What is Social Finance?

wHAT IS SOCIAL FINANCE?

Social Finance or Social Investment: Social finance is not merely the financing of enterprises and initiatives with social and environmental benefits, a service that is already provided to larger social enterprises and other third-sector organisations by mainstream financial institutions, but sustainable finance by society for society. Social finance relates to financing enterprises or initiatives with social and/or environmental benefits. It comprises different types of financial instruments as well as financial sources and ensures the sustainability of these endeavours at different phases of maturity. 

Social finance or social investment should have the following characteristics:
• Is at least nominally repayable;
• Pursues an accountable social, cultural or environmental purpose;
• Is autonomous of the state;
• Has the mission of the investee as the principle beneficiary of any investment;
• Is transparent about assessing, measuring and reporting the social impact it seeks to create;
• Is structured to create financial value or organisational or community capacity over time, e.g., by helping the investee invest in growth, acquire an asset, strengthen management, generate income and/or make savings, and by providing wider non-financial support;
• Is inclusive.

As highlighted in the “A recipe book for social finance: A practical guide on designing and
implementing initiatives to develop social finance instruments and markets” (EC: 2016), social enterprises that represent many forms and stages of development are unable to access finance at certain stages in their lifecycle. Third sector organisations include two traditions: one of mutual selfinterest, exemplified by cooperatives and mutuals, and another of charity, where people and organisations respond directly to social needs. Together with social enterprises, they comprise much of what is also known as the ‘social economy’. A well-functioning market relies on appropriate infrastructures, such as specialist risk management skills, trade groupings and networks, education, metrics, benchmarking, trading mechanisms and routes to market, some of which must attract subsidy because social returns do not attract capital in the same way as do financial returns (EC: 2016).

Source: SocialFinanceLab-Partnership (2021): How do European social entrepreneurs train their financial skills?