STUDIES THE UNIVERSITY OF SYDNEY DATE SUBMITTED: 13TH NOVEMBER 2007

ACKNOWLEDGEMENTS

This whole journey has been the result of the support and love of my family and my three best friends. Their unwavering encouragement at times of frustration and laughter at times of despair, gave me the courage to take each step with determination and hope. Id also like to thank my supervisor; Dr Blanchard has brought wisdom and laughter into an otherwise never-ending process. None of this would have been possible without the values instilled in me by my grandfather, who taught me that education is a gift, one that must be used not only to further ourselves but also those around us. To him, I dedicate this work.

I

TABLE OF CONTENTS Page Acknowledgements Table of Contents List of Abbreviations List of Tables and Figures Abstract I II IV V VI

Chapter 1 1.1 1.2 1.3 1.4 1.5 1.6

Introduction Central Idea Motivation and Interdisciplinary Theoretical Approaches .. Locating these Ideas.. Methodology. 1 1 3 4

Thesis Journey 5 Central Argument .. 6

Chapter 2 2.1 2.2

The Emergence of Social Entrepreneurship Ethics in Business.. 7

Commercialisation of the Social Sector.. 9 2.2.1 2.2.2 What is the Social Entrepreneur? .............................................. 10 The Interlocking Nature of the Market, State and Community and Arguments against Social Entrepreneurship.11

2.3 2.4

Factors Conducive to Market Failure.. 13 Tools to Foster Social Entrepreneurship: Free Trade, Fair Trade and Developmental Financial Institutions . .... 14

Chapter 3 3.1 3.2 The Ashoka Experience .. 17 The Growth of Ashoka; Recruiting the Changemakers... 18 3.2.1 The Selection Process for Ashoka Fellows and Grounds for Rejection . 20 3.3 3.4 Ashokas Involvement in Setting up a Social Venture. 22 The Citizen Sector. 23

II

3.6

The Integration of the Social and Business Sectors and Ashokas Areas of Focus 24

3.7

Ashoka, Expanding the Field of Social Entrepreneurship 25

Chapter 4

4.1 4.2 4.3 4.4 4.5

The Grameen Bank Story 26 Promoting Economic Cooperation the Grameen Way ... 30 An Entrepreneurial Approach to Breaking the Poverty Cycle.. 31 Method of Action.. 33 Achieving Peace through Justice through Micro Finance. 34

Chapter 5

Social Entrepreneurship, an Appropriate and Timely Solution

5.1

El Faro, an Illustrative Case Study 38 5.1.1 Integrating Corporate Social Responsibility... 5.1.2 Starbucks, the Enabling Agent for El Faro. 39 40

5.1.3 Starbucks, Friend or Foe? ........................................................... 43 5.2 Models to Measure Entrepreneurial Success, the SVP and PCDO Models..... 45

Chapter 6

Potential and Future of Social Entrepreneurship ....

49

Appendix

.. 52

Bibliography 53

III

LIST OF ABBREVIATIONS

NGO DFI WTO CSR EBRD UNDP UNESCO SVP PCDO MDG

Non Governmental Organisation Developmental Financial Organisation World Trade Organisation Corporate Social Responsibility European Bank for Reconstruction and Development United Nations Development ProgramUnited Nations Educational, Scientific and Cultural Organisation

Social Value Proposition People, Context, Deal and Opportunity Millennium Development Goals

IV

LIST OF TABLES AND FIGURES

FIGURES

Figure 1: Figure 2: Figure 3: Figure 4: Figure 5: Figure 6: Figure 7: Figure 8: Figure 9:

Interdependence of Society, Economy and Ecology Interdependence of Market, State and Economy The Composition of the Ashoka Structure Primary Focus of Ashoka Fellows The Growth of Ashoka Fellows Worldwide The Life Cycle of a Social Entrepreneur Lederachs Pyramid of different levels of Leadership The components of the C.A.F.E Practices Commitments of each of the components of the C.A.F.E Practices scheme

11 12 19 19 21 25 39 46

47

Figure 10:

The Social Entrepreneurship Framework and how the SVP model relates to it 50 51

Figure 11:

The PCDO model

TABLES

Table 1: Table 2: Table 3: Table 4: Table 5: Table 6:

Criteria to become an Ashoka Fellow Ashokas Areas of Focus Grameen Banks 16 Decisions The Grameen Bank Credit Delivery System Method of Action The key areas of focus in the Starbuck Corporate Social Responsibility Report 2006-2007

21 28 30 32 36

45

V

ABSTRACT

Social entrepreneurship is a relatively new term encompassing business principles with social justice. The nature of social entrepreneurial operation, reasons for operation and the implications they bring to the modern economy are as yet not completely understood. This research will dissect the definition of a social entrepreneur drawing on Grameen Bank and Ashoka case studies. This work will also look at what market conditions have induced in the creation of social entrepreneurs, the opportunities created for developing countries and how social entrepreneurship embodies the creation of peace with justice in societies where structural violence exists. This research also explores how social entrepreneurs can empower societies through sustainable systems based on ethics and equality, while still satisfying the financial bottom line.

VI

VII

CHAPTER ONE

Poverty can take away rights which constitute the removal of human rights and peace - Amartya Sen (1999, p. 18)

1.1 Central Idea

Empowering others to achieve peace with justice is at the centre of human progress. Philanthropy, foreign aid and top down government service delivery are inadequate tools in sustainable development if they are unable to empower the communities they aim to help. Without empowerment at the grass roots level, there will be an apparent deficiency which leaves communities unable to respond to future economic and social barriers. Social entrepreneurialism aims to empower and equip communities in which they do business. Social entrepreneurs are those who aim to recognise a social problem and use entrepreneurial principles to organise, create, and manage a venture to make social change. (Alvord et al, 2003 p. 136). Thus social entrepreneurship adapts an inclusive process of community engagement based on equality and justice. This research explores case studies of the Grameen Bank, Ashoka and El Faro as successful models of social entrepreneurship and how they have achieved a holistic sense of capacity building while promoting positive peace.

1.2 Motivation and Interdisciplinary Theoretical Approaches During 2005, I had the opportunity of completing an internship with the Grameen Bank. During that period, I had the chance to attend a village group meeting as well as interviewing bank borrowers. Through this experience, I witnessed the impact Grameen Bank loans had made on living conditions and communities. I saw clean, well looked after homes with multiple living areas. I noted the sense of community in the villages, with solidarity outside the immediate family groups. There were community initiatives for communal necessities such as tubewells (underground water pipes) and waste disposal systems in place. Grameen Bank also provides education to their borrowers covering topics from birth control to hygiene. The sense of shared responsibilities has set the blue print for future

1

generations, allowing them to witness the initial changes that their parents have made, inspiring them to make further changes within their communities. I also had interaction with young adults, who through Grameen Bank have realised that there are opportunities beyond the village. Grameen Bank has changed the mind-set of a very conservative society by implementing policies and decisions that are based on respect and mutual gain. It is because of this, Muhammad Yunus (Grameen Bank founder) regarded as one of the worlds foremost social entrepreneurs, who through dedication and perseverance reversed decades of economic mismanagement by the national government. This example of entrepreneurialism attracted notoriety with Muhammad Yunuss Nobel Peace Prize award last year in 2006. In utilising business to alleviate poverty and liberate women, this example is seen as a practice of promoting peace with justice. This research will be looking at the rise of social entrepreneurship from the theoretical viewpoints of the fields of peace studies, economics and business. The merging of the three fields may not be apparent but these fields complement each other in forming a sustainable and interlocking bond that has laid the foundation for ethical and socially responsible business practices. It is important to note the similarities of the bottom line of each field that illustrate the interdependencies that are present: peace studies to maximise returns for their shareholders (the community) by building positive peace, removing structural violence and promoting co operation; economics and business to maximise returns for their stakeholders (those with vested interests in their organisations) financially. While these may be the traditional definitions of the fields, the underlying message of maximising returns, whether they be financial or social is still present in all activities undertaken. Further exploration of these interlocking links is made in the following section.

2

1.3

Locating these Ideas

Peace is the condition which allows an individual to reach their full potential. (Gonzalez-Vallejo. & Sauveur, 1998, p. 24). It is not only the absence of violence, war or security but the implementation of sound economic and social systems and recognition of the interdependencies of the world markets. Modern capitalism has been growing at speed, affecting the world in ways like no other phenomenon. There have been positive outcomes of capitalism, such as the creation of jobs and opportunities for many, as well as the negative effects including the erosion of cultures and community enterprises. The introduction of technology, ease of transportation, removal of trade barriers and cheaper labour in parts of the world has combined to make a global economy obsessed with productivity. The wealthier nations are benefiting from this development, while the developing nations are struggling to stay afloat.

