Social Entrepreneur Approaches (DP IB Geography)
Revision Note
Written by: Jacque Cartwright
Reviewed by: Bridgette Barrett
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 Tips and Tricks
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
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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