Paving the road for efficient social finance communities: Tips for turning lessons learned into good practice
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This document provides tips for public policy measures to support social finance communities based on lessons learned. It recommends developing common definitions and frameworks, building evidence to understand the market size and needs, and supporting intermediaries to create efficient ecosystems. Public administrations should convene stakeholders, provide services, and facilitate sharing good practices. They can also generate public and private demand and introduce fiscal incentives to channel private funds to social enterprises. Transparency, coordination across levels of government, and enabling fiscal frameworks are important to maintain trust while allowing the private sector to develop sustainable markets.
Paving the road for efficient social finance communities: Tips for turning lessons learned into good practice
- 1. Paving the road for efficient social finance communities: Tips for turning lessons learned into good practice Yiorgos Alexopoulos European Research Institute on Coop and Social Enterprises – Euricse (MC-IEF) Brussels, 22 and 23 April 2015 OECD-EC CAPACITY BUILDING SEMINAR Building enabling ecosystems for social enterprises
- 2. “If only success is reported and poor results are hidden, we are (all) left to repeat each other’s failures” • Learn what works and how and what doesn’t and why • identify, analyse and share lessons learned feed the decision-making process What is “failure” of public measures? • need of an explicit strategy and clear objectives! • failure depends on how strategic objectives are measured • some social ventures receiving public support will (and should be allowed to) fail • transparency and real knowledge sharing are key
- 3. So MS and the Commission should build the evidence base and create learning networks - Build Identity and increase visibility! • Develop the necessary definitions, language and frameworks • Understand the size, scope, potential, imperfections and deficiencies of the market • justify, design, initiate & increase engagement in the market, encourage market to develop • Further data collection help to monitor/compare developments in the market
- 4. Steps and options to address challenges for public policy measures • Analyse and understand the ecosystem for social finance • Build on non-public social finance initiatives and providers • Link and develop synergies with existing (SMEs) guarantee and loan facilities • Improve transparency of design and implementation (procedures, contracts, code of conduct) by involving stakeholders • Enhance development of the demand side (assess needs & engage SEs in all possible stages) • Support (existing and new) intermediaries (to create a well functioning ecosystem and to enable deal-flow – encourage and incentivize players and stakeholders to collaborate) • Introduce tailor-made financial instruments • Require the use of appropriate impact assessment methodologies and reporting systems • Work to engage further mainstream investors look for the right investors instead of trying to adapt the investment strategy to the investors. • build the market collaboration is crucial for ensuring complementarity
- 5. The role of the state: When PA need to learn and practice new roles Public Administrations (PA) are no longer just acting as legislators and rule-setters, funding bodies or policy developer, but equally • conveners of stakeholders and operators, • providers of pertinent services, or • facilitators for sharing good practices. Support to social enterprises is matched with • an equivalent development of social enterprise institutions and • a corresponding institutional development in the public sector
- 6. Proactive role of PA in generating public and private demand Create a level playing field as regards access to public funding & support schemes • A “common language” facilitates the better understanding of social enterprise • A permanent mutually beneficial interaction results to the identification of barriers that hinder the capacity of SEs to access the (public) market, and more importantly the one regulated by public procurement (PP) policies. Reported Challenges for SEs to effectively compete in PP markets: • Inadequate use of social clauses, current public procurement practices (large contract sizes, excessive pre-qualification requirements, etc.), payment delays • an important barrier in the way of faster uptake of these suggestions is the lack of practical guidance on how to procure more effectively
- 7. New role for intermediaries? Mobilising private & «retail» investors • Lack of efficient intermediation, results to high search and transaction costs, and increased risk-taking in the market • Secure that «money support» will be coupled with «step-by-step non-financial support» but also that «investment readiness» programmes will be supported by a «pool» of potential investors (address the «death valey» effect…) • Introduce fiscal incentives to facilitate channeling of investors/private funds to social enterprises (UK 2014 social investment tax relief) • The UK Investment and Contract Readiness Fund is a £10 million fund, dedicated to helping charities and social enterprises acquire the skills they need to raise investment and compete for public service contracts. • In France “Solidarity finance” or “90/10” funds are based on employee savings and amount to over EUR 1 billion in total. Companies with over 50 employees must contribute and 10% of the funds must be invested in government- recognised “solidarity organisations”. These funds are managed in partnership with banks, microfinance institutions and investment firms.
- 8. Discussion… Any government can play an important role in catalysing social investment; however, it is important to • clarify the role of the State versus private and social investors. • too much involvement can impede the development of the social finance community (non-suitable standard rules of public authorities, limited expertise, risk of political interventions, etc.) • keep in mind that public support should be a catalyst and avoid “crowding out” of the private sector in order to ensure the creation of a sustainable market
- 9. …and further «practical» policy tips • Adopt the ‘neutrality of the legal form’ principle (EMES/SBI/EaSI approach) • Ensure consistent coordination between different levels of government • Transparency is an essential attribute of the robust governance to maintain trust, but needs to be codified (e.g. European Code of Conduct on partnership) • an enabling fiscal framework is required to take into account the social mission of SEs & support their development, and. (e.g. Italy) • Supporting the start-up of new social enterprises, but support also the transformation of existing organizations towards a social enterprise model.
- 10. …and further «practical» policy tips • Financial support should combine different types of tools (grant, loan, guarantee, quasi- equity etc.) to meet different needs, and should be sourced from multiple sources (public, ESF, ERDF, financial products, private money etc,) • A transition away from grant dependence towards commercial finance is crucial for the longer-term sustainability and growth. Use grants as risk capital; disburse the grant according to milestones • Keep balance between start up grants and expansion/scale up funding • Work on risk management: Develop comprehensive mechanisms and tools for monitoring the progress of financed projects in timely manner and mitigation of newly identified risks and issues • Spread the culture & develop skills in financing social enterprises among conventional banking institutions & investors