THE ERA of SOCIAL ENTREPRENEURSHIP

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

SABRIN RAHMAN MASTERS 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. I’d 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 I

Table of Contents II

List of Abbreviations IV

List of Tables and Figures V

Abstract VI

Chapter 1 Introduction

1.1 Central Idea…………………………………………………… 1

1.2 Motivation and Interdisciplinary Theoretical Approaches …….. 1

1.3 Locating these Ideas…………………………………………….. 3

1.4 Methodology……………………………………………………. 4

1.5 Thesis Journey…………………………………………………… 5

1.6 Central Argument ……………………………………………….. 6

Chapter 2 The Emergence of Social Entrepreneurship

2.1 Ethics in Business……………………………………………….. 7

2.2 Commercialisation of the Social Sector………………………….. 9

2.2.1 What is the Social Entrepreneur? .............................................. 10

2.2.2 The Interlocking Nature of the Market, State and Community

and Arguments against Social Entrepreneurship……………….11

2.3 Factors Conducive to Market Failure…………………………….. 13

2.4 Tools to Foster Social Entrepreneurship: Free Trade, Fair

Trade and Developmental Financial Institutions ………. .….…….. 14

Chapter 3

3.1 The Ashoka Experience ………………………………………….. 17

3.2 The Growth of Ashoka; Recruiting the Changemakers……...…… 18

3.2.1 The Selection Process for Ashoka Fellows and Grounds

for Rejection ……………. …………………………………… 20

3.3 Ashoka’s Involvement in Setting up a Social Venture……………. 22

3.4 The Citizen Sector…………………………………………………. 23

II

3.6 The Integration of the Social and Business Sectors and Ashoka’s

Area’s of Focus…………………………………………………… 24

3.7 Ashoka, Expanding the Field of Social Entrepreneurship………… 25

Chapter 4

4.1 The Grameen Bank Story………………………………………… 26

4.2 Promoting Economic Cooperation the Grameen Way ……..……. 30

4.3 An Entrepreneurial Approach to Breaking the Poverty Cycle…….. 31

4.4 Method of Action………………………………………………….. 33

4.5 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……..……………. 39

5.1.2 Starbucks, the Enabling Agent for El Faro……………………. 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 Non Governmental Organisation

DFI Developmental Financial Organisation

WTO World Trade Organisation

CSR Corporate Social Responsibility

EBRD European Bank for Reconstruction and Development

UNDP United Nations Development Program

UNESCO United Nations Educational, Scientific and Cultural Organisation

SVP Social Value Proposition

PCDO People, Context, Deal and Opportunity

MDG Millennium Development Goals

IV

LIST OF TABLES AND FIGURES

FIGURES

Figure 1: Interdependence of Society, Economy and Ecology 11

Figure 2: Interdependence of Market, State and Economy 12

Figure 3: The Composition of the Ashoka Structure 19

Figure 4: Primary Focus of Ashoka Fellow’s 19

Figure 5: The Growth of Ashoka Fellow’s Worldwide 21

Figure 6: The Life Cycle of a Social Entrepreneur 25

Figure 7: Lederach’s Pyramid of different levels of Leadership 39

Figure 8: The components of the C.A.F.E Practices 46

Figure 9: Commitments of each of the components of the C.A.F.E

Practices scheme 47

Figure 10: The Social Entrepreneurship Framework and how the SVP

model relates to it 50

Figure 11: The PCDO model 51

TABLES

Table 1: Criteria to become an Ashoka Fellow 21

Table 2: Ashoka’s Area’s of Focus 28

Table 3: Grameen Bank’s 16 Decisions 30

Table 4: The Grameen Bank Credit Delivery System 32

Table 5: Method of Action 36

Table 6: The key area’s of focus in the Starbuck Corporate Social

Responsibility Report 2006-2007 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

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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

world’s 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 Yunus’s 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.

