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One of the buzzwords in philanthropy is “social entrepreneurship”, a fuzzy term that has influential proponents, including the Skoll Foundation and the Schwab Foundation for Social Entrepreneurs.

So what does it mean and what are its roots?

In the early 1940s Joseph Schumpeter, the Austrian economist, wrote that “the function of entrepreneurs is to reform or revolutionise the pattern of production”.

As he saw it, entrepreneurship did not necessarily require invention or creation. Rather, it depended on finding novel ways of producing new, or existing, products.

Today, Schumpeter’s definition remains at the core of an entrepreneurial approach that focuses on innovation and enterprise as a means of addressing social needs.

“Social entrepreneurs are the ones whose insight is so particular that they have the potential to change the whole industry rather than just serve a small number of people,” says Trabian Shorters, US co-director of Ashoka, an organisation that awards grants to social entrepreneurs.

One example is Muhammad Yunus, the Nobel Peace Prize laureate and founder of the Bangladesh-based Grameen Bank, one of the first microcredit organisations to focus on providing loans to the very poor.

“Yunus was very innovative and enterprising,” says Professor Greg Dees, director of Duke University’s Center for the Advancement of Social Entrepreneurship. “He used a business-like approach to tackle poverty, developing systems so that Grameen could cost-effectively serve tougher markets.”

Dees believes two schools of thought were key to the birth of modern social entrepreneurship in the early 1980s. Organisations in the “social enterprise” school worked with businesses to identify profitable opportunities in serving social needs and also helped non-profits start income-generating businesses. The groups that tended towards the “social innovation” school, however, focused on fostering innovation to tackle social problems through both for-profit and non-profit models.

Yunus’s Grameen Bank, says Dees, is an example of an emerging trend that draws on both schools. Its success has brought new talent to the field often blurring the lines between business and philanthropy.

“There’s been an influx of successful business people who have made their fortunes by the time they’re 40 or 50,” Dees says. “Now they are engaging in active hands-on work and they are bringing their business skills with them. We may be at the beginning of a new paradigm regarding how society addresses problems.”

Copyright The Financial Times Limited 2017. All rights reserved.
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