Financing Social Economy enterprises: social impact investment and financing mechanisms

Generally, resource management is the most powerful instrument to determine policy outcomes. In this sense, efficient financing mechanisms and financing allocation are crucial to guarantee the development of an effective social business fabric.

According to the European Commission, social economy represents 10% of all European businesses and employs over 11 million paid workers. Social businesses are defined by the Commission as a wide range of enterprises which put their main focus not on maximising profits, but on generating a social return through their corporate activities. One of the main factors to be highlighted is the fact of them not primarily chasing accumulation of capital, but dedicating surpluses and profits to reinvest in the attainment of social goals and the common good. Therefore, a fundamental aspect of a social business is its social redistributive effect when it comes to profit reinvestment. Furthermore, the Commission also relates the capacity to produce goods and services in an entrepreneurial and innovative way to the definition of social businesses. And last but not least, a social enterprise, according to the Commission should formally be a business managed in an accountable and transparent way, in particular by involving workers, customers and stakeholders affected by its business activities. Overall, these social goals oriented towards the common good need to be thoroughly stressed and accurately defined.

We have seen what the EU´s idea on social economy is. But what should it be? When we think about Social Economy, we visualise foundations, non-profit organisations, cooperatives, etcetera. They all are Social Economy, but Social Economy also means to use business principles, in order to generate incomes through market practices with the goal of promoting communities common good.

I want to underline this point, using business principles and practices. Social economy must not replace social public policies, Social economy must not replace public funding; our final goal should be to grant the social business model with the status of being a real and feasible alternative to traditional corporate schemes. Social economy has to achieve the status of mainstream economy, where profits and social values match in a perfect symbiosis.

There is no economy without social, there is no social without economy.

Why am I saying this? I am saying this for two reasons:

First, because the crisis we are still facing has revealed three important market failures which, in my opinion, social economy has proved very highly effective in correcting. I am talking about income redistribution, resource allocation and anti-cyclical policies. In other words, in this period of crisis social economy has not only made equality, entrepreneurship, access for disabled people and development aid grow, but also our economy.

The second reason why I believe social economy should be mainstreamed is because depending on how we define the concept, the label, we will grant Social Economy with different meanings.

Today we are talking about how we should finance social economy, if we don´t have a clear definition on the possibilities and the scope of it, we will not be able to use financing as an adequate instrument to pave the way towards the social economy we want.

In relation to the social economy we're aiming to achieve, just a quick comment. A social economy fabric should acknowledge and guarantee it is fully coherent both in the formal aspects of the

business model -incorporating principles such as gender equality, inclusion of disabled, labour rights or the partaking of workers in the decision making process- as well as the social outcome of its activities -safeguarding the environment, public health, human rights, etc.

To coherently promote the Commission's definition of social enterprises, we should specify the targets of our financing instruments. Following this definition, Social economy is that which promotes common good. What do we consider publics goods?

For instance, if we are talking about care as a common good, we should promote businesses which are developing care taking roles within their communities, such as senior centres.

If we consider democracy as a common good, we should promote those businesses incorporating these principles into their practices.

If we consider the air we all breathe a common good, we should promote those businesses safeguarding the environment and protecting our air quiality.

These are just a few examples of how we can shape business practices through financing mechanisms, to achieve a fully socially committed business model.

Once we have drafted the path we want to move along, I would like to comment on how the Commission has tackled this issue.

What is the Commission's proposal?

As you are all aware of, the Social Business Initiative launched in 2011 has served as the EU's primary instrument to promote the development of social enterprises, identify its weaknesses and offer

solutions. This initiative has focused on three fundamental aspects of social businesses: the improvement of their access to finance, their lack of visibility and the need for optimising the legal framework in which they operate.

With regards to improving access to finance, on which I want to focus, the "Employment and social Innovation programme" has mobilised €85 million to facilitate access to finance. In this regard, I am very happy with the new mandate agreement signed yesterday between the European Commission and the European Investment Fund, which is expected to mobilise over €500 million in loans. We have to remember the previous Progress Microfinance initiative, which will run until 2016, and according to the Commission has created and preserved more than 47,000 jobs.

Furthermore, Structural Funds have been reformed to enable the financing of these social enterprises. On the private investment side, the European Social Entrepreneurship Fund has been established to help social enterprises get easier access to finance, together with a Social Stock Exchange to allow the trading of shares in social enterprises on a regulated stock exchange, in addition to the growing importance of crowd funding.

This all sums up to a very important point I wanted to make. Is this social business initiative model really working? Is this social business initiative model adequately oriented? Are the vast majority of social businesses -which are generally small and medium enterprises- aware of these financing instruments?

On one hand we know that due to the crisis there has been a rise in general interest in social economy models. This has favoured a considerable increase in available funds. This proves there is a growing conscience on the relevance of the role social businesses

play in our economies. However, alternative financial entities are having trouble to find projects that comply with social economy standards and requisites. In my opinion, this happens due to a lack of instruments allowing the financing of greater projects, and due to a lack of visibility.

I would like to remind you that this lack of visibility is one of the main purposes for the creation of the Social Business Initiative.

Overall, there have been several promising steps taken in the right direction, both in the targeting as in the financing. I would also like to recognise the positive efforts carried out by the entire body of European institutions. But we all have to bear in mind how fundamental it is to have a clear conception of social economy, which should in no case replace State policies, but serve as a complement to them. Only if we are able to share a common ground on the basic understanding of this model we will attain our common goals.