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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 NGO’s there have been recent improvements to these power imbalances,

but once the presence of the NGO’s 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 (DFI’s). The

research will also explore existing models that aim to correct the power imbalances in

world trade such as fair trade.

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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 Lederach’s 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 (DFI’s) 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 organisation’s 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.

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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 America’s, 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 stakeholder-

focused 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-to-

earth 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 country’s 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 responsible 1 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 don’t

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.

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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 country’s

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 tariff’s and treaties for mutual gain (ex ante).

According to Ricardo’s 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.’4

3 Retrieved on 13th October, 2007 from http://www.wto.org/ 4 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 (DFI’s) 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 (DFI’s) are quasi governmental organisations formed with the purpose of

developing or rejuvenating core industries (Kane, 1975, p.7 ). DFI’s 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, DFI’s 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, DFI’s 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), DFI’s 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 world’s 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 THREE

‘To 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.5

5 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 (NGO’s).

Figure 4 Ashoka’s work spans all areas of human need with learning/youth development being the leading area. 6

Ashoka’s 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 Ashoka’s 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 Ashoka’s website there are four classifications of Fellows:

1. Ashoka Fellows: leading social entreprenurs who bring innovative ideas to

bring about sustainable social changes. 2. 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.

3. Global Fellows: Social entrepreneurs with transnational or global ideas

that cannot be contained by borders.

4. Social Investment Venture (SIV) Fellows: Those who have demonstrated innovative ideas that transform allocation of capital for social benefit.

As the Fellow’s 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 Fellow’s worldwide). This

number has increased from nine to over a thousand Fellows in twenty years, growing

parallel with the amount of investment Ashoka receives.

Figure 5 The growth of Ashoka Fellow numbers worldwide 1982–2004.7

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

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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 Ashoka’s 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 person’s 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 organisation’s 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 Ashoka’s 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. McKinsey & Company: a leading management consulting company who in partnership with Ashoka created the first Centre of Social Entrepreneurship in 1996.

2. Hill & Knowlton: A global public relations firms that helps Ashoka Fellows get support for their ventures through strategic communications, media and presentation training.

3. 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

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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 client’s 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 two-

way 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, Ashoka’s 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. Ashoka’s 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 Ashoka’s portfolio.

Environment: This includes conservation finance, community resource management and the creation of “low impact” businesses and the promotion of environmental sustainability.

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.

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.

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.

Table 2 Ashoka’s Area’s 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 the

10 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 sector’s 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. We shall follow and advance the four principles of Gramee Bank: Discipline, Unity, Courage and Hard work – in all walks of our lives.

2. Prosperity we shall bring to our families. 3. We shall not live in dilapidated houses. We shall repair our houses and work towards constructing new

houses at the earliest. 4. We shall grow vegetables all the year round. We shall eat plenty of them and sell the surplus. 5. During the plantation seasons, we shall plant as many seedlings as possible. 6. We shall plan to keep our families small. We shall minimize our expenditures. We shall look after our

health. 7. We shall educate our children and ensure that they can earn to pay for their education. 8. We shall always keep our children and the environment clean. 9. We shall build and use pit-latrines. 10. We shall drink water from tubewells (traditional water pumps). If it is not available, we shall boil water

or use alum. 11. We shall not take any dowry at our son’s 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. 12. We shall not inflict any injustice on anyone; neither shall we allow anyone to do so. 13. We shall collectively undertake bigger investments for higher incomes. 14. We shall always be ready to help each other. If anyone is in difficulty, we shall all help him or her. 15. If we come to know of any breach of discipline in any centre, we shall all go there and help restore

discipline. 16. 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.grameen-info.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 socio-economic 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 Bank’s 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.grameen-info.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.

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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 pre-established 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.

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.

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.

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

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.

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.

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.

