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

1
generations, allowing them to witness the initial changes that their parents have made,
inspiring them to make further changes within their communities. I also had
interaction with young adults, who through Grameen Bank have realised that there are
opportunities beyond the village.

Grameen Bank has changed the mind-set of a very conservative society by

implementing policies and decisions that are based on respect and mutual gain. It is
because of this, Muhammad Yunus (Grameen Bank founder) regarded as one of the
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.

2
1.3 Locating these Ideas

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

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

‘Development is a fundamental human right. Development is the most

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

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

4
1.5 Thesis Journey

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

Chapter three provides evidence of Ashoka, a fully functioning model of a venture

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

Chapter four is a case study of a working model of social entrepreneurship, the

Grameen Bank. This case study explores the history of the Bank, its loan structures
and the difference it has made to Bangladeshi society by achieving peace with justice.
This examination will utilise the theoretical implications of John Paul 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.

6
 CHAPTER TWO

‘Social entrepreneurship challenges the artificial separation between

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

The Emergence of Social Entrepreneurship

2.1 Ethics in Business

In a world where the impact of economic policies on populations can be monumental,

it is easy to wonder where the lines of morality and ethics end or begin. As De George
(2007, pg. 1) states about the study of ethics applied to business principles, ‘at its
broadest, it studies the moral justification of economic systems, whether national or
international’. Recently, the walls that once divided the realms of social and economic
fields are now coming down and companies are embracing an era where conventional
business is becoming more holistic. Banks such as Citigroup are taking up the
approach of micro credit and the ‘Philanthropy Services of UBS, the worlds largest
wealth manager, has organised twenty conferences in the 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.

13
2.4 Tools to Foster Social Entrepreneurship: Free Trade, Fair Trade and
Developmental Financial Institutions

Free trade versus fair trade has become a hot topic of discussion among academics,
economists and governments in dialogue about social economic systems. Free trade
can be classified as trade in goods and services between or within a 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

19
3.2.1 The Selection Process for Ashoka Fellows

The selection process to become a Fellow of Ashoka is multi layered and a ‘hands on’
process. As 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

22
3.4 The Citizen Sector

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

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

‘people want access to quality personal opportunities ranging from

volunteering and internships to full careers for themselves and their families
and friends. They also want to spot and land the new business/social
opportunities that are now developing. A smart bank will develop a web of
products and services that will allow its bankers to serve every investor
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.

Learning/Education: This involves in designing methods

Environment: This includes conservation finance,
community resource management and the creation of
“low impact” businesses and the promotion of
environmental sustainability.
Health: This includes securing and distribution of
medicines, developing mechanisms for knowledge
transfer and building robust public health systems.
There is also a focus on advocacy and building a
holistic view of health with involvement in such
events as World Health Day.
of education that empower the youth and help them to
realise their maximum potential to make further changes.
This involves fostering qualities such as empathy and
creating innovative ways to take education to those
children who cannot otherwise access it.
Human Rights: This includes initiatives that secure both
civil and political rights, freedom of expression, due
process, creating open and fair justice processes, political
representation and economic, social, and cultural rights
such as health, food, housing, employment.

10
Table 2 Ashoka’s Area’s of Focus

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
 2. Borrowers are organized into small homogeneous
1. There is an exclusive focus on the poor.
groups. This step taken
This step is undertaken to ensure that only those
by Grameen is to facilitate group solidarity and
who cannot receive help from other sources are
participatory interaction of their members. Organizing
targeted by establishing the eligibility criteria for
the primary groups of five members and federating them
selection of targeted clientele and adopting practical
into centres has become the foundation of Grameen
measures to screen out those who do not meet them.
Bank's system. This structure helps the women to learn
The Grameen approach in delivering credit, priority
the capacity of team work, planning and implementing
has been increasingly assigned to women to
group decisions through a system of democratic
empower them. Grameen developed a delivery
decision making. The rural Centres are functionally
system that is geared to meet the diverse socio-
linked to the Grameen Bank, whose field workers have
economic development needs of the poor to
to attend Centre meetings every week thus allowing the
effectively aid the diverse ethnic and cultural
Bank to monitor progress and intervene if problems
groups that exist within rural Bangladesh.
arise.