Economic disparity can lead to violence within communities. Peace can become threatened when there is less opportunity for citizens to achieve their potential due to a lack of social, economic or development opportunities. As the former United Nations Secretary- General, Boutros Boutros-Ghali states in An Agenda for Development (United Nations, 1994)

Development is a fundamental human right. Development is the most secure basis for peace. The lack of development contributed international tension and to a perceived need for military power. This in turn heightens tensions. Societies caught in this cycle find it difficult to avoid involvement in confrontation, conflict or all-out warfare (paragraph 18).

This highlights the need for leaders both at mid to high levels to implement policies that will not only serve short-term purposes, but also have long-term benefits for their citizens to combat the growing power imbalances. Within a developing country context, there is more power both economically and politically at the higher levels with the grass roots being unable to influence policymaking. With the presence of international NGOs there have been recent improvements to these power imbalances, but once the presence of the NGOs is absent, the imbalance is apparent once again. 3

Such shifts in power to the minority elite can spell economic mismanagement of national resources and the economy resulting in oppression and the instigation of structural violence for the majority of the population. This research investigates the holistic process of social entrepreneurship, an inclusive process of capacity building, which satisfies the triple bottom line in making social, environmental and financial returns to their shareholders and communities.

1.4

Methodology

The field of social entrepreneurship is a relatively new field and thus has not had extensive academic exploration. Therefore the prime methodology of this research is based on secondary literature. This includes research and publications from journals, organisational websites, books and speeches. Due to the limitations of entrepreneurial academic case studies, I have had to utilise the organisation websites (Grameen Bank and Ashoka) to extract information for my research. I have also contacted the Ashoka organisation for clarification of some of the information posted on their website, as primary research, but to due to time constraints this undertaking is incomplete. I am aware that the lack of academic literature does hamper the scholarship of this paper; however the information from the organisations is adequate for the purposes of highlighting my central argument.

The research will attempt to illustrate how social entrepreneurship can be used as an effective tool to achieve peace with justice in the developing and developed world. Arguments will draw on work from peace theorists such as Johan Galtung (1969) and John Paul Lederach (1999), applying such peace studies to economic theories and demonstrates the artificial separation between the fields of peace studies, economic thought and business principles. I will examine the different economic tools that governments in developing countries may use to foster entrepreneurship within their nations, such as deregulation and developmental financial institutions (DFIs). The research will also explore existing models that aim to correct the power imbalances in world trade such as fair trade.

4

1.5

Thesis Journey

Chapter Two defines the modern social entrepreneur and the factors leading to the need for their existence. The measure of success and how social entrepreneurship can bring social and economic changes will also be examined. The chapter will look at the recent commercialisation of the social sector and what challenges and opportunities this brings into the realm of social entrepreneurship.

Chapter three provides evidence of Ashoka, a fully functioning model of a venture created to promote social entrepreneurship. The changes that Ashoka have brought to the field of social entrepreneurship, their education initiatives and their areas of impact will be explored in depth, as well as an illustration of how Ashoka is achieving empowerment through entrepreneurship to those they help.

Chapter four is a case study of a working model of social entrepreneurship, the Grameen Bank. This case study explores the history of the Bank, its loan structures and the difference it has made to Bangladeshi society by achieving peace with justice. This examination will utilise the theoretical implications of John Paul Lederachs of concept Justpeace.

Chapter five looks at an illustrative case study of El Faro, a coffee farm in Guatemala that has utilised the principles of social entrepreneurship to implement sustainable changes within their local community through the endorsement of Starbucks. This chapter will also highlight how social entrepreneurship is able to promote peace with justice in both developed and developing world contexts and look at models of measuring entrepreneurial success.

5

1.6

Central Argument

The central question addressed in this paper is does social entrepreneurship help achieve peace with justice in a sustainable manner in both the developed and developing world contexts? It is argued here that social entrepreneurship encompasses economic, business and peace studies, thus making it a vehicle for achieving positive peace in a business context.

Within economic globalisation, there are imbalances in power and trade that are hindering the growth of the poorer nations. Measures are being taken to redistribute this power through mechanisms such as free trade, fair trade and Developmental Financial Institutions (DFIs) by governments, developmental organizations such as the World Trade Organisation (WTO) and through advocacy from private citizens.

Philanthropy is a large part of the corporate social responsibility (CSR) trend that large multinational corporations are extolling to increase an organisations value. While this may be a way to buy quick positive publicity, there are concerns that philanthropy from businesses or individuals is not enough to help tackle systematic poverty at the grass roots nor to empower communities and individuals that are receiving the aid. Social entrepreneurship has been pioneered by individuals such as Muhammad Yunus and Bill Drayton, founders of Grameen Bank and Ashoka respectively, as processes of building ventures which also develop communities in which they operate in and practice self-sustenance by not relying solely on financial handouts from the governments or corporate investors.

The emergence of social entrepreneurship is a recent phenomenon that has started laying the foundations of a citizen led economic and mercantile shift. In a world where those at the grassroots level have often had to wait for a hand out, they are now being given a hand up. Through entrepreneurial ventures led by citizens with a vision that there are creative answers to age old questions of inequality and the cycle of poverty, this provides a positive change.

6

CHAPTER TWO

Social entrepreneurship challenges the artificial separation between government, business and community services and draws attention to the capacities and responsibilities of each other to community well being The Business of Social Work on social entrepreneurship (2003, p.143)

The Emergence of Social Entrepreneurship

2.1

Ethics in Business

In a world where the impact of economic policies on populations can be monumental, it is easy to wonder where the lines of morality and ethics end or begin. As De George (2007, pg. 1) states about the study of ethics applied to business principles, at its broadest, it studies the moral justification of economic systems, whether national or international. Recently, the walls that once divided the realms of social and economic fields are now coming down and companies are embracing an era where conventional business is becoming more holistic. Banks such as Citigroup are taking up the approach of micro credit and the Philanthropy Services of UBS, the worlds largest wealth manager, has organised twenty conferences in the Americas, Europe and Asia, to introduce Social Entrepreneurship to thousands of high net-worth clients so they can think more strategically about their philanthropy. (Bornstein, 2007 p. xi).

As De George (2007) discusses, business ethics tend to cover four types of activities: the first, case studies, which highlight the development and produce discussions about real life scenarios; the second, the investigation of the morality of particular practices, to the responsibility of corporations with respect to consumers and the public, product safety, the rights of workers, environmental degradation, and similar issues; the third, a kind of research which considers how corporations might be structured so as to reinforce ethical behaviour and discourage unethical behaviour on the part of both workers and managers. The fourth: an activity called meta-ethical, which looks at the appropriateness of applying moral language to entities other than human beings, e.g. to corporations, corporate structures, economic systems. There has been lively

7

discussion of whether corporations can rightly be said to have moral obligations or responsibilities (Daley-Harris et al, 2007) Terms such as responsibility, conscience, rights, virtue, mean something different when applied to corporations than when applied to human individuals, as do notions of praise and blame, reward and punishment.

Issues that are studied by De George (2007) include child labour, environmental degradation, corruption and bribery, exploitation of workers and the widening gap between the developing and developed economies. The corporate world has been evolving to integrate social responsibility as a key source of competitive advantage against other firms. Gone are the days where corporations felt their only duty lay in increasing shareholder value, as now they are looking at increasing stakeholderfocused value. "The best way to describe it is inclusive capitalism," says Prahalad, a consultant and University of Michigan professor who has been voted as one of the world's most influential business thinkers (cited in Engardio & McGregor, 2006). As Prahalad states, "It's the idea that corporations can simultaneously create value and social justice." (Engardio & McGregor, 2006 p.2)

The invocation of the notion of a social contract has swept through the business world as more people are looking at the inequalities our current economic systems produce. More people are becoming disillusioned by the big banks and organisations set up to eradicate poverty, reduce debt and promote equality. The era of waiting for these changes to occur is coming to an end and the citizen sector is making a stand by combining business and their obligations under a social contract into a tangible and practical tool.