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 staff-borrower 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.grameen-info.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 Ashoka’s 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 Lederach’s 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 of

14 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 Bank’s 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 Stilwell’s model of how to cater to the triple bottom line

of social, financial and environmental aspects of a business. In referring back to

Stilwell’s interlocking systems of the market, state and community (See Figure 2) this

illustrates how Grameen Bank’s 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 non-

government organisations (NGO’s). 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 self-

sustainable 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 it’s inception ten years ago, it’s 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 worker’s rights or compensation. This

started a process where education, health programs, housing infrastructure, clean

water, electricity and training programs; were introduced. The owners of El Faro

believed that in order to produce a high quality product that would be acceptable for

purchase by the largest coffee buyers, the employees had to be happy and committed

to their jobs. The goal of long term sustainability was also on the books as a high

turnover of staff would increase running costs and effect overall productivity. The

company thus sponsors a grammar school for local children and transports older

children to Catholic high schools free of charge. El Faro respects the local traditional

values of a good Catholic education for children, which has been a good way of

39

showing their workers of commitment to their welfare. Workers are provided with

healthcare after three months of employment, with a full time nurse and a part time

doctor at the plantation infirmary. In Guatemala, healthcare is a luxury that many

working class citizens cannot afford so having access to healthcare is a major

attraction for and retention of employees.

At El Faro, employees are able to voice grievances, are given two weeks paid leave

annually and are also made aware of human resources policies such as workers

compensation and worker’s rights. The workers are paid above the minimum wage

that has been set by the Guatemalan government and are eligible for bonuses twice a

year, which will be compensated within an employee’s cumulative yearly wage at the

moment the employer wishes to discontinue his or her contract. These basic rights

have given El Farro a competitive edge over other coffee farms, with higher retention

rates and lower staff turnovers, which in turn translate into less training expenses and

a more profitable bottom line. This brought Starbucks knocking on El Farro’s door,

once word had spread about the sustainable and socially responsible way business was

being undertaken.

5.1.2 Starbucks, the Enabling Agent for El Faro

Starbucks has become one of the most recognizable brands in the world today. It has

become strong brand with the possibility of implementing social change. Grasping

this concept, Howard Schultz and Jim Donald started a trend of corporate social

responsibility that is targeting the developing world. Starbucks has been publishing a

Corporate Social Responsibility (CSR) report annually for the last seven years. The

founders of Starbucks state that they want it to become a place where employees

would like to work and are proud of whom they work for. The key areas covered in

the current CSR report are summarised in Table 6. They also will buy large amounts

of coffee from sustainable and socially responsible vendors in the developing world.

40

Coffee Purchasing Practices • Prices paid to coffee farmers and suppliers • Respect for workers’ human rights • Long-term availability of high-quality coffee Growth and Expansion • Impacts on local communities Environmental Impacts • Climate change • Energy consumption • Paper cups Health and Wellness • Products • Nutrition information Workplace Practices • Culture and benefits • Satisfaction and engagement Table 6. The key area’s of focus in the Starbuck CSR 2006-2007.15

In the opening letter of this year’s annual report, Starbucks administrators state:

‘contribute positively to local communities; minimize the environmental footprint; be responsive to customers’ health and wellness needs; and illustrate how Starbucks is serving as a leader in both our industry and within our global society through our participation in organizations such as the United Nations Global Compact.’ (Starbucks Corporate Social Responsibility Annual Report, 2006, p. 1)

Starbucks further state that they would like to continue their marketplace evolution,

which involves keeping a balance with the greater community. With more and more

competitors entering the market, market presence is not merely enough to stay ahead.

Coinciding with their strategic goal they are integrating the cultures and communities

that they extract their beans from to create a new product, one that encompasses the

history and flavour of its origin. As mentioned above, Starbucks have also

implemented a system which ensures practices of transparency of coffee prices called

the C.A.F.E system (See Figures 8 and 9).

