The recognition of investment banker, sportsman and philanthropist Simon McKeon as the 2011 Australian of the Year revives the term “social entrepreneur” in the national lexicon. McKeon was officially described by this title yet there is great confusion about what social entrepreneurship actually means. Within politics, the media and industry, the term means different things to different people.

In the 2008 US presidential campaign Barack Obama used the term in expressing how he hoped to support small non-profit organisations. For others it means the process of non-profit organisations transforming sectors though innovation: For example, Prime Minister Julia Gillard used the term to compare the role of “Teach for America” in revolutionising education system in the United States. Another use of the term has been to refer to the socially responsibly actions of business owners, as illustrated by the British Prime Minister, David Cameron, in calling upon a focus on quality and community from mainstream businesses during his time in opposition.

Essentially, we should not be pigeon-holing the term to describe a certain sector of the economy. Social entrepreneurship should be understood as the innovative actions undertaken by certain individuals across all sectors to create social value, rather than simply economic value or profit (the motivation for the more easily recognisable “corporate entrepreneur”).

Since winning the Nobel Peace Prize in 2006 for his work with micro-finance in Bangladesh, Muhammad Yunus and the Grameen Bank have been the poster children for social entrepreneurship and the embodiment of the term. Microfinance, granting loans as small as $25 to the poor, has risen in popularity through the developing world in recent years. One issue, however, with the success of Grameen and Yunus’s celebrity has been the equation of social entrepreneurship with microfinance.

Many have spruiked the successes of microfinance, citing the 95% repayment rates and the more than 7 million borrowers worldwide. The figures do little to support the mission of poverty alleviation, however, all they tell us is that poor people have been lent money and they can pay it back.

Recent reports have revealed many borrowers in India and Bangladesh struggling to repay loans and facing large interest liabilities to microfinance institutions. This should not come as a surprise, however, as these individuals are merely victims of corporate entrepreneurship gone awry. Microfinance only works to alleviate poverty when it is accompanied by other support mechanisms such as access to education and health insurance. Only in these instances should we regard it as socially entrepreneurial.

The problem has been that a stream of financially minded individuals have seen that Grameen has developed a profitable business model for lending small sums of money without collateral. This has resulted in organisations operating with the false goodwill of social entrepreneurship, pillaging money from the poor with high interest rates and feeling good about themselves through the thin veil of socially motivated action.

We should not throw the title of social entrepreneur around with abandon, nor should we measure the success of social entrepreneurs by how many loans they make or how many underprivileged people come through their doors. We should focus on how these individuals and organisations are able to create sustainable social value and contribute to the alleviation of global poverty through improving people’s lives. The greatest challenge is to avoid the inherent biases resulting from the use of traditional management approaches in this emerging paradigm.