Muhammad Yunus did not mince words when he discussed his frustration with “rigid” U.S. government foreign aid programs in front of a full house of U.S. Agency for International Development leadership and staff on Monday.
But the Nobel Prize winner’s “long-standing battles with USAID” were not enough to stop his new venture Yunus Social Business from signing a memorandum of understanding with the agency to support joint initiatives in several countries around the world.
Yunus and USAID Administrator Rajiv Shah signed the MOU in a high-level ceremony after which the Bangladeshi economist outlined in a speech his vision and track record of cultivating business solutions to intractable social and environmental problems.
USAID and YSB agreed to collaborate on the development of social business incubator funds in a targeted set of developing countries, for now Albania, Brazil, Colombia, Haiti and Uganda, according to a statement from the agency.
This development model is championed by Yunus’ revolutionary microfinance outfit Grameen Bank, which currently provides microloans to roughly 8 million people, most of them women.
“USAID’s financial contribution will act as the catalyst in attracting new private sector capital into social business,” he said in the statement.
Few details disclosed
In addition to funding, USAID will support the incubator funds by providing promising social businesses with financing and advisory services “to grow and scale up their impact.”
The agreement rides on the wave of Shah’s ongoing campaign to promote innovation and partnerships within the agency, a commitment he was quick to point out to Yunus after the Nobel Prize winner suggested that the USAID suffers from inflexibility, commenting that “everything is on the dotted line.”
So far, no concrete funding commitments have been disclosed, as well as further information related to the criteria both concerned parties will use to select social businesses for incubator fund support.
It also was not immediately clear if USAID will retain any oversight responsibility for the social businesses it finances and advises, or accountability for whether they actually achieve measurable impacts on solving the problems they are designed to target.
Business-oriented NGO or mission-driven business?
Social business, according to Yunus, combines the mission focus of an NGO with the revenue stream typical of a profitable business, all of which is reinvested back into the mission-oriented operation. Investors may recoup their initial investment over time, so social businesses are operated as non-loss, non-dividend companies, evaluated according to the impact of the business on achieving social or environmental goals.
The intended result is a mission-driven company that generates enough revenue to sustain its operations, and even grow in terms of its impact, but does not generate profit for its investors.
One successful YSB-supported venture is Grameen Shakti, a rural renewable energy company that has sold over one million solar home systems in Bangladesh at a current rate of 1,000 units per day.
Grameen Shakti, the Nobel laureate explained, took 16 years to achieve its current success, struggling at first to sell five solar home systems in a month. Yunus expects the next million systems will be sold in only three years, while Grameen Shakti now employs up to 12,000, including teams of young women responsible for unit maintenance.
The company’s gradual path to success points to the patience and constant experimentation required to develop a successful social business model, buch a trajectory might not fit as easily into a U.S. foreign assistance bureaucracy which, as Shah pointed out, is accountable to 535 members of Congress who appropriate its budget annually.
Common ground between traditional and new models
USAID is increasingly trying to engage the private sector and improve investment climates abroad through public-private partnerships, credit guarantees and other instruments. Often the promotion of U.S. business abroad is a welcome co-benefit.
The agency’s engagement with YSB is particularly interesting in this regard, as it appears to eliminate the profit motive behind private sector partnerships.
“Yunus has in fact innovated a new model of development,” said Shah. “If the traditional model is something along the lines of hiring a contractor to build a road, the new model is in fact building partnerships as Yunus has — across banks, low-income women, philanthropists, businesses, governments and entrepreneurs.”
Hopes for success on both sides are pinned on this opportunity to find common ground between the traditional and new models.
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About the author
Michael Igoe@AlterIgoe
Michael Igoe is a Senior Reporter with Devex, based in Washington, D.C. He covers U.S. foreign aid, global health, climate change, and development finance. Prior to joining Devex, Michael researched water management and climate change adaptation in post-Soviet Central Asia, where he also wrote for EurasiaNet. Michael earned his bachelor's degree from Bowdoin College, where he majored in Russian, and his master’s degree from the University of Montana, where he studied international conservation and development.