A citizen sector can be defined as citizens utilising their skills to make a change to the wider community, it is not the community sector, nor is it volunteerism. More businesses are also becoming aware that a more holistic approach to business must be taken for our economies to flourish in the future. As Engardio & McGregor (2006 p.4) state, One that takes into account the needs of shareholders, employees, customers, society, and the environment and realizes that they must be attuned to the down-toearth needs of those around trying to survive in an increasingly global, interconnected business ecosystem. With the global and interconnected ecosystem comes the need to 8

commercialise ideas of not only commercial ventures, but also social ventures to compete against the other forces within a market economy that can detract national governments from spending on less profitable sectors.

2.2

The Commercialisation of the Social Sector

The capitalist system has been geared at creating a more satisfied working class by the sharing of wealth. Luttwak (1999) states that capitalism is both the greatest threat and at the same time, the universal saviour of human existence. The problem lies in the fact that the market is filled with restrictions set by governments that hamper a satisfied working class in the developing world. Modern free trade has been over looking the community level in business, a sector that can be vital to a healthy economy. (Bhatt, 1993, Bhagwati, 1968, Coyne & Leeson, 2004 & Gonzalez-Vallejo & Sauveur 1998)

The rules for non profit organisations have changed drastically over the last two decades. As Boschee & McClurg (2003, p.1) suggest Operating costs have soared, resources available from traditional sources have flattened, the number of nonprofits competing for grants and subsidies has more than tripled, and the number of people in need has escalated beyond our most troubling nightmares. As governments begin to implement strategies to reduce unemployment and redistributing wealth, the message that is becoming more apparent is that there needs to be more investment into the population, who are the most valuable resource for any nation to encourage economic growth. As discussed by Maslow (1968, p. 623) four decades ago less than 50 percent of a countrys economic growth can be attributed to increases in capital, land, labour and other factors of production. The residual factors such as infrastructure, education and entrepreneurship provide the remaining impetus to economic development.

The need for investment into the population is more apparent in most developing countries where authoritarian governments have been succeeded by nominal democracies. This has given citizenship freedoms to build businesses and organisations, but what is still lacking is funding for small businesses and ventures. As Bornstein (2007 p.6) discusses, during the twentieth century, the per capita 9

incomes in free market economies increased by at least 700 percent. The increase in incomes has not been equitably distributed, but to those who have experienced the increase, there has been a redefinition of human life. There have been increases in living standards and literacy rates giving many the freedoms to think beyond survival, thus creating a sector of citizens who have the time, resources, social mobility and education to start addressing the inequalities that are creating deep rooted social problems for those at the other end of the spectrum.

2.2.1

What is the Social Entrepreneur?

Dees (1998, pp. 4-5) in The Meaning of Social Entrepreneurship, outlines five factors that define social entrepreneurship: adopting a mission to create and sustain social value (not just private value); recognizing and relentlessly pursuing new opportunities to serve that mission; engaging in a process of continuous innovation, adaptation, and learning; acting boldly without being limited by resources currently in hand; and exhibiting a heightened sense of accountability to the constituencies served and for the outcomes created.

Within his definition, there is no mention of self-sufficiency or earned income. Without these, a non-profit organisation cannot be deemed entrepreneurial as they still return, year after year, to the same individual donors, foundations and government agencies. (Boschee & McClurg 2003, p.3). There are many definitions of social entrepreneurs, each bringing with it a different mix of qualities and pre requisites that constitute together to make real social entrepreneur. According to Dees (1998, pg 4) the definition of a social entrepreneur is:

..any person, in any sector, who uses earned income strategies to pursue a social objective, and differs from a traditional entrepreneur in two important ways: their earned income strategies are tied directly to their mission and they abide by a triple bottom line, which encompasses the social, financial and environmental returns..

10

2.2.2

The Interlocking Nature of Market, State and Community and Arguments against Social Entrepreneurship

Stilwell in Changing Track (2000, pp. 106-110) looks at the relationships between economic, social and ecological dimensions (Figure 1). At the interface between economic and social concerns is the issue of equity (in the distribution of income, wealth, social-economic opportunities and life chances) (Stilwell, 2000,p. 107). Similarly, the other two interactions look at quality of life and ecological sustainability. Stilwell (2000) believes that these are priorities that must be considered when pursuing economic growth.

Figure 1 Illustrates the interdependence of society, ecology and economy systems. 1 As a social scientist, Stilwell also explores a model that interlocks the systems of market, state and community (Figure 2), and illustrates the need for socially entrepreneurial ventures to be created. The tensions between the three institutions are the commodification of social life, voluntary or government welfare provision and private versus public sector. Interestingly, Stilwell eludes to the position that market failures or the tensions that are illustrated are often attributed to the state level. For example, the inability of the state to provide welfare and basic goods are now being serviced by the newly created citizen sector which will be explored later in this research (see section 2.3). Although Stilwell promotes a brand of socially responsible1

Stilwell, F 2000, Changing Track a New Political Economic Direction for Australia, Pluto Press Australia Ltd, Australia, p.106

11

economics, one that can encompass the best of both worlds, conversely there are economists who do not view this as a viable option.

Figure 2 The interdependence of the state, market and community with tensions where they overlap. 2 Many traditional economic academics argue against the idea of social

entrepreneurship such as Cooks et al (2003, p.5) as they claim it is undistinguishable from neo-liberalism and that pursuing social justice aims is likely to violate the conditions required for efficiency, which defies economic logic. While advocates for social entrepreneurship state that the government has a role in supporting social development (Fontan & Shrogge 1998, p. 3) and that while Keynesian welfare provisions such as income support payments do support short term needs, they dont offer a path out for the disadvantaged (Midgely, 1998 p.7). There are non profits organisations who also claim that social entrepreneurs are eroding the very cornerstone of charity attempting to diminish that pure gift by trying to analogize it to a business investment. (Wallace, 2007, p. 2).Constant market failures have resulted in social problems becoming economic problems and by applying resources at an early stage to combat such social problems can in the long run inject funds into businesses, thereby reducing the effect of market failures (Kanter, 1999, p. 124).

2

Stilwell, F 2000, Changing Track a New Political Economic Direction for Australia, Pluto Press Australia Ltd, Australia, p.107

12

2.3

Factors Conducive to Market Failure

Stilwell discusses in Changing Track (2000, p. 8) the major problems with the market way of organising economic activity, the first concerns public goods. In a pure market economy, providing a public good means that individuals cannot be excluded from enjoying the benefits of a particular good or service that is collective, nor can they be charged individually for consuming it. The market system fails in these circumstances (Stilwell, 2000, p. 10).The second example is externalities. This highlights a market economy where some goods are over provided while others are under provided as the costs and benefits they confer on society are not encompassed by the market mechanism. For example, goods such as clean air are used without restraint and are hence downgraded, producing an uneven pattern of economic activity. The next issue is concerned with the equity in distribution. The orthodox view of the market economy makes no claim toward fairness in the outcome (Stilwell, 2000, p.9). This economic system can be said to be highly efficient even if the distribution of incomes and the access to the consumption of goods is highly inequitable. According to Stilwell (2000) it is treated by orthodox economic theory as a trade off, in the long run, efficiency outweighs equity. The final point deals with the problem of instability. No market economy can guarantee stability and/or full employment. Rather free market capitalism has a tendency towards alternating booms and slumps. This in itself violates the orthodox economic criterion of efficiency, where resources are being left idle and needs for goods and services are simultaneously unfulfilled.

Combined, these factors illustrate that the market is highly volatile and the traditional economic systems that are geared towards creating more barriers for development. Taking a creative approach to overcome the many conditions that produce market failure is one of the key areas in which social entrepreneurialism must excel to effectively implement sustainable change.

