This year construction will start on a new factory in Bangladesh. It will be called the Grameen Otto Textile Company – and it will be the first textile mill of its kind in the world. A really special mill. But first let me give you some background which seems unrelated, but stick with me:
Professor Muhammad Yunus, known as the “Banker to the Poor”, won the Nobel Peace Prize in 2006 for his “efforts to create economic and social development from below.” His work is based on the belief that credit is a fundamental human right. He began by making personal loans of small amounts of money to destitute basketweavers in Bangladesh in the mid-1970s; in 1983 he founded the Grameen Bank in Bangladesh to help poor people escape from poverty by providing loans on terms suitable to them and by teaching them a few sound financial principles so they could help themselves.
To date, Grameen Bank has provided more than $4.7 billion dollars to 4.4 million families in rural Bangladesh. With 1,417 branches, Grameen provides services in 51,000 villages, covering three quarters of all the villages in Bangladesh. Yet its system is largely based on mutual trust and the enterprise and accountability of millions of women villagers.
Today, more than 250 institutions in nearly 100 countries operate micro-credit programs based on the Grameen Bank model, while thousands of other micro-credit programs have emulated, adapted or been inspired by the Grameen Bank. According to one expert in innovative government, the program established by Yunus at the Grameen Bank “is the single most important development in the third world in the last 100 years, and I don’t think any two people will disagree.”
In addition to the Nobel Prize, Professor Yunus has received many national and international honors, including the Mohamed Shabdeen Award for Science (1993), Sri Lanka; Humanitarian Award (1993), CARE, USA; World Food Prize (1994), World Food Prize Foundation, USA; lndependence Day Award (1987), Bangladesh’s highest award; King Hussein Humanitarian Leadership Award (2000), King Hussien Foundation, Jordan; Volvo Environment Prize (2003), Volvo Environment Prize Foundation, Sweden; Nikkei Asia Prize for Regional Growth (2004), Nihon Keizai Shimbun, Japan; Franklin D. Roosevelt Freedom Award (2006), Roosevelt Institute of The Netherlands; and the Seoul Peace Prize (2006), Seoul Peace Prize Cultural Foundation, Seoul, Korea. He is a member of the board of the United Nations Foundation.
Let’s say that he’s one of my favorite heroes.
Anyway, Professor Yunus has proposed a model for a “social business”, which is a business designed to meet a social goal. A social business is a business that pays no dividends. It sells products at prices that make it self-sustaining. The owners of the company can get back the amount they have invested in the company over a period of time, but no profit is paid to investors in the form of dividends. Instead, any profit made stays in the business – to finance expansion, to create new products or services, and to do more good for the world.
Professor Yunus defines social business in the following manner:
“Social business is a cause-driven business. In a social business, the investors/owners can gradually recoup the money invested, but cannot take any dividend beyond that point. The purpose of the investment is purely to achieve one or more social objectives through the operation of the company, no personal gain is desired by the investors. The company must cover all costs and make a profit, at the same time it must achieve the social objective, such as, healthcare for the poor, housing for the poor, financial services for the poor, nutrition for malnourished children, providing safe drinking water, introducing renewable energy, etc. in a business way.”
When we talk about a non-loss, non-dividend business dedicated to a social cause then we are talking about an entity that runs sustainably. Therefore the organization functions just like a regular business in that it must cover its costs. Hence the term non-loss. However, the next term in the definition, namely non-dividend, refers to the fact that investors can only take back the original amount that they have invested. They cannot take any profit beyond that. This is what makes a social business radically different from regular business. The concept of social business is appealing to the self less side of human beings. It must be noted here that the money that an investor gets back cannot be adjusted for inflation. If an investor has invested 1 million baht in the social business then she can get back only 1 million baht not a satang more. Any further profits go back to the company. Finally the business must be dedicated to solving a social problem.
There are two types of social business:
Type I is a non-loss, non-dividend business dedicated to solving a social problem – such as Grameen Danone Foods, which is a joint venture between the Danone Group in France and Grameen Health Care, which seeks to provide yogurt for poor children in Bangladesh.
Type II is a regular profit making business that is dedicated to a social cause and owned by the poor – the best known example of this is Grameen Bank
Just recently, German mail-order giant Otto Group (the largest mail-order group in the world) and Grameen Trust have formed a joint venture to set up the Grameen Otto Textile Company for the production of textiles. They say their venture is the first ‘social business’ worldwide to work on a profit-oriented basis. The profit will be managed by a foundation, the Grameen Otto Trust, which serves exclusively to improve the living conditions of the employees, their families and sponsored communities.
The Grameen Otto Textile Company will operate the ‘Factory of the Future’, which will be set up in Dhaka and will produce clothing for export, under socially and ecologically sustainable conditions. The ecologically optimized, CO2-neutral building will be fitted with the most up-to-date insulation, energy-saving lighting and optimized air-conditioning systems, paying special attention to the use of renewable energies. Initially, between 500 and 700 people will be employed, to produce t-shirts, polo shirts and sweatshirts.
The Otto Group is giving an interest-free loan to cover the investment costs of setting up and running the factory. The loan will be paid back over a period of 10 to 15 years from the profits of the Grameen Otto Textile Company. The profits will not be distributed as dividends to shareholders or investors, but will serve to expand and modernise the company and to pursue social objectives locally. In the first instance, profits shall be used to offer a healthy lunch for the employees, to carry out further education as well as health care and to set up a day-care centre for children offering pre-school classes. In addition, in the communities, assistance will be given in the health sector, for sanitary facilities and for the education and further education of the population. The project will be a beacon for socially and ecologically sustainable economic activity.
Professor Muhammad Yunus adds, “Poor people do not ask for charity, as charity is not a solution for poverty. They want to work in order to earn their livelihood. The Grameen Otto Textile Company creates work for the poor. It will act as an example against poverty in the world.”
Dr. Michael Otto, Co-Initiator of the project and Chairman of the Supervisory Board of the Otto Group is confident: “The Grameen Otto Textile Company will show that it really is possible to reconcile ecological and social criteria with economic goals. It should become a model for textile production in Bangladesh and for similar factories all around the world.”
But there is some criticism of the move. Clothesource, a portal for “global sourcing for the apparel industry” makes the assumption that the Factory of the Future will have to pay higher wages, which will translate into higher cost products. reports: http://clothesource.net/go/news/is-otto-really-building-the-factory-of-the-future It says that “the Grameen microfinance projects have been dwarfed by the colossal job creation success of the (low wage) garment industry.” Though Clothesource welcomes “the Otto experiment”, they worry that if it really is to be “the factory of the future” it must find reasons for the factory’s customers to pay more for what it produces.
I say that may be just what the garment industry needs! The search for ever lower costs has brought much misery (see War on Want). And let’s face it – doing things the “right” (should I say better?) way costs more money.