15 Starbucks 2006 Corporate Social Responsibility Annual Report, p. 2 .Retrieved 20th September 2007 from: http://www.starbucks.com/aboutus/csrannualreport.asp

41

Fig. 8 The components of the C.A.F.E Practices16

Fig 9 Commitments of each of the components of the C.A.F.E Practices scheme17 This move has urged small business owners such as Estuardo Porras to maintain

socially responsibilities in order to attract Starbucks as a buyer. Such moves are also 16 Starbucks 2006 Corporate Social Responsibility Annual Report, p. 2 .Retrieved 20th September 2007 from: http://www.starbucks.com/aboutus/csrannualreport.asp 17 Starbucks 2006 Corporate Social Responsibility Annual Report, p. 2 .Retrieved 20th September 2007 from: http://www.starbucks.com/aboutus/csrannualreport.asp

42

being made by other multinationals such as Timberland, who prefer to buy from

sustainable timber suppliers. This focus on Corporate Social Responsibility (CSR) in

multinationals and big brands is stirring farmers, suppliers and small business owners

to become innovative in what social difference they can bring to the corporate table.

5.1.3 Starbucks – Friend or Foe?

While the step by Starbucks made to buy from socially and environmentally

responsible vendors is commendable, it must be noted that there are other

implications in Starbucks goal of ‘saving the world one coffee at a time’. Such issues

are: using genetically modified (GM) milk for their products, the non-recyclable

nature of their cups used to serve coffee and the conditions of purchase of fair trade

coffee from developing economies.

Critics of Starbucks suggest the corporation is picking the "down-hanging fruit" of

positive publicity with its purchase of fair trade beans, a million pounds of fair trade

coffee will be bought this year, less than 1% of the company's total purchases

(Williams, 2002) and their recycled cups are not accepted by large recycling plants

due to their plastic coating ( Conrad, 2003). By doing this, they are over looking the

simple fact that good publicity cannot always be bought. The FairTrade project has

recently been criticized as ‘unfair’ ( Conrad, 2003) as it is ‘trampling indigenous

markets in the process’ (Ruivivar, n.d). There has been ongoing disharmony between

the National Coffee Association (NCA) and Starbucks to stop trademark efforts for

coffee beans that are native to Ethiopia, such as Harar, Sidamo, and Yirgacheffe

lodged by the Ethiopian government to ensure that the Ethiopian coffee farmers

receive fair returns for their sales. There have been unsuccessful talks between the

Ethiopian president Meles Zanawi and the Starbucks CEO, Jim Donald to tackle this

issue, which reportedly denies Ethiopian farmers up to $88 million per year (Ruivivar,

n.d).

The move to block the attempt to trademark these names by Starbucks has raised

concerns about the Seattle based company’s true motives. Starbucks have had an

annual global turnover of 22 per cent in the last year (Seager, 2006), but the fair trade

43

project has accounted for very little of their overall coffee sales. Phil Bloomer,

Oxfam's policy director, said:

"Starbucks has made some progress towards helping poor farmers in recent years, but their behaviour on this occasion is a huge backwards step, and raises serious questions about the depth of their commitment to the welfare of their suppliers. By acting responsibly, they could set an example for others by supporting Ethiopia's plan to help the 15 million struggling Ethiopian farmers who depend on coffee for their survival." (citied in Seager 2006 (online))

While Ethiopia is one of the world’s poorest countries, Starbucks has similar

approaches to other developing world farms that they purchase from. Tadesse

Meskela, head of the Oromia coffee farmers cooperative union in Ethiopia, says

‘Coffee shops can sell Sidamo and Harar coffees for up to £14 a pound because of the beans' specialty status. But Ethiopian coffee farmers only earn between 30p and 59p for their crop, barely enough to cover the cost of production. We sell organic coffee for less than £1 a pound but that pound can make 52 specials in coffee shops selling for £2 each, meaning the retailer is selling it for £104. The people who are producing this in Ethiopia don't have enough food, clean water or health centres. Farmers are losing out while others in the chain are making huge amounts of money. That is hugely unfair." (cited in Seager 2006 (online))