3. Special loan conditions which are particularly

suitable for the poor.
Grameen Bank have established loan conditions
4. Simultaneous undertaking of a social development
that are unique to the poor clientele. These
agenda addressing basic needs of the borrowers.
conditions include small loans given without any
The sixteen decisions (refer to table 3.1) have been
collateral (which is the basis of the term ‘micro
devised to incorporate social change both at a
credit’), the loans are repayments and term are
developmental and cultural level along with economic
spread out, eligibility for subsequent loans depends
prosperity. They are simple and fair, and this helps the
on repayment of the initial loan, the Bank also aids
poorer, less educated public relate to the Bank’s goals.
the borrower to undertake quick income generating
These have been implemented to raise the social and
activity employing skills already possessed by the
political consciousness of new borrower groups, raise
borrower, close supervision by the Bank and the
the profile of women in rural families whose role in
borrowing group of the amount borrowed, the
family dynamics bear much importance on the
stressing of collective borrower responsibility and
development of the family and to encourage solidarity in
monitoring of peer pressure, special safeguards to
maintaining and building social and physical
educate borrowers about saving (such as
infrastructure such as sanitation and water.
compulsory and voluntary savings plans) and
transparency in transactions that occur at Centre
meetings.

6. Expansion of loan portfolio to meet diverse

development needs of the poor.
5. Design and develop organisation and
As the borrowers become familiar with credit discipline,
management systems capable of delivering
it is valuable for Grameen Bank to introduce new loan
programme resources to targeted clientele.
programmes. This ensures that borrowers are able to
The system used by Grameen Bank has been spread
meet more of their basic social and economic
through a structured learning process. There are
developmental needs. These programmes include:
special training needs of the staff as Grameen Bank
equipment leasing loans, loans for seasonal cultivation
aims to decentralise decision making and
and loans for building sanitation infrastructure. These
operational authority so that these functions are
loans are specific in order for Grameen Bank to keep a
delegated at the zone levels and below.
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.

32
4.5 Grameen Method of Action
The Grameen Bank's ‘Method of Action’ includes steps that are taken when dealing
with a social issues as well as long term planning for the ‘business’ (See Table 5).
1. Start with the problem rather than the
solution: a credit system must be based around
of the social background rather than on a pre-
established banking technique. This allows the
Bank to cater their loans at the correct level,
therefore increasing chances of repayment and
social development.
3. Make sure that the credit system serves
the poor: continuous monitoring of how the
system of lending is affecting borrowers,
credit officers visit the villages enabling them
to get to know the borrowers but also bring
data back to the Head office.
5. Increase repayment possibilities: Initially
credit is restricted to income-generating
production operations, as chosen by the
borrower. This makes it possible for the
borrower to be able to repay the loan and then
take more entrepreneurial risks later, once they
have repaid their initial loan
7. Combine close monitoring of borrowers
with procedures which are simple and
standardised: thus allowing borrowers to be as
independent as possible in making repayments
and taking responsibility of their financial
directions. This empowers borrowers to make
a sustainable change in their lives and also
instils a sense of mutual trust between the
Bank and its borrowers.
9. Invest in human resources: there is
acknowledgement that training staff will instil
real development ethics based on rigour,
creativity, understanding and respect for the
rural environment. This is crucial for 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
2. Adopt a progressive attitude: development is a
long-term process which depends on the aspirations
and commitment of staff and those at the grass roots
level. By continually educating and equipping staff on
new methods inclusive engagement with their
clientele, Grameen Bank is breaking down social
barriers between the rural poor and other social
classes.
4. Establish priorities for action in partnership
with the target population: serve the most poverty
stricken people needing resources who have no access
to credit through interaction with them. An inclusive
decision making process is encouraged so the poor
can have an input into priorities (whether it be saving
or physical community infrastructure) that are being
established.
6. Associate savings with credit without it being
necessarily a prerequisite: Grameen Bank provides
advice and support to those who wish to undertake
savings plans. There are compulsory savings plans for
borrowers, but also optional ones for seasoned
borrowers who have more disposable income. This
educates borrowers on how to ration for unexpected
events as well as educating their families on the
benefits of savings.
8. The system must be financially balanced at all
times: this ensures that the Bank is at a break even
point at all times. If there are widespread defaults on
loans, i.e. after a natural disaster, there are other funds
which the Grameen Bank can draw upon from their
diversified organisations such as the Grameen Trust to
cover the payments until their borrowers are able to
commence repayment.
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 Practices 16

Fig 9 Commitments of each of the components of the C.A.F.E Practices scheme 17

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.

48
 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

52
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