13

2.4

Tools to Foster Social Entrepreneurship: Free Trade, Fair Trade and

Developmental Financial Institutions

Free trade versus fair trade has become a hot topic of discussion among academics, economists and governments in dialogue about social economic systems. Free trade can be classified as trade in goods and services between or within a countrys economic flow without government imposed restrictions (such as tariffs, trade barriers and taxes) (Bhagwati, 1968, p 141). Free trade is the result of an agreement of both parties to remove or reduce trade tariffs and treaties for mutual gain (ex ante). According to Ricardos comparative advantage theory, Free Trade is able to achieve maximum economic efficiency and overall productivity gains by giving economies a chance to flourish by removing government regulations designed to discourage imports such as anti- dumping laws. A successful example can be seen in the European Union where regulations where in place to protect domestic economies, have since been lifted and have given the European economies a boost. According to the World Trade Organisation (WTO), Free Trade is defined as:

Trade in goods and services without taxes (including tariffs) or other trade barriers (e.g., quotas on imports or subsidies for producers). There must also be an absence of trade distorting policies and free access to markets, market information and free movement of labour and capital between and within countries. 3 Fair trade aims to promote standards for international labour, environmentalism, and social policy. It is aimed at empowering vendors within developing contexts and to actively gain greater equity in international trade. Fair trade is generally defined as:

a trading partnership, based on dialogue, transparency and respect, which seeks greater equity in international trade. It contributes to sustainable development by offering better trading conditions to, and securing the rights of, marginalized producers and workers. Fair trade organizations (backed by consumers) are engaged actively in supporting producers, awareness raising and in campaigning for changes in the rules and practice of conventional international trade. 43 4

Retrieved on 13th October, 2007 from http://www.wto.org/ FINE is an informal network of the 4 main Free trade networks. They are: Fairtrade Labelling Organisation (FLO), International Fair Trade Association (IFTA), Network of European Worldshops(NEWS), European Fair Trade Association (EFTA) Retrieved from http://www.fta.org.au/node/43

14

Fair trade and free trade are important concepts in the actualisation of principles of sustainable development such as capacity building, gender equity and environmental protection (UNDP 2005, Sen 1999 & EBRD 1998). However, although it seems as though fair & free trade may be key elements of the social- economic contract, there is a large discrepancy in distributive justice in the market economy for fair & free trade to be the source of all corrective solutions. Social entrepreneurship encourages the use of socially inclusive processes which can help achieve peace with justice within communities and tools such as free trade and fair trade are links between local enterprises and the global economy. For such trade to occur, there first must be investment by national governments into their economies to enforce social justice standards and foster the growth of core industries. The ensuring discussion will explore the Developmental Financial Institutions (DFIs) which are government interventional organisations established to help develop national industries.

Social entrepreneurs vary in how they view government intervention (George & Prabhu 2000, Fontan & Shragee 1998, Bhatt 1993 and Brahm 1995). Some want bureaucracy to be completely removed so as to allow entrepreneurial activity to flourish, while others believe it is crucial for governments to help establish and enforce standards to protect and enhance rights and opportunities. Developing countries do not lack entrepreneurship, rather institutional direction.

Emerging economies often lack infrastructure such as legal systems or developed capital markets and bankruptcy of many firms can be attributed to ineffective governance mechanisms (Wolfensohn, 1998, p. 4) Developmental Financial Institutions (DFIs) are quasi governmental organisations formed with the purpose of developing or rejuvenating core industries (Kane, 1975, p.7 ). DFIs differ in their geographic scope of operations (George & Prabu, 2003, p. 623) and specialisation in particular industries. They came into existence when national governments realised that it was in their best interests to promote industrial development of core industries. Although the government is a dominant stockholder, DFIs tend to behave as large institutional investors with independent managerial control (Bhatt, 1993, p. 49). By investing in ventures in developing economies, stakeholders are defined as voluntary

15

or involuntary risk bearers (Clarkson 1994). Governments can aid in shaping the competitive advantages of firms that are operating within targeted industries. By targeting and designating national priority areas, emerging economies need to focus their limited resources in development of industries in which they are likely to maximise economic and competitive benefits. (Brahm 1995, p. 80). Deregulation, lower capital gains tax and research opportunities can also spur entrepreneurship in the developing contexts (Gumpert & Stevenson, 1985, p. 91)

Thus, DFIs can play a vital role in fostering entrepreneurial activity within a developing economy by providing access to resources. They help to create a competitive environment and enhance value through improved economic

performance. They can also develop key industry structures and policies. With the relative scarcity of private venture capital and the weakness of the banking sector in emerging economies (EBRD 1998), DFIs can be a major force in the entrepreneurial transformations of emerging economies. (George & Prabu, 2003, p. 627)

There is no single answer to the alleviation of global poverty. However, an array of tools may help empower the poor. Social progress can be spurred on by an application that has the potential to achieve both financial strength and impact. The spill-over effect from such achievements can progress a society, such as the case in Bangladesh the worlds most saturated micro finance market (See Chapter 4). Thirty two years after Bangladeshi independence the nation has achieved the Millennium Development Goals of gender parity at primary and secondary levels and reduced their child mortality levels drastically. (UNDP 2005) It is argued in the next chapter that social entrepreneurs challenge the status quo by integrating various methods of poverty reduction such as fair trade with innovative approaches that utilise established economic and business principles to create a dynamic solution to issues of global instability. By encompassing the theories and tools of commercial entrepreneurs or organisations with the values of peace studies (reducing structural violence and promoting positive peace in a sustainable manner), Ashoka is a prime example of a successful model of social entrepreneurialism in action.

16

CHAPTER THREETo get there, we must end the infantalisation of young people. They and the rest of us must enable all young people to be fully creative, initiatory, and powerful changemakers. We must also build the wisest possible financial and other institutions so that, as these young people become adults, the new citizen sector will draw them fully into an everyone is a changemaker world. - Bill Drayton

3.1

The Ashoka Experience

Twenty seven years ago, Bill Drayton had a dream that everyone who wanted to do their part in alleviating poverty could in fact become a change maker. He established an organisation called Ashoka, named after the famous 3rd Century Indian prince who turned his back on his elitest lifestyle to help the poor. Ashoka strives toward creating a world where everyone is a change maker: a world that responds quickly and effectively to social challenges, and where each individual has the freedom, confidence and societal support to address any social problem and drive change (Ashoka, n.d (a))

There are numerous social challenges in the world and governments cannot address all of these. Taking the power of change into their own hands, Ashoka empowers social entrepreneurs to carry out tasks of poverty alleviation and sustainable development and work with one another to transform society and design new ways for the citizen sector to become more entrepreneurial, productive and globally integrated(Ashoka, n.d (b)) As illustrated by Figure 3, 64 percent of investors in Ashoka have been business entrepreneurs, 22 percent have been foundations and corporations and the 14 percent are individuals, making Ashoka a primarily self funded organisation with no governmental financial support.

Figure 3 The composition of the Ashoka structure. 55

Ashoka, n.d. Support Social Entrepreneurs, Retrieved June 23, 2007 from http://www.ashoka.org/support

17

3.2

The Growth of Ashoka; Recruiting the Changemakers

Ashoka began with an investment of $50,000 USD and now has increased to an annual investment of $30 million dollars. This growth in investment has produced commendable returns. Areas of improved social development include: human rights, environmental awareness, economic development and youth empowerment (refer to Figure 4). The key to such success has been the innovative methods used by the change makers, many of whose methods of improvement have been duplicated by other non government organisations (NGOs).

Figure 4 Ashokas work spans all areas of human need with learning/youth development being the leading area. 6 Ashokas founders believe in the notion that to bring about social change at a steady rate, it is more effective to invest funds into social entrepreneurs who are armed with innovative solutions that are sustainable and replicable, both nationally and globally. Ashoka offers steady funding and a support network to attract the top global social entrepreneurs. For the entrepreneurs who meet Ashokas strict selection criteria, they are provided with a three year living stipend, global support network of their peers and partnerships with professional consultants and the chance to work and be immersed in a community to establish their venture and to be able to pursue his or her vision full-time.

6

Ashoka, n.d. Support Social Entrepreneurs, Retrieved June 23, 2007 from http://www.ashoka.org/support

18

According to Ashokas website there are four classifications of Fellows: 1. Ashoka Fellows: leading social entreprenurs who bring innovative ideas to bring about sustainable social changes. Senior Fellows: Advanced Fellows beyond the launch stage and have been elected as such. They are successful and prominent in their fields and have a positive track record. Global Fellows: Social entrepreneurs with transnational or global ideas that cannot be contained by borders. Social Investment Venture (SIV) Fellows: Those who have demonstrated innovative ideas that transform allocation of capital for social benefit. As the Fellows ideas take root, their institutions will increasingly be able to pay for their directors and so the level of support from Ashoka slowly decreases. (Figure 5 illustrates the growth in numbers of Ashoka Fellows worldwide). This number has increased from nine to over a thousand Fellows in twenty years, growing parallel with the amount of investment Ashoka receives.

2.

3.

4.