After increasing pressure and criticism from aid agencies, protestors and the Ethiopian

government, as of June 2007 Starbucks and the Ethiopian government have brokered

a deal where Starbucks will recognize the three names Harar, Sidamo, and

Yirgacheffe, regardless of whether they are trademarked or not. There are similar

trademark cases in progress in China, Brazil, India and South Africa. Oxfam, initially

critical of Starbucks refusal to allow Ethiopia to trademark the coffee names, is now

approving of the final outcome, Raymond C. Offenheiser, president of Oxfam

America said, "What the Ethiopians were after was not a quick profit but rather an

engagement with Starbucks around a long-term strategic vision for where the industry

could or should go and how coffee producers from developing countries could work

with companies like Starbucks to change the terms of trade within the marketplace in

order to make it work better for poor people," (cited in Seager, 2006 (online))

So how can the success of a social entrepreneurial venture be measured? It is much

easier to judge the success of a commercial entrepreneurial model, with a single

financial bottom line approach, whereas it becomes more complicated when trying to

44

assess the success of a venture in terms of the environmental or social bottom lines as

they do not always have tangible or immediate visibility. The Social Value

Proposition (SVP) model aims to illustrate how one approach of measuring social

entrepreneurial success could be utilised when aligned with another model called the

PCDO model, commonly used for commercial entrepreneurs as discussed in the

balance of this chapter.

5.2 Models to measure Entrepreneurial Success: Social Value Proposition

(SVP) and the People, Context, Deal and Opportunity (PCDO) Model

Models of social entrepreneurship are underdeveloped and there needs to be further

research to explore the many facets that this approach to business could take. Such

exploration includes the measuring of success of socially entrepreneurial ventures

using a model of SVP applied to a PCDO model.

While the role of a social entrepreneur is distinctive, the multifaceted nature of their

tasks often retracts and blurs their central role. The key is to properly manage the

organisational interests with the key components both internally and externally, while

achieving the central mission. Social entrepreneurs must be aware that they cannot

overextend their limited resources by trying to cover a wide range of issues. This

could erode the core Social Value Proposition (SVP) and result in little or no social

impact. The model of SVP (See Figure 10) illustrates the framework where there is an

overlap of capital, opportunity and people (as per commercial entrepreneurship). The

difference lies in the external factors of demographics, political, macroeconomic, tax,

socio cultural and regulatory that social entrepreneurs must also account for. Arguably

the SVP must be aligned to the People, Context, Deal and Opportunity (PCDO)

model, for maximum social effectiveness.

45

Fig. 10 The Social Entrepreneurship Framework and how the SVP model relates to it.18 The PCDO model is a helpful tool which also aids social entrepreneurs to assess how

successful their venture is. As their mission is not solely financially driven, measuring

social good is an almost impossible task. Therefore, determining how well they are

performing against each of the PCDO criteria gives a somewhat accurate indication of

their influence and future growth. (See Figure 11) This model by Sahlman (1996)

stresses the dynamic fit among the four interrelated components: People, Context,

Deal and Opportunity. This model was created to assess the success of commercial

entrepreneurship and if a social entrepreneurship is to be effective, it must too meet

the criteria.

18 Austin, J., Stevenson, H & WeiSkillern, J (2006) ‘Social and Commercial Entrepreneurship: Same, Different or Both?’ Entrepreneurship Theory and Practice, January, p. 17

46

Figure 11 The PCDO model (People, Context, Deal and Opportunity) which can be used to determine the success of a social entrepreneurial organisation.19

The terms People, Context, Deal and Opportunity have been determined by Sahlman

(1996) as the key components that must be satisfied for entrepreneurial success to be

gained.

“People” can be defined as those who bring resources or participate in the venture.

