Social Entrepreneur Approaches (DP IB Geography)

Revision Note

Microfinance

  • Social entrepreneurs are interested in starting a business for the greater social good and not just for profit

  • There are 4 types of social entrepreneurship

    • Community, where the entrepreneur works within a specific community

    • Non-profit is where the profits of the business is reinvested back into the business

    • Transformational is when an entrepreneur forms an organisation to address issues or needs that the government does not

    • Global is where the non-profit or transformational organisation expands globally

  • The number of adults without access to a bank account has steadily declined, from 2.5 billion in 2011 to 1.7 billion in 2017 to 1.4 billion in 2021

  • As of 2021, 76% of the world's adult population had an account

  • That leaves 24% of the population with no access to financial services

  • Around 700 million people live on less than $2.15 per day, the extreme poverty line and have no bank account

  • In 1974, microfinance lending schemes began to provide finance to help reduce poverty, address social issues, including gender discrimination, and enable small businesses to access markets

  • 1983 saw the the formation of the Grameen Bank in Bangladesh by Dr. Muhammad Yunus

  • Since then, microfinance has grown and participating banks provide microloans as small as $50 to under $50,000

    • In 2006, the Nobel Peace Prize was awarded to both Dr. Yunus and the Grameen Bank for their efforts in developing the microfinance system

  • The majority of microfinancing operations occur in rural areas of developing countries, such as Bangladesh, Cambodia, India, Afghanistan, Democratic Republic of Congo, Indonesia, and Ecuador, among others

  • The global microfinance market was valued at an estimated $187 billion in 2022, and is expected to exceed $488 billion by 2030

  • The lack of access to banks has forced many people to use loan sharks who charge large interest rates, making it virtually impossible for people to pay back the loan

  • Microfinance schemes often focus on women, who, in some societies, are unable to own land or borrow money

  • Repayment of the loans is more likely as members are usually part of the community and it is the community that lends out the money

The Advantages and Disadvantages of Microfinance

Advantages

Disadvantages

Small but meaningful loans can be made to poor households to help them start a business

Security and capital are not needed to get a loan

The loans can be targeted at women

Running a business improves human capital and also raises income

Loan repayment helps to build self-esteem

Microfinance has given communities loans and services, which has improved their livelihood

Some loans are not repaid or used to pay off other loans rather than for business purposes

Some microfinance organisations raise money from private donors and have been criticised for charging high management fees and salaries

Schemes have been accused of having interest rates higher than commercial banks

Loans have been used to pay for food or healthcare rather than to start or improve businesses

Not all people are natural entrepreneurs and the money is wasted

   

  

Fair Trade Enterprise

  • Fair trade, fair trading or fairly traded is a general term that refers to the attempt to address the shortcomings of the global trading system

  • Fair Trade is a global movement made up of producers, companies, consumers and organisations working towards social and environmental sustainability

  • The World Fair Trade Organisation (WFTO) is a global membership organisation that advocates and verifies fair trading standards

The WFTO shares a vision of a world in which justice, equity and sustainable development are at the heart of trade structures and practices so that everyone, through their work, can maintain a decent and dignified livelihood and develop their full human potential

  • Fairtrade (one word) refers to primary products, including tea and coffee, where farmer organisations have undergone certification and labelling of products

  • The Fair Trade system allows consumers to identify products (now Fairtrade goods) that have met internationally-agreed standards

  • Approximately 5 million people benefit from Fair Trade 

  • The Fair Trade system works with over 2 million farmers in over 100 countries

  • In 2020, £169 million was paid in Fairtrade premiums

  • There are over 6 000 Fairtrade items now available, ranging from coffee to gold to footballs

  • It does have disadvantages that impact sustainability, including:

    • Fairtrade is usually for goods which have a limited value

    • It relies on people being prepared to pay higher prices for Fairtrade-certified goods

    • Communities, rather than regions or countries, benefit from the system

    • There is a limited range of Fairtrade products

Principles of Fair Trade

  • Fair Trade sets social, economic and environmental standards that anyone involved in the supply chain must follow

    10 Guiding Principles of Fair Trade

Principle

Explanation

Create opportunities for economically disadvantaged producers

Supports marginalised, small producers to move towards a secure income, self-sufficiency and ownership