Figure 5 The growth of Ashoka Fellow numbers worldwide 19822004. 7

7

Ashoka, n.d. Support Social Entrepreneurs, Retrieved June 23, 2007 from http://www.ashoka.org/support

19

3.2.1

The Selection Process for Ashoka Fellows

The selection process to become a Fellow of Ashoka is multi layered and a hands on process. As Ashokas objectives are to place internationally minded people within a local community bringing with them the knowledge of the outside world, a well rounded individual with the sensitivity to deal with local customs is a necessity. The process is composed of extensive series of in-depth interviews, a judging panel of development experts, board members, former Fellows and other members of the Ashoka team and a final executive board vote. Many are also visited by international Ashoka staff in their work environment to be evaluated. There are five significant and specific criteria that must be met for a candidate to receive a Fellowship (see Table 1).1) The Knockout Test: A New Idea A person is nominated as a Fellow if they possess a new idea, solution or approach to a social problem that will change the pattern in a field such as human rights or the environment. The idea is then evaluated historically and against its contemporaries in the field, looking for the innovative component and potential for sustainable change. 2) Creativity Ashoka stresses that social entrepreneurs must be creative, both as goal-setting visionaries and as problem solvers capable of engineering their visions into reality. As creativity is not a quality that suddenly appears, among the questions that are asked are: Does this individual have a vision of how he or she can meet some human need better than it has been met before? Does the candidate have a history of creating other new visions? 3) Entrepreneurial Quality The criterion of highest importance is entrepreneurial quality, the defining characteristic of successful entrepreneurs. It defines leaders who see opportunities for change and innovation and devote themselves entirely to making that change happen. These leaders often have little interest in anything beyond their mission and are willing to spend the next ten to fifteen years making a historical development take place. This total absorption is critical to transforming a new idea into reality and it is for this reason that Ashoka insists that candidates commit themselves full-time to their ideas during the launch phase. 4) Social Impact of the Idea This criterion focuses on the candidate's idea and not the candidate. Ashoka is only interested in ideas that it believes will change the field significantly and that will trigger nationwide impact or, for smaller countries, broader regional change. For example, Ashoka will not support the launch of a new school or clinic unless it is part of a broader strategy to reform the education or health system at the national level and beyond. 5) Ethical Fiber Social entrepreneurs introducing major structural changes to society have to engage with the local community at various levels. If the entrepreneur is not trusted, the likelihood of success is significantly reduced. Ashoka asks every participant in the selection process to evaluate candidates for these qualities rigorously. To do so often requires one to resort to instinct and intuition, not just rational analysis. The essential question is: "Do we trust this person absolutely?" If there is any doubt, a candidate will not pass.

Table 1 Criteria to become an Ashoka Fellow (Bornstein, 2007 pp121-123)

20

The criterion is comprehensive, aimed at finding out as much as possible about the Ashoka applicant. Although it cannot be completely fool-proof, the panel has to be unanimous in their voting of a Fellow. A combination of the qualities set out above is crucial to the success of an entrepreneurial venture according to Bill Drayton. He also states that it is a fair process in which candidates have a chance to present themselves in person, rather than only on paper, giving the panel a multi dimensional view of their personalities. Looking at the history, track record of achievements (ventures succeeded in the past) and how they have dealt with missteps are some of the processes that the panel goes through. On the contrary, this process can be biased in the fact that it is aimed at giving those already with some entrepreneurial experience and success, a helping hand and not those who are just beginning. This can hamper the fostering of social entrepreneurship as Ashoka is distinguishing what is a worthy idea and what is not. Grounds for Rejection of a Candidate Conversely, Ashoka has several grounds on which a candidate may be denied entry into the Fellowship. A history of violence, any form of discrimination, partisan political leadership or membership in any political party which advocates violence, discrimination or totalitarianism is incompatible with participation in the Fellowship. Ashoka also believes that those with ideologies may not be perceptive to ideas that may be able to bring about change. An interesting point to note is how Ashoka would gain information regarding a persons history of violence or determines incompatible ideologies. It is futile to imagine that a potential Fellow would state such affiliations on their application forms, nor would they state it in their interviews. So what parties do Ashoka utilise to acquire the information? If a potential Fellow originated from a turbulent, developing country with political unrest, how would Ashoka acquire reliable information? On the organisations website, it is stated that these checks are conducted through various organisations and nothing more to elaborate who these organisations were. Due to a lack of academic evidence and to clarify these questions, I contacted the Ashoka organisation but did not receive a reply by the time of publishing. (See Appendix 1)

21

3.4

Ashokas Involvement in Setting up a Social Venture

The organisation has developed supports to address each stage in an entrepreneur's life-cycle. It provides personal stipend support over three years and organises for mutual help from the Fellowship at the launch stage. It provides action frameworks, collaborative mechanisms and consulting help from Ashoka's strategic partners during the scaling period, so that the sector meets the sophisticated needs of this stage. Further, Ashoka has forged strategic partnerships with leading companies that provide consulting services and other expertise to the organisation. They have three global strategic partners:1. 2. 3. McKinsey & Company: a leading management consulting company who in partnership with Ashoka created the first Centre of Social Entrepreneurship in 1996. Hill & Knowlton: A global public relations firms that helps Ashoka Fellows get support for their ventures through strategic communications, media and presentation training. International Senior Lawyers Project (ISLP): helps Ashoka Fellows with pro bono legal work either virtually or on site with the advice from leading enior attorneys.

Ashoka intervenes at the launch phase of a social entrepreneur by adapting the venture-capitalist approach (See Figure 6). The idea is to search for budding innovators in all areas of human need, supply them with seed money, analyse their strategies, offer professional services and by virtue of Ashoka's reputation for selectivity, lend credibility to their efforts and connect them in a global Fellowship. (Ashoka's work is in turn financed by individuals, foundations and businesses, since the organisation does not accept any government funds.)

Figure 6 The involvement of Ashoka in a venture is from the launch to the full maturation. Support decreases as the venture matures over time. 8

8

Ashoka, n.d. Support Social Entrepreneurs, Retrieved June 23, 2007 from http://www.ashoka.org/support

22

3.4

The Citizen Sector

The term citizen sector as introduced in Chapter One, is a creation of Ashoka. They believe that it is misleading to call an organisation a non profit or a non government organisation, as the definition is too general and a sector cannot be defined by what it is not. The term citizen sector encompasses and acknowledges the active ingredient, the common global citizen. This citizen takes initiative in an area of public concern, to provide a service or introduce a change. (Bill Drayton on the Citizen Sector, 2004) The term citizen sector differs from the public sector as it has no ties to the government and is not volunteerism; it is the sector of active, entrepreneurial citizens who are using their skills to make a positive difference in different areas of need, where the government or charitable organisations have been unable to. The citizen sector is now both very large and a fast growing sector of society (Drayton 2004) There is an existing and growing demand for quality social investments, with varying mixes of social and economic returns and in different subject matter and geographic areas.

Bill Drayton, founder of Ashoka, believes that the needs of citizens are ever changing. He believes that

people want access to quality personal opportunities ranging from volunteering and internships to full careers for themselves and their families and friends. They also want to spot and land the new business/social opportunities that are now developing. A smart bank will develop a web of products and services that will allow its bankers to serve every investor clients individual needs with a tailored package of varying mixes of financial, social, and engagement values. (Drayton, 2006, p. 20) Such large, skilled, economic citizen groups can provide the missing link between local businesses and an untapped market. For example, between farmers and access to a technology that will provide them with more income, more stable income, water conservation, and for environmental benefits. The citizen sector in many countries is just now reaching the stage (Drayton 2006) where there are a significant number of reasonably stable, mature, clearly focused institutions ready to build such broad citizen bases.

23

3.6

The Integration of Social and Business Sectors

Social entrepreneurs turning to capital markets is definitely a trend. While it may be too soon to say whether such not-only-for-profit ventures are being formed by social entrepreneurs will be successful, such business models have the potential to transform the lives of people and the way the world does business. By combining public and private interests, Ashoka Fellows help communities move toward sustainable change. As the cycle of entrepreneurs driving competition and productivity gathers momentum within the citizen sector, the processes that determine how the sector operates are quickly gaining definition. Each day, these ways of operating are becoming more habitual and less malleable. So, the next few years, says former Ashoka President Ghosh, will be crucial for shaping the sector and the time to lead has come (Sen 2007, p. 545). This also has the intentional effect of setting up a twoway flow of talent between the social and business sectors, resulting in institutions that are committed to bridging both sectors, such as the Ashoka-McKinsey Centre for Social Entrepreneurship at Sao Paulo, Brazil. 9 Although over the last two decades there have been advances in the establishment of bridges between business leaders and social entrepreneurs, and between companies and citizen sector organisations, the same cannot be said of social responsibility as the way to integrate the vision and values between these sectors. These institutions that will bridge the two sectors are of immense value to society as they offer a pragmatic blend of profit and social welfare. As illustrated in Table 2, Ashokas work spans all areas of human needs. The top focus of funding and support are for learning/youth development initiatives, followed by human rights, then environment, economic developments, health and civic participation. Ashokas work falls into six major fields:

9

The Ashoka- McKinsey Centre for Entrepreneurship was established to strengthen Social Entrepreneurialism by providing support for leaders, programs and innovation. It allows skills transfer, training and networking opportunities for its members as well as providing professional support for functions such as marketing, provided by McKinsey and Company consultants.