Unlike commercial ventures who can afford market rates to attract and retain talent,

social ventures are not able to do so. (Oster,1994). Therefore social entrepreneurship’s

must have a strong reputation, known in the industry to garner support and

continuously manage and cultivate their network to attract staff that will add value to

their organisation.“Context” is defined as elements outside the control of the

entrepreneur that influence the success of failure such as tax, regulatory structure or

socio-political environments. Non profits are affected by stock market and individual

donations are tied to people’s discretionary incomes. (Austin et al, 2006, p. 8).Laws

and policies also affect how a social venture does its business and are competing with

other for resources such as talented employees, government grants, political attention

and customers/clients. For social enterprises, monitoring the context can be more

useful than warding off threats. “Deal” is the substance of the bargain that defines the

19 Austin, J., Stevenson, H & WeiSkillern, J (2006) ‘Social and Commercial Entrepreneurship: Same, Different or Both?’ Entrepreneurship Theory and Practice, January, p. 7.

47

players, the receipt and transactions that will take place. These include economic

benefits, social recognition and fulfilment of generative and legacy desires. To a

social entrepreneur, the securing of successful deals is of utmost importance and can

be the difference between a functional venture and bankruptcy. “Opportunit”y is

defined as ‘any activity requiring the investment of scare resources in hope of a future

return’ (Sahlman, 1996, p 104). Entrepreneurs should be concerned about customers,

suppliers, entry barriers, substitutes, rivalry and economies of venture, which is very

similar to commercial enterprises but in a social entrepreneurial approach, the focus

of all this is on social returns and serving long term basic needs.

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CHAPTER SIX

The Potential and Future of Social Entrepreneurship

It is apparent from this research that the benevolence of multinationals and large

corporations has a limit and although many may profess their support for socially

responsible vendors, the bottom line is that most corporations are still profit driven.

These large organisations are not the social entrepreneurs, but have caused a trickle

down effect where the search for ‘instant good publicity’ is spurring entrepreneurs to

be more socially and environmentally responsible to stay competitive in the

international arena.

Social entrepreneurship has been successful in gaining attention recently with

Professor Yunus and his Grameen Bank winning the Nobel Peace Prize and spurring

budding young entrepreneurs to step up to the plate and provide innovative economic

and social solutions to problems plaguing our communities. As Amartya Sen (1999,

p.3) suggests ‘Development requires removal of major sources of unfreedom: poverty,

tyranny, poor economic opportunities, systematic social deprivation, and neglect of

public facilities as well as intolerance’

As illustrated by the case studies of Ashoka and Grameen Bank, social

entrepreneurship is a tool that is being used to effectively free the constraints of

poverty by opening up the labour market, creating conditions for improved living

standards, social justice and minimising the inequalities to poor people that can ‘erode

social cohesion’ (Sen, 1999, p. 93). The Social Value Proposition (SVP) (Figure 10)

has encompassed all these factors successfully and also satisfies the criteria for

commercial entrepreneurial success of the PCDO model (Figure 11). It is combating

not only inequality but also the structural violence that cause inequalities, which are

the causes of ‘economic stagnation which leads to low or negative economic growth

rates’. (Sachs, 2006, p. 43)

We are at a point in history where there is an opportunity for the ‘citizen sector’ to

take a leadership role in the ways traditional commerce is being conducted. Ashoka,

Grameen Bank and El Faro are examples of everyday citizens, with the support of

49

other like minded individuals that are as successful as any large corporation, in the

eyes of their employees and the communities in which they operate. They are

financially secure, relying on their own returns and not handouts and are constantly

innovative to capture market trends and opportunities. As Jeffrey Sachs writes in the

End of Poverty, ‘the ingenuity of the Grameen Bank has shown that Bangladesh is not

a ‘hopeless basket case, but a country worthy of attention, care and developmental

assistance’ (2005, p. 14.) The works of Amartya Sen, David Bornstein, Bill Drayton

and Muhammad Yunus all echo the same sentiments that have been the foundation of

the JustPeace model of John Paul Lederach and the notions of addressing the

structural violence identified by Johan Galtung; that there must be a way of promoting

justice so that citizens are respected and can help themselves and sustain their families

and communities long after the NGO’s and aid agencies have gone.