Transparency and accountability

To have open communication at all levels of the supply chain and management

Transparency with commercial relations

Accountable to all stakeholders

Involve employees, members and producers in the decision-making processes

Fair trading practices

Trade with concern for social, economic and environmental well-being of marginalised small producers

No maximising profits at their expense

Conduct trade in a fair and transparent way

Protect cultural identity and traditional skills

Payment of a fair price

Through discussion and participation, all parties mutually agree on a fair price

Pay the producers fairly so the market can support them

Ensuring there is no child labour or forced labour

Adhere to the UN Convention on the Rights of the Child and national and local laws on the employment of children

Ensure there is no forced labour in its workforce, including home workers

Commitment to non-discrimination, gender equality, and freedom of association

No discrimination in hiring, remuneration, access to training, promotion, termination or retirement based on race, caste, national origin, religion, disability, gender, sexual orientation, union membership, political affiliation, HIV/AIDS status or age

Gender equality is promoted

All employees’ rights are respected, including the right to form and join trade unions of their choice

Ensuring good working conditions

Providing safe and healthy working conditions for all, working hours and conditions that comply with national, local and international conventions

Raise awareness of health and safety issues to improve practices

Providing capacity building

Increase positive impacts for small, marginalised producers through fair trading

Develop skills and capabilities of its employees or members

Promoting Fair Trade

Raise awareness of the aim of Fair Trade and the need for greater justice in world trade

Respect for the environment

Maximise the use of raw materials from sustainably managed sources and buy locally where possible

Reduce energy consumption

Use renewable energy when possible

Use organic or low-pesticide production methods wherever possible

Use recycled or easily biodegradable materials for packing

Goods dispatched by sea, wherever possible

Examiner Tip

There is a difference between Fair Trade, Fairtrade and fair trade.

Fair Trade refers to the movement and organisations that produce goods under the 10 Principles of Fair Trade.

Fairtrade refers to products that have been produced by certified Fair Trade enterprises.

Fair trade is a general term. Think of it as a way of trading goods fairly (buying and selling products so that everyone benefits equally).

Corporate Social Responsibility (CSR)

  • Corporate Social Responsibility (CSR) refers to the concept that businesses have a responsibility to consider and positively impact society beyond their economic interests

  • It is a framework through which companies voluntarily integrate social and environmental concerns into their business operations and interactions with stakeholders

Companies can display CSR towards many of its stakeholders - suppliers, employees, the environment, the market
Corporate social responsibility goals can be focused on a range of different stakeholders
  • CSR involves taking into account the impact of business activities on various stakeholders, including employees, customers, communities, the environment, and society at large

  • CSR goes beyond legal compliance and strives for companies to actively contribute to sustainable development and societal well-being

Examples of Socially Responsible Activities 

Socially Responsible Activity

Example

Sustainable sourcing of raw materials and components

High street retailer H&M has a goal of using only recycled or sustainably sourced materials by 2030

It also publishes a list of the majority of their supplier’s information, which is updated regularly, allowing stakeholders to verify and hold the company responsible for their suppliers’ conduct

Responsible marketing

Marks and Spencer ensures that it never actively directs any marketing communications to children under the age of 12 and does not directly advertise any products high in fat, sugar or salt to children under the age of eighteen

Protecting the environment

Café chain Prêt à Manger offers discounts to customers who bring their own coffee cup, reducing the number of single-use plastic containers it dispenses

Responsible customer service

John Lewis's famous 'Never Knowingly Undersold' slogan refers to the company's commitment to checking competitor prices regularly to ensure that the price its customers pay is the lowest available in the local area at that time

The Benefits of CSR

  • CSR can:

    • Enhance the business's image and reputation

    • Is attractive to many stakeholders

    • Be very profitable, as it adds value for many stakeholders

    • Improve employee motivation and productivity

    • Help recruit strong candidates for jobs advertised

    • Help to solve social problems, e.g. resource depletion

Greenwashing

  • Greenwashing is when businesses make claims that they are environmentally friendly when they are not

  • Greenwashing includes making broad sustainability claims without evidence

  • Businesses overstate positive environmental impacts in their advertising, such as:

    • Marketing products as eco-friendly while sourcing raw materials from unsustainable suppliers

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