24

Civic Engagement: bringing empowerment and a voice to private citizens to create an environment of democracy. This also includes education about volunteerism, civic duty, public-private partnerships and how to practice civic engagement.

Economic Development: providing access to financial services, how to best transform economic opportunities for the poor and how to leverage assets. This field of work is one of the most visible in Ashokas portfolio. Learning/Education: This involves in designing methods of education that empower the youth and help them to realise their maximum potential to make further changes. This involves fostering qualities such as empathy and creating innovative ways to take education to those children who cannot otherwise access it. Human Rights: This includes initiatives that secure both civil and political rights, freedom of expression, due process, creating open and fair justice processes, political representation and economic, social, and cultural rights such as health, food, housing, employment.

Environment: This includes conservation finance, community resource management and the creation of low impact businesses and the promotion of environmental sustainability. Health: This includes securing and distribution of medicines, developing mechanisms for knowledge transfer and building robust public health systems. There is also a focus on advocacy and building a holistic view of health with involvement in such events as World Health Day.

Table 2 Ashokas Areas of Focus

10

Arguably together, these six areas provide a foundation for promoting peace with justice. There is a combination of catering to the triple bottom line as is a pre requisite for a social entrepreneur, making a positive impact on social, financial and environmental areas of a community. Ashoka looks not only at the macro picture but also implements sustainable practices to ensure the continuity of their ventures by educating those they help. Ashoka Fellows are present all over the world and have no border restricting where they operate.

3.8

Ashoka, Expanding the Field of Social Entrepreneurship

By applying business models and the entrepreneurial spirit, it has been possible to develop highly creative solutions for social needs. As previously mentioned, Ashoka was one of the first institutions to create the notion of the citizen sector. This sector exists because there is the opportunity for the broad citizenry to bring about changes that are sustainable and help in ways, such as tackling grass roots issues faster, the government cannot. It is giving everyday citizens a chance to make a sustainable difference by implementing changes where they see needed at a faster rate free of the10

Extracted from Ashoka website on, 30th August 2007 from http://www.ashoka.org/fields

25

red tape that hiders other organisations and therefore changing the face of social entrepreneurship, but there are barriers in funding that are hampering the speed of the citizen sectors growth. Organisations or ventures formed by citizens rely almost exclusively on institutional handouts, such as governments and foundations. As a result, when focusing on securing grants little time is left for innovation and self sustenance, resulting in slower growth of the sector. Ashoka has analysed this trend and realised that the stagnation of the citizen sector would result in many forgone opportunities and may ultimately de-motivate budding social entrepreneurs (Drayton, 2006 p.19) The solution was to encourage a new breed of investors known as social investors that provided long term support for social entrepreneurs to test and refine their ideas. Success has been seen by many of the change makers around the world as well as other organisations such as the Grameen Bank. This has set an example for other investors as an economically viable option to invest in socially responsible ventures.

Ashoka acts as the middle man by taking a venture capitalist approach. They seek out individuals with ideas that are likely to do well and connect them with a Global Fellowship which allows these individuals access to finance provided to Ashoka by private donations (individuals, foundations and businesses). By combining both public and private interests the power of alliances between business is highlighted by social entrepreneurs. The turn to capital markets is a new step and can open the door for more competition and productivity while creating a world where basic necessities are accessible to more citizens.

Another model of social entrepreneurship in action is the Grameen Bank. This case study follows the more traditional route that entrepreneurial ventures take in developing countries, facing barriers to not only funding, but also cultural and societal resistance to change, as discussed in the following chapter.

26

CHAPTER FOUR 4.1 The Grameen Bank Story

In 1976, when Professor Muhammad Yunus was Head of the Rural Economics Program at the University of Chittagong, he launched an action research project to examine the possibility of designing a credit delivery system to provide banking services targeted at the rural poor. The Grameen Bank Project (Grameen means "rural" or "village" in Bengali) came into operation with the objectives of extending banking facilities to the poor , to eradicate the exploitation of the poor by village lenders, to create opportunities for self-employment in rural Bangladesh, to bring the disadvantaged women from the poorest households within the fold of an organizational format which they can understand and manage by themselves and to reverse the age-old vicious cycle of poverty (See Table 3). Research was undertaken in neighbouring villages and the project was developed to have significant outcomes in terms of positive feedback about the loan system and repayment structure and subsequently was extended to more districts. In October 1983, the Grameen Bank Project was transformed into an independent bank by government legislation. Today Grameen Bank is owned by the rural poor whom it serves. Borrowers of the Bank own 90% of its shares, while the remaining 10% is owned by the government.

27

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16.

We shall follow and advance the four principles of Gramee Bank: Discipline, Unity, Courage and Hard work in all walks of our lives. Prosperity we shall bring to our families. We shall not live in dilapidated houses. We shall repair our houses and work towards constructing new houses at the earliest. We shall grow vegetables all the year round. We shall eat plenty of them and sell the surplus. During the plantation seasons, we shall plant as many seedlings as possible. We shall plan to keep our families small. We shall minimize our expenditures. We shall look after our health. We shall educate our children and ensure that they can earn to pay for their education. We shall always keep our children and the environment clean. We shall build and use pit-latrines. We shall drink water from tubewells (traditional water pumps). If it is not available, we shall boil water or use alum. We shall not take any dowry at our sons weddings, neither shall we give any dowry at our daughters wedding. We shall keep our centre free from the curse of dowry. We shall not practice child marriage. We shall not inflict any injustice on anyone; neither shall we allow anyone to do so. We shall collectively undertake bigger investments for higher incomes. We shall always be ready to help each other. If anyone is in difficulty, we shall all help him or her. If we come to know of any breach of discipline in any centre, we shall all go there and help restore discipline. We shall take part in all social activities collectively.

Table 3 The sixteen decisions of the Grameen Bank that borrowers must abide by once a loan has been taken. 11 The Grameen Bank credit delivery system follows microfinance management practices in order to maximise chances for repayments by clients. It promote debt recovery by integrating practices of sustainability such as fostering local relationships and credit extensions in times of hardship for their borrowers. Grameen Bank caters well to the rural finance sector by personalising their services to fit individuals as much as possible. This has given the Grameen Bank credibility within the rural population as well with international audiences as a bank that fosters innovation in capacity building. Reflecting social justice values, the Grameen Bank economic system identifies features within the company mission statement which promote peace with justice ideals such as undertaking a simultaneous social development agenda (see Table 4)

11

Grameen Bank, n.d. The sixteen decisions, Viewed on July 24th 2007 from http://www.grameeninfo.org/bank/the16.html

28

1. There is an exclusive focus on the poor. This step is undertaken to ensure that only those who cannot receive help from other sources are targeted by establishing the eligibility criteria for selection of targeted clientele and adopting practical measures to screen out those who do not meet them. The Grameen approach in delivering credit, priority has been increasingly assigned to women to empower them. Grameen developed a delivery system that is geared to meet the diverse socioeconomic development needs of the poor to effectively aid the diverse ethnic and cultural groups that exist within rural Bangladesh.

2. Borrowers are organized into small homogeneous groups. This step taken by Grameen is to facilitate group solidarity and participatory interaction of their members. Organizing the primary groups of five members and federating them into centres has become the foundation of Grameen Bank's system. This structure helps the women to learn the capacity of team work, planning and implementing group decisions through a system of democratic decision making. The rural Centres are functionally linked to the Grameen Bank, whose field workers have to attend Centre meetings every week thus allowing the Bank to monitor progress and intervene if problems arise.