While the Millennium Development Goals (MDG’s) state necessary goals and

provide benchmarks and milestones for assessing where we are in terms of human,

environmental and economic development, they do not offer a guaranteed path of

success which nations can take. Grameen Bank has shown that a sole organisation can

achieve a MDG through their creative ideas and dedication, which subsequently also

receives attention and support from governments. This achievement is empowering to

not only the middle tier leaders within a community, but also to the grass roots as

concepts such as social entrepreneurship places everyone on a level playing field and

the only aspect that makes any difference is their entrepreneurial capacity.

Adam Smith, a pioneer political economist and moral philosopher stated that ‘political

institutions are human constructs that should be fashioned consciously to meet the

needs of society’ (cited in Sachs, 2005 p. 349). It is apparent that the commercial

institutions are also human constructs that can be fashioned to meet the growing needs

of our society. As moral philosophers such as Kant, Locke and Jefferson from The

Enlightenment period applied concepts of natural law to ethical, political and

mercantile theory, we too must apply such concepts to the modern fields of

international politics, commerce and economics to continue the progress of human

development.

50

Where the future of social entrepreneurship lies cannot be predicted as the concept

has grown rapidly and has spread to all corners of the world. The Global

Entrepreneurship Monitor (GEM) report on Women and Entrepreneurship

(Minniti et al, 2006) states that the increase in female and ethnic minority

entrepreneurship is likely to have a positive effect on economic development. All over

the world the poorest of the poor (mostly women) from diverse ethnic backgrounds

are successfully starting new business ventures bringing a very new face to the

existing social entrepreneurship field (Fuller-Love et al, 2006).

This research demonstrates that social entrepreneurship is a concept of peace with

justice by utilising key motivations such as corporate social development, well being

and human rights for workers, while benefiting the wider community. It is argued

here that the twenty first century will be the time for social entrepreneurship to thrive,

with the emergence of a citizen sector who will promote reciprocity and solidarity

between the developing and developed world. Further academic research is needed to

explore the hitherto false distinction between economic versus peace theory. That

research would marry such diverse theoretical perspectives and illustrate case studies

of social entrepreneurship further. This research concludes by illustrating that social

entrepreneurship speaks the language of respect and dignity which is a tenet of peace

with justice.

51

APPENDIX

From: sabrin rahman <sabrinrahman@gmail.com> Date: Sep 30, 2007 9:54 AM Subject: Query from Down Under re Selection Process of Fellows To: info@ashoka.org

Dear Ashoka members, I'm a post graduate student completing my thesis on Social Entrepreneurship and how it Promotes Peace with Justice at the Centre for Peace and Conflict Studies, University of Sydney. As one of my case studies, I am looking at Ashoka as a success story. I had a few questions regarding the selection process of Fellows. It states that there are 5 criteria: 1. A great idea 2. Creativity 3. Entrepreneurial Quality 4. Social Impact of the Idea 5. Ethical Fibre My question is, how do you evaluate criteria 2-5? Is it an objective process with a panel of experts? Also what material do the candidates have to present as a part of the process? On the website it states that the grounds for rejection are : ' 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 participation in the Fellowship. Ashoka also believe that those with ideologies may not be perceptive to ideas that may be able to bring about change' How would you determine is a candidate has been a part of such organisations/parties? Are criminal and background checks conducted and through what channels? How challenging is it to do this for international candidates, where background/criminal checks are hard to conduct and even harder to get complete and accurate answers? I understand that Ashoka try to filter out individuals who may not be the best fit for the organisation, but my biggest concern is how do you weed out ideologies? It is apparent that these sides of a personality can be very well hidden. I would appreciate if you could find the time to answer my questions as it is a vital part of my chapter. Thank you for your time. Regards, Sabrin Rahman

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