Danone's taste for microfinance pays dividends

Danone's taste for microfinance pays dividends 

Financial Times News

Franck Riboud is a romantic at heart. The chairman of French food multinational Danone is also an astute businessman with a particular nose for marketing. Yet he seems to be managing to combine his passionate commitment for social responsibility with the more humdrum prerogatives of business and maximising profits.

His latest plan is to launch next month with the help of French banking group Crédit Agricole a novel mutual fund to invest in microfinancing projects in the world's poorest countries. It will be called the Danone Communities Fund and the idea is to raise initially some €100m to fund microfinancing investments in countries such as Bangladesh, where Danone is already heavily involved in a pioneering social business model.

Recent investing newsCheckpoint Systems, Inc. Announces Fourth Quarter and Full Year 2006 ResultsRocket City (RCAU) Announces: CompleteAuto Signs Contracts with 103 New Dealers in March. Increasing Contracted Dealer Base by over 41 Percent. 1,000 Additional Dealer Contracts Estimated by Years EndCheckpoint Systems, Inc. Concludes Restatement of Prior Period ResultsStellar Pharmaceuticals Announces 2006 Fourth Quarter and Year-End Financial ResultsComcast Adds YES HD To Channel Lineup in Connecticut The French group will invest about €20m in the new fund, which is attracting interest from investors ranging from big funds and socially committed individuals to trade unions. They need not worry too much over the safety of their investment.

Like other French mutual funds it will yield about 4 per cent a year and will invest only part of its funds in new microfinance projects. Danone will also encourage shareholders to reinvest dividends into the new fund.

Mr Riboud says the new fund is all part of his vision of "positive globalisation": a concept he acknowledges is not always easy to sell in France where most people continue to be uncomfortable if not downright hostile to globalisation. But he is also convinced that new business models can be developed addressing both the interests of a multinational company and the growing pressure and need for these companies to behave in a socially responsible and ethical fashion.

The traditional approach of most of his peers is to launch and finance foundations to fund essentially charitable projects. For Mr Riboud, this is simply subcontracting the problem, whereas the real challenge is to develop new economic models for emerging and very poor countries.

"There are 3bn people living on €2 a day. So why not create a business model that can work with this very low but huge income group. Not for charity but with the idea of profit sharing," he says.

The seeds of this unorthodox approach were sown 10 years or so ago when Mr Riboud took over from his father and decided to expand Danone internationally. He also developed what he calls a strategy of "affordability" to offer a new range of products that poorer consumers could afford. Last year, he went even further by forming a joint venture in Bangladesh with the Grameen Group of Nobel Peace Prize winner Muhammad Yunus, who has pioneered microfinance lending to the very poor.

This venture has completed the first of 50 planned yoghurt factories at the cost of €700,000. Mr Riboud hopes the second one will cost 30 per cent less to allow local villagers to become shareholders in the project. The idea now is to use the new communities fund to expand this model elsewhere.

Some shareholders may question Mr Riboud's idealistic approach and philanthropic vision. But he insists they are already getting both tangible and intangible returns. Developing new nutrition products for malnourished children in very poor countries has transformed Bangladesh into a laboratory for Danone that in turn could help the French group develop new products for mature and richer markets.

Mr Riboud's initiative is also helping to motivate managers and other employees as well as boosting recruitment. Last but not least, it is doing wonders for Danone's image, something a compulsive marketing man like Mr Riboud readily admits. paul.betts@ft.com

Comments

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[claudia teixeira]

Hello i'm a sudent and i'm doing a work about Danone in Bangladesh ( with grammeen bank). i 'd like to know the advantages for the company on doing this social business model. thanks a lot in advance. Cláudia

[Jay Lukan]

I am trying to help a nonprofit organization Releif Network Ministries raise money to drill dringing water wells in poor villages in Africa. Any ideas on how to do it?

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