3. Special loan conditions which are particularly suitable for the poor. Grameen Bank have established loan conditions that are unique to the poor clientele. These conditions include small loans given without any collateral (which is the basis of the term micro credit), the loans are repayments and term are spread out, eligibility for subsequent loans depends on repayment of the initial loan, the Bank also aids the borrower to undertake quick income generating activity employing skills already possessed by the borrower, close supervision by the Bank and the borrowing group of the amount borrowed, the stressing of collective borrower responsibility and monitoring of peer pressure, special safeguards to educate borrowers about saving (such as compulsory and voluntary savings plans) and transparency in transactions that occur at Centre meetings.

4. Simultaneous undertaking of a social development agenda addressing basic needs of the borrowers. The sixteen decisions (refer to table 3.1) have been devised to incorporate social change both at a developmental and cultural level along with economic prosperity. They are simple and fair, and this helps the poorer, less educated public relate to the Banks goals. These have been implemented to raise the social and political consciousness of new borrower groups, raise the profile of women in rural families whose role in family dynamics bear much importance on the development of the family and to encourage solidarity in maintaining and building social and physical infrastructure such as sanitation and water.

5. Design and develop organisation and management systems capable of delivering programme resources to targeted clientele. The system used by Grameen Bank has been spread through a structured learning process. There are special training needs of the staff as Grameen Bank aims to decentralise decision making and operational authority so that these functions are delegated at the zone levels and below.

6. Expansion of loan portfolio to meet diverse development needs of the poor. As the borrowers become familiar with credit discipline, it is valuable for Grameen Bank to introduce new loan programmes. This ensures that borrowers are able to meet more of their basic social and economic developmental needs. These programmes include: equipment leasing loans, loans for seasonal cultivation and loans for building sanitation infrastructure. These loans are specific in order for Grameen Bank to keep a check on what the credit is being used for and to also increase the choices of the borrowers

Table 4 The Grameen Bank Credit Delivery System 12

12

Extracted from Grameen Bank website on 13th May 2007 from: http://www.grameeninfo.org/bank/cds.html

29

4.2

Promoting Economic Cooperation the Grameen Way

A bank branch is set up with a branch manager and a number of centre managers and covers an area of about 15 to 22 villages. The manager and the workers start by visiting villages to familiarise themselves with the local populations in which they will be operating and identify the prospective clientele, as well as to explain the purpose, the functions and the mode of operation of the bank to the local villagers. Groups of five prospective borrowers are formed; in the first stage, only two of them are eligible for, and receive, a loan. The group is observed for a month to see if the members are conforming to the rules of the bank. Only if the first two borrowers begin to repay the principal plus interest over a period of six weeks, do the other members of the group become eligible themselves for a loan. This system applies a sense of responsibility for a group in the hands of each individual, thus prompting higher likelihood of adhering to the repayment structure. The responsibility of the group serves as collateral on the loan and according to Snow et al (2001 p. 83) this type of guarantee has worked efficiently in decentralized credit systems modelled after the Grameen Bank experience. The loans are small, but sufficient to finance the micro-enterprises undertaken by borrowers such as rice-husking, purchase of rickshaws or purchasing small livestock.. The interest rate on all loans is 16 percent. The repayment rate on loans is currently 97 per cent, due to the group interests and self-interest, as well as the motivation of borrowers. (Khandaker 1996 p. 100) Although mobilization of savings is also being pursued alongside the lending activities of the Grameen Bank, most of the latter's funds are increasingly obtained on commercial terms from the central bank, other financial institutions, the money market, and from bilateral and multilateral aid organizations.

30

4.4

An Entrepreneurial Approach of Breaking the Poverty Cycle

In defiance of traditional rural banking where there is an unwritten rule of "no collateral means no credit", the Grameen Bank set out to take seriously the predicament of people living in extreme poverty and to prove that lending to the poor can be a successful initiative that gives the opportunity the poorest of the poor can be entrepreneurial. They wanted to show that micro credit gives poor people respect and a hand up in establishing themselves in a systematic sustainable and capacity building manner. In other words, the banker's confidence rests upon the will and capacity of the borrowers to succeed in their undertakings.

The Grameen Bank is based on the voluntary formation of small groups of five people to provide mutual, morally binding group guarantees in lieu of the collateral required by conventional banks. Each person is allowed to apply for a loan only if the first two members have performed well at repayment. It is assumed that being given a start up amount will help foster income generating activities from the borrowers. Women have been the main customary of the Grameen Bank, as their status and profile within the conservative Bangladeshi society. By educating rural women, Grameen Bank has also been able to have positive impact on families and communities in which the women reside. To date over 90 percent of borrowers are women. The success of such a micro credit approach shows that careful supervision and management are provided for the poor as worthy borrowers. Early critics of the Bank have argued there would be mass defaults on loans, resulting in the dissolution of the Grameen Bank, but Grameen Bank borrowers have found entrepreneurial means to pay back their loans and the repayment rates are at 97 per cent and the borrowers have proven themselves to also be successful savers. (Khandker 1996 p. 100) This has allowed Grameen Bank to expand their number of branches. By the end of 1998, the number of branches in operation was 1128, with 2.34 million members (2.24 million of them women) in 38,957 villages of Bangladesh. There are 66,581 centres of groups, of which 33,126 are women. Group savings have reached 7,853 million taka (approximately USD 162 million), out of which 7300 million taka (approximately USD 152 million) are saved by women. (Grameen Bank, n.d (a)) Those who have benefited from this the most have been the landless, followed by marginal landowners. This has resulted in a sharp reduction in the number of Grameen Bank members living below the poverty line, 20 31

percent compared to 56 percent for comparable non-Grameen Bank members (Khandker et al, 1995). It is estimated that the average household income of Grameen Bank members is about 50 percent higher than the target group in the control village, and 25 percent higher than the target group non-members in Grameen Bank villages. (Khandker, 1996, p. 98) Credit creates entitlement to resources and is the basis for the economic emancipation of the poor in general and the poor women in particular. There has also been a shift from traditional agricultural wage labour (considered to be socially inferior and also very volatile) to self-employment. Such a shift in occupational patterns has indirect positive effects on the employment and wages of other agricultural waged labourers. What started as an innovative local initiative, "a small bubble of hope", has thus grown to the point where it has made an impact on poverty alleviation at the national level.

32

4.5

Grameen Method of Action

The Grameen Bank's Method of Action includes steps that are taken when dealing with a social issues as well as long term planning for the business (See Table 5).1. Start with the problem rather than the solution: a credit system must be based around of the social background rather than on a preestablished banking technique. This allows the Bank to cater their loans at the correct level, therefore increasing chances of repayment and social development. 2. Adopt a progressive attitude: development is a long-term process which depends on the aspirations and commitment of staff and those at the grass roots level. By continually educating and equipping staff on new methods inclusive engagement with their clientele, Grameen Bank is breaking down social barriers between the rural poor and other social classes. 4. Establish priorities for action in partnership with the target population: serve the most poverty stricken people needing resources who have no access to credit through interaction with them. An inclusive decision making process is encouraged so the poor can have an input into priorities (whether it be saving or physical community infrastructure) that are being established. 6. Associate savings with credit without it being necessarily a prerequisite: Grameen Bank provides advice and support to those who wish to undertake savings plans. There are compulsory savings plans for borrowers, but also optional ones for seasoned borrowers who have more disposable income. This educates borrowers on how to ration for unexpected events as well as educating their families on the benefits of savings. 8. The system must be financially balanced at all times: this ensures that the Bank is at a break even point at all times. If there are widespread defaults on loans, i.e. after a natural disaster, there are other funds which the Grameen Bank can draw upon from their diversified organisations such as the Grameen Trust to cover the payments until their borrowers are able to commence repayment.

3. Make sure that the credit system serves the poor: continuous monitoring of how the system of lending is affecting borrowers, credit officers visit the villages enabling them to get to know the borrowers but also bring data back to the Head office.

5. Increase repayment possibilities: Initially credit is restricted to income-generating production operations, as chosen by the borrower. This makes it possible for the borrower to be able to repay the loan and then take more entrepreneurial risks later, once they have repaid their initial loan

7. Combine close monitoring of borrowers with procedures which are simple and standardised: thus allowing borrowers to be as independent as possible in making repayments and taking responsibility of their financial directions. This empowers borrowers to make a sustainable change in their lives and also instils a sense of mutual trust between the Bank and its borrowers.

9. Invest in human resources: there is acknowledgement that training staff will instil real development ethics based on rigour, creativity, understanding and respect for the rural environment. This is crucial for staffborrower interaction and also for succession planning of the Bank, where there must be a sizeable pool of dedicated and trained staff who are able to take over Grameen Bank leadership once the current management staff have retired.

