Which are the main reasons/goals that led the European Commission to set the call: Supporting the demand and supply side of the market for social enterprise finance?
Social enterprises as drivers of social innovation
An important pillar of the European Union’s ambitious socio-economic strategy for Europe 2020 is social innovation, which in essence is the process of developing new and/or better approaches or practices for resolving societal challenges through mobilising public, civil society and private actors to further inclusive, socially fairer and environmentally sustainable economic development and social change.
In this context, social entrepreneurs and social enterprises are drivers of change that operate on the basis of viable business models. They also generate jobs through activities that meet social needs in the context of sustainable and inclusive development.
A specific barrier to developing and implementing social innovation initiatives is access to finance that suits the specific needs of social entrepreneurs and social enterprises as their driving forces. This is in particular relevant for social enterprises created or managed by young people.
Barriers in the social finance market
Barriers to develop and strengthen the market for social finance have a different weight across Europe, the most relevant being:
- On the supply side: scarcity of suitable financial instrument in place; few investors prepared to invest; few significant public sector initiative; little experience in specifying a sustainable investment strategy and risk/return profile of a social finance fund; lack of capacities and tools to assess the viability of business plans and social impact, insufficient quality of investment propositions, absence of market facilitators (such as qualified intermediaries and market places) or business angels etc.
- On the demand side: insufficient orientation on capital markets, but on the grant economy; legal structures which discourage the attraction of (quasi-) equity, lack of transparency of the market for social finance; insufficient experience in making proposals for external financing, or for combining different sources and types of finance (e.g. grants/loans); costs of getting investment ready; insufficient infrastructures /business development services/ incubators, etc.
The call aims to support the development of an impact investment market that would enable more social enterprises to take on repayable finance for developing and scaling their innovative business model:
- Through institution and capacity building with committed actors to boost the supply of social finance, and
- By facilitating and preparing access to finance for social enterprises through capacity building that generates effective demand for social finance by developing their “investment readiness”.
Which are the European Commission main expectations regarding the projects results?
With the call, the Commission expects to support the development and establishment or connection of suitable and reliable financial instruments (schemes or funds providing equity or mezzanine funding, including venture philanthropy), or the assistance to social enterprises in getting investment ready.
The idea is to support mutual learning between them through organised exchange of experience, validation and transfer of good practices in the field of social entrepreneurship finance. The Commission expects that this will allow the the beneficiaries to explore and test effective ways of establishing, consolidating, sustaining and linking social finance schemes and instruments, and to understand what works and how, and what not, and why.
In addition, the Commission intends to disseminate the results of the projects under the call and transfer good practice to the wider community of professionals and stakeholders. For this, based on the experience of the projects, a manual will be produced and made available to the public.
DG Employment, Social Affairs and Inclusion
Unit C2 “Sectorial Employment challenges, Youth Employment and Entrepreneurship“