12th Academy on Social and Solidarity Economy - Plenary Session 4: Financial mechanisms for innovative SSE ecosystems
The fourth plenary session of the Academy took place on November 22, 2021. It focused on the role of financial mechanisms in creating a supportive environment for the development of innovative SSE ecosystems. The keynote speaker was Mr. Gianluca Salvatori, Secretary General of EURICSE. The discussants were Mr. Filipe Almeida, President of Portugal Inovação Social, Mr. Mohamed Bazi of the Hassan II University of Casablanca (Morocco) and Mr. Jonghyun Park of the Gyeongsang National university (South Korea). The session was moderated by Mr. Craig Churchill, Social Finance Program Manager at the ILO, and facilitated by Ms. Juliana Maziero, Junior Programme Officer at the Enterprise, Microfinance and Local Development Programme (EMLD) of the ITC-ILO.
Mr. Gianluca Salvatori, opened his keynote presentation by pointing out the increased attention to the SSE, and to SSE-support instruments such as finance, as a consequence of the COVID-19 crisis. He pointed out two trends that are on the rise in the last decade: An increase in SSE organisations in capital-intensive sectors, such as energy; and increasing attention to social goals by financial institutions, in part due to a necessary rebranding after the 2008 crisis.
Mr. Salvatori presented an ILO report published in 2019 and coordinated with EURICSE, investigating the financial mechanisms for innovative SSE ecosystems. The report provides an overview of the financial sources at the disposal of the SSE as part of a research project funded by the Luxembourg government. It builds on eight national case-studies and identifies cross-cutting themes and related recommendations on the topic. Mr. Salvatori highlighted that assessing the demand for financing of the SSE is a challenge for two reasons: one, the lack of a clear statistical representation of the ways in which the SSE organisations access capital; and two, the extreme heterogeneity of the organisations that fall under the SSE, with different financial needs. Nevertheless, in terms of needs, SSE units do not differ much from “traditional” enterprises, because the aim of both is the production of goods and services. The main difference between these organisations, according to the findings of the report, is that the SSE organisations have to meet the needs of a larger share of stakeholders. Consequently, their primary focus is not on the remuneration of investors.
For this reason, Mr. Salvatori stressed, traditional financial rules do not fully apply to them. From the supply side, the report shows that SSE organisations can activate a number of different sources of capital, internal and external. The internal instruments, which are the primary source of capital for the SSE, are the members, the management and the people involved in the activities of these organisations. The external instruments are grants, debts and equities that are more or less adaptable to the needs of SSE organisations, depending on the context. The position of the SSE in a given context, Mr. Salvatori underlined, is pivotal to shape its financial needs and sources. If the SSE has a “remedial role”, it usually relies more on public funding and its organisations may be less attentive to achieving financial sustainability. If the SSE, however, plays a more “systemic role”, its organisations put more effort on the pursuit of economic activities and they rely on more entrepreneurial management models.
The report presented by Mr. Salvatori also stresses the role of conducive SSE ecosystems to access financial resources. Where the SSE ecosystems are more developed, the financial mechanisms for the SSE tend to be more complex and developed, and also likely to be more similar to “traditional” financial sources (such as bank loans). In general, however, the report shows that the newly developed financial instruments that take social impact into account are not particularly relevant for the SSE, unless they are the result of a demand coming directly from the SSE organizations themselves. Impact investing, stressed Mr. Salvatori, often emerges as the expression of the need for repositioning of the financial sector. The evaluation of impact, which is clearly essential for SSE-oriented financial mechanisms, is still very often controversial and difficult to implement for the organisations themselves. In conclusion, Mr. Salvatori pointed out that the engagement of SSE organisations in capital-intensive activities is expected to increase in the future. This, coupled with the recovery from COVID-19 crisis, is likely to increase the demand for finance for the SSE. Such capital must be provided through a blended approach, namely by mixing different existing and new tools and strategies, in line consistent with the specificities of SSE organisations addressed.
The presentation of Mr. Salvatori is available here: en - es - fr - pt
After the keynote speech, the first panelist was Mr. Jonghyun Park, a professor at the Gyeongsang National University in the Republic of Korea and a researcher who was involved in the development of the national case study for the above mentioned research project. Mr. Park presented some insights on the role of financing for the SSE in the Korean context.
Data from late 2020 show that there are 65 institutions providing financial support to the SSE in the country. The most important one is the Korea Social Value and Solidarity Foundation (SVS), which has provided approximately 1.4 billion Euros to SSE organisations in the past two years, both directly and indirectly (for example through the support of social investors). According to Mr. Park, SVS contributed to creating a vibrant SSE ecosystem in South Korea. SVS was established in 2019 as a public-private partnership, in the form of a non-profit public-interest foundation, in the framework of the national revitalisation policy. The SVS, Mr. Park explained, raises fundings from various organisations, including commercial banks, consumers banks and credit unions. “The biggest difference between SVS and traditional financial institutions is that SVS supports social economic organizations and projects with social mission”. Furthermore, “another important difference is that SVS systemically considers the [social] impact of funding as well as the economic sustainability of the SSE organizations”, he noted.
The paper on the case of the Republic of Korea is available here.
The second panel discussant was Mr. Mohamed Bazi, from the Hassan II University of Casablanca, Morocco and the researcher who developed the national case study for Morocco under the above mentioned research project. Mr. Bazi presented the Moroccan case, which is characterised by the presence of a number of recently developed financial instruments.
A new juridical framework was adopted in the country, introducing and regulating new financial tools such as crowdfunding, he noted. Furthermore, he highlighted, in the Moroccan financial landscape there are various instruments that are not specific for the SSE and that offer capital that can be accessed by SSE organisations as well. Mr. Bazi then presented an extensive state-led initiative, the National Initiative for Human Development (INDH), that was launched in 2005. This initiative contributed to the multiplication and the unification of SSE organisations, in particular cooperatives and associations. The former increased from 5,000 in number to 34,000, while the latter from 3,500 to over 50,000. This initiative is important because, in Morocco, human development and the SSE are seen as closely connected, both in terms of policy and of financing.
The last panelist of the plenary was Mr. Filipe Almeida, President of Portugal Inovação Social (Portugal Social Innovation). Mr. Almeida presented “Portugal Social Innovation”, a governmental initiative, based on the idea of putting together the public sector, the private sector and the social sector to develop social innovations for the common good.
Portugal, Mr. Almeida underlined, is the only EU member state that reserved a share of the structural EU funds, in the last programming period, to boost social innovation. Through Portugal Social Innovation, the country created four financing and financial instruments. The first is a grant-based capacity building programme for organisations, that aims to support them to develop management competencies. The second instrument is a match fund that leverages philanthropy. The third is a social impact bond programme, which is a specific outcome payment instrument. The last is a specific financial instrument, a social innovation fund, based on two streams: a debt stream, providing guarantees for loans; and an equity stream, that co-invests in equities of SMEs alongside private investors.
Mr. Almeida underlined that 587 projects have been approved so far by Portugal Social Innovation. This focus on social innovation and SSE ecosystems, Mr. Almeda explained, stems from the hard economic recession faced by Portugal in 2014, characterised by a strong dependency of the country on European Structural Adjustment Funds with no access to debt markets. At the time, the State was not able to deliver social services effectively, and SSE organizations stepped in to cover its shortfalls. In this context, the Portuguese government had the idea of negotiating to use part of the EU funds to experiment with new financing instruments to boost the SSE ecosystem in Portugal.
After the presentations and the questions posed by Mr. Churchill, the session continued with several questions from the floor, which engaged the panelists and the keynote speaker on many relevant topics related to financing for the SSE.
