Home / News / Blog / Can good business be good for the poor?

Can good business be good for the poor?

Small loans can help poor people boost their income through business
Small loans can help poor people boost their income through business

Some companies are addressing social ills as part of their business strategy. Others are making social change a priority, and profit a secondary benefit. Whether these approaches are successful or not can depend on who you ask. Stanley Ellerby-English looks at how business can benefit the poor.

The relationship between social causes and for-profit companies is changing. In some cases non-profit organisations are no longer involved at all. Nestlé, for example, has begun to fortify the Maggi products - stock cubes and seasonings - that it sells throughout Central and West Africa, with a number of vital micronutrients.

This addresses a common problem across the region, but it has also been very good for business. According to Nestlé, it has helped them to greatly expand the market for these products amongst low income groups in the region.

Addressing social issues by expanding markets to the poor seems to be beneficial for both parties. However, Aneel Karnani, an associate professor at the University of Michigan, warns that there is actually very little money to be made from marketing to the poor.

If this is true, then it is unlikely that a profit-driven approach will have a particularly wide-reaching or deep impact, since it does not benefit the companies involved. This is the concern of Anna Marriot, Oxfam's health policy advisor, who cautions against overly optimistic ideas of what business can offer social sector organisations.

Marriot tells the Irin news agency that companies will always choose to focus on the profitable sections of society and so do little for other groups. This is a valid criticism of businesses' ability to have real social impact. However, some believe that it is possible for non-profits to harness the power of enterprise to create sustainable social change.

Woman digging in Marsabit Kenya 57629
Helping people generate an income is a common way of alleviating poverty

Harnessing business approaches

The most famous example of these social enterprises is the Grameen bank in Bangladesh, which provides small loans to help poor people establish income-generating activities. This model has been adopted and adapted by microfinance institutions (MFIs) around the world.

Whilst the emphasis in MFIs and other social enterprises remains on addressing social issues by expanding markets, they focus on positive impact rather than profit. However, this approach is not without its own limitations.

A report by the Consultative Group to Assist the Poor argues that microfinance has failed to improve the lives of the poorest groups in society. This is primarily because the services provided, even if they are at a modest rate, are still too expensive for those at the very bottom of the ladder.

Even though this social enterprise is not driven by the need to profit, it is still limited by the demands of sustainability. This has made it very difficult for MFIs and other social enterprises to help the poorest and most excluded. Perhaps a more direct partnership between business and non-profit organisations would be more effective.

Partnerships for change

Coca Cola and Cola Life's collaboration is an example of this third approach. Here, The Coca Cola Company (TCCC) offered marketing, distribution and design advice to the charity. This culminated in a pilot scheme in Zambia, for Cola Life's 'aid pods' - dehydration relief kits - that are packed into crates of Coca Cola and delivered via the distribution network of TCCC.

Pam Bolton, vice-president of the Global Business Coalition on Health, tells Irin that partnerships like this are becomingly increasingly normal. Whilst they have more flexibility to help even the poorest, these relationships depend on companies being willing to support the cause that is being championed.

This raises doubts about how reliable this sort of support really is for NGOs and charities. Can companies be relied upon to continue providing resources to these partnerships, especially if they cannot demonstrate the benefit to their shareholders?

The real question

Whilst the question is often about whether non-profits can trust profit-driven companies, it is important to look a bit beyond this. I have talked about some of the different ways that business ideas are being deployed to address social issues. Each has its own benefits and limitations, but it would be impossible to say that any of them are wholly negative or positive for vulnerable people.

Marriott believes that relationships between business and non-profits should be evaluated on a case-by-case basis, rather than offering blanket condemnation or support. The real question is, therefore, what kind of relationship could exist in different situations?

As the aid and social sector environment changes over time, non-profits will have to remain flexible. As the 2008 financial crisis has demonstrated, funds from governments cannot always be relied upon. Therefore, it is necessary to look to new sources of support and new ways of operating, but always with an awareness of the different limitations of these novel approaches.

SOS Children works in communities around the world, helping families achieve financial independence so that they can provide a better upbringing for the children in their care. Find out more about our community work.