Table 5 Method of Action Grameen Bank of Bangladesh 13

13

Extracted from Grameen Bank website on 3rd August 2007 from: http://www.grameeninfo.org/bank/moa.html

33

The approach illustrates how through appropriate methodologies, it is possible to strike a balance between economic and social gains, bringing about structural peace within a community. The methods outlined have worked well in other countries in addition to rural Bangladesh. The model of credit delivery and action was duplicated successfully in Malaysia (Hulme 1993), with minor cultural considerations having to be taken into account. Although the program design of the Grameen Bank has been very successful to date, there is a risk of potential debt traps for borrowers who may use new loans to pay off old loans, creating an illusion of high repayment rates as discussed by Albee (1996). These risks are minimised however as the method of action provides checks and balances for the Grameen Bank to best manage unexpected circumstances, much like Ashokas process of selecting their Fellows. All measures are taken to protect the organisations from defaults and missteps, but as in all entrepreneurial ventures, there is always a degree of risk inherently present.

4.6

Achieving Peace with Justice through Micro finance

For those who are living in an environment of structural inequalities and conflicts, the question emerges of what change peace will bring? What will they gain from more peaceful and equitable circumstances? In the process of striving for peace with justice, often the gaps emerge from a reductionism focused on techniques driven by the need to find quick fixes and understanding of peace building as a process structure (Lederach 1999, p. 35). The inability to diagnose the gaps that exist between the interdependence of relationships has resulted in process structures that maintain societal and class structures, which is a form of disempowerment. Looking at the pyramid of top down peace building (Figure 7), we can see that it is crucial for there to be a vertical capacity to build relationships between top, middle range and grassroots leaders for mutual understanding and orientation to build relationships that contain the capacity for change.

34

Fig. 7 Lederachs Pyramid of different levels of Leadership. 14 There has been much investment of time, money and processes into diagnosing and treating physical and direct violence by national governments and international bodies. However the expectations for social, economic, religious and cultural change are rarely achieved, creating a gap between the expectations for peace and what is delivered (Lederach, 1999, p. 35) To combat this bias, there must be more emphasis on understanding the interdependent nature of structural and direct violence and to integrate social justice with socio- economic development. Grameen Bank has begun the process of interaction between levels of leadership including politicians, local politicians and community leaders and has reversed the conventional banking wisdom by removing collateral requirement and creating a banking system which is based on mutual trust, strict supervision, solidarity accountability, participation and creativity. (UNESCO, 1997) Yunus has used credit as a catalyst in the overall development process and sees credit as an empowering agent and an enabling element in the development of socio-economic conditions of14

Lederach, J.P (1997) Building Peace: Sustainable Reconciliation in Divided Societies, Washington DC, United States Institute of Peace Press.

35

the poor who have been kept outside the banking orbit on the simple ground that they are poor and hence not bankable. (UNESCO, 1997) Grameen Banks educational approach towards its borrowers is a markedly different from other banks. While other financial organisations believe that their responsibility ends with the lending of money, Grameen takes an additional step of educating their borrowers on effective money handling techniques. This approach ensures that the borrowers are more likely to have successful ventures, and increasing the likelihood of them being able to pay back their loans. Grameen Bank is a socially responsible organisation, as illustrated in Stilwells model of how to cater to the triple bottom line of social, financial and environmental aspects of a business. In referring back to Stilwells interlocking systems of the market, state and community (See Figure 2) this illustrates how Grameen Banks focus on of the triple bottom line is significant. It is argues here this focus is central to the social entrepreneurship approach encompassing all three dimensions. Grameen Bank has also rapidly diversified its activities. The Bank today is the focal point of a global network of institutions and individuals who provide micro-credit to fight poverty in vastly diverse cultural contexts. Within Bangladesh, the Bank has undertaken major investment initiatives in those sectors where the poor have the comparative advantage in terms of their skills, enterprise and productive capacity. A number of social development oriented companies have been established under the Companies' Law to boost economic growth of vital economic sectors like agriculture, fisheries and rural industries. (Bornstein, 1996, p. 224) Structural violence within an impoverished community is often high and cyclical. The term, devised by Johan Galtung (1969, p.178) a noted peace researcher, denotes a form of violence which corresponds with the systematic ways in which a given social structure or social institution kills people slowly by preventing them from meeting their basic needs. Within the rural Bangladeshi communities there were gaps in villagers having their basic needs met. The literacy levels were low, infant mortality was high and any natural disaster would bring about wide spread famine to the rural areas.

36

These basic human needs were not being met by the government or the nongovernment organisations (NGOs). Grameen Bank initiated a business venture and subsequent social movement where they were rights of the poor were taken seriously, achieving peace with justice at the grass root levels, through granting access to resources otherwise not available. These resources came not only in the form of financial aid, but also education, support and advice for radical cultural changes. Combating structural impediments to a Justpeace have enabled the Grameen Bank initiative to have rapid success throughout Bangladesh and now globally, allowing the corporate business to also diversify its ventures and making visible the active agency of the poorest people of the world. Through their methods of action and credit delivery, Grameen Bank has targeted the poorest demographic and has utilised basic capitalist economic principles as well as specific social circumstances. As Galtung (1969, p. 177) notes, structural violence inevitably produces conflict and often direct violence including family violence, racial violence, hate crimes, terrorism, genocide, and war. Thus using micro credit as a tool and social inclusivity as the vehicle, Grameen Bank may have set a blue print in the field of social entrepreneurship as a way of promoting peace with justice.

37

CHAPTER FIVE

Social Entrepreneurship, an Appropriate and Timely Solution

5.1

El Faro An Illustrative Case Study

There is nothing divinely ordained about the economic system: it is the product of human ingenuity, effort and capacity to organise and, therefore, can be properly questioned, criticised and, if a better alternative exists, rejected.- H C Nugget Coombs cited in Stilwell 2001, pg 4

Early examples of socially entrepreneurial ventures took the structure of a selfsustainable organisation, such as Ashoka and the Grameen Bank. More recently, to integrate business acumen and strategy, firms are utilising the trend of Corporate Social Responsibility (CSR) (as discussed in Chapter One), as large multinational organisations provide a source of funding and support for social ventures. The

following chapter will explore a case study of how a small Guatemalan farm has caught the attention and support of the Starbucks Corporation by implementing socially responsible practices in coffee production and employment for their staff.

Sustainability has become a buzz word in corporate circles over the past decade. It has been thrust into the limelight with the success of double and triple bottom line organizations becoming the preferred organisations with which to do business. Traditionally they have been small to medium sized organizations that have been employing concepts of sustainability and corporate responsibility. Large organisations such as Starbucks have engaged such an approach. Instead of harbouring and practicing responsible practices, they are instead seeking suppliers and vendors who themselves are socially and environmentally responsible. Starbucks have started a program called the C.A.F.E Practices Program, which provides guidelines for their vendors to follow if they wish to establish business relationships with the corporation.

El Faro, a small coffee farm in Guatemala has been involved in such a partnership. Since its inception ten years ago, its owners have invested most of their money and time into making the coffee farm a sustainable venture, one that has a long term

38

business model that will benefit workers and the community. The company stresses that they have a triple bottom line that encompasses making profit, using green energy and looking after their community of workers and their families. This is the spirit of social entrepreneurship that is an attractive model within the developing world. Many wealthier citizens of developing countries are returning home with a foreign degree and a dream that inequality can be eradicated if it is addressed in the appropriate form.

Estuardo Porras, had been studying at Pepperdine University in Malibu, California, in the mid- 1990s. He came across companies such as Starbucks who were charging exorbitant prices for a commodity that was once Guatemala's top export but had collapsed in value in the 1980s as cheap beans from countries like Vietnam flooded the market. (Kramer, 2006, p.1) Returning to Guatemala, Estuardo borrowed $1.25 million from his father to purchase an abandoned coffee plantation called El Faro, to start creating his dream of growing Arabica coffee beans. This venture faced considerable challenges as the coffee market in Guatemala had all but collapsed and the workers, previously employed by plantations, had been mistreated. Over the next few years the Porras family invested over $3 million into the plantation to install sustainable electricity sources and recycling methods which are in turn used for producing high quality, organic fertilizer.

5.1.1

Integrating Corporate Social Responsibility

Estuardo believed that empowering workers was essential to being a socially responsible organization. Many of the staff had very little formal education, little or no access to healthcare and no education about workers rights or c