Krzysztof Cibor
28 May 2014

ESFund / TISE – pilot program dedicated to financing social economy entities in Poland


Joanna Wardzińska – Vice-President of the Board of Management, TISE SA (Towarzystwo Inwestycji Społeczno-Ekonomicznych SA  - Social and Economic Investment Company -  in Warsaw, Poland), since 2012 member of the experts team working on the system solutions in the field of social economy, appointed by the Prime Minster, representative of TISE in SKES’ (Social Economy Permanent Meeting) year-round works

Monika Czerwińska – analyst, TISE SA

1.Context and history of how the good practice has been developed

Social economy entities

Traditionally, the social economy in Poland is considered as grassroots initiatives undertaken for the public benefit in general or for the benefit of groups of society – local communities, members or shareholders of various organizations. For many years NGOs, cooperatives and mutual institutions have been recognized as part of the so-called third sector in Poland.


Today, within the Human Capital Operational Programme (PO KL) the social economy sector is formed by four types of entities:

  • non-governmental institutions (over 76,000 entities)
  • cooperatives (approximately: 800 social cooperatives, 330  cooperatives of the disabled and the blind, and app. 600 cooperatives of employees)
  • other institutions such as: associations of local governments, ecclesiastical legal persons and organizational units running public benefit activity (app. 1,800), limited liability and joint stock companies (app. 20-30) and sport clubs (over 18,000) operating as non-profit companies;
  • institutions of social assistance and social integration with no legal personality including: CIS (Social Integration Centers, currently 92 operating entities), KIS (Social Integration Clubs, 286), ZAZ (Vocational Training Centers, 68), WTZ (Occupational Therapy Workshops, 684).

These core entities of the social economy might run an income-generating activity. Depending on their legal status the income-generating activity might be a regular business or statutory paid public benefit activity.

In Poland there is no clear definition of the social economy entity nor the social enterprise. In practical terms, the social economy entities which run business activity most often are: non-profit companies, cooperatives and other entities such as non-governmental organizations.

However, as of today the first and the only legal form that the law explicitly specifies as a social enterprise is a social cooperative. A social cooperative, introduced in the law system in 2006, is characterized by the features of a social enterprise recognized at the European level:

  • Combination of social and economic functions in their operation;
  • Ban on distribution of profit (profit serves only as means of implementing social goals);
  • The principle of democratic, shared management, based on a general rule of cooperative movement, stating that a cooperative is an association of people and not capital;
  • Undertaking economic risk;
  • High degree of autonomy.

According to the applicable regulations, social cooperatives can be set up by: natural persons specified in the Act on Social Employment (homeless people, addicted to alcohol, drugs, other intoxicating agents, mentally ill, unemployed for long periods of time, released from prisons, refugees from cataclysm and the disabled) or legal persons: non-governmental organizations, entities of local government and church legal persons. Promoting social inclusion and employment is the main purpose of creating social cooperatives which,  in practice, function as work integration social enterprises.

Under the binding regulations there is no one legal act defining the social enterprise. Currently the legislative work is in progress to introduce the status of the social enterprise as a special entity into the Polish legal system. Under the conditions set in the draft law, entities other than the social cooperatives could also officially use the social enterprise status and utilize the benefits.

Social economy supporting institutions

The driving force behind the changes aimed to design a coherent system of support for the social economy sector in Poland was the development of the nationwide system project named “Integrated system of social economy support” (ZSWES) in 2009. The project has been financed by the Operational Programme Human Capital 2007-2013 (PO KL). The objective of the project was to build a sustainable network of institutions, offering standardized and comprehensive support for the social economy sector.

The entities established specifically in order to support and integrate social economy in Poland are:

  • OWES (Social economy support centers) - number of currently active projects all over the country is 128
  • 5 CES (Social economy centers) – one in each macro-region – set up and run by the well-established social economy entities
  • KCES (National Centre for Social Economy) -  set up at the Department of Public Benefit of the Ministry of Labour and Social Policy.

These entities have no legal status and they are not linked by any formal subordination relation.

For the purpose of the social economy system design, the area of the country – 16 administrative regions - was divided into five so-called macro-regions. The macro-regions consist of 3 or 4 formal administrative units (sixteen in total) defined by the expert team based on the number of existing NGOs and social cooperatives.

When building the social economy infrastructure, the emphasis was put on complexity of actions undertaken by OWES, including the provision of a wide range of advisory and consulting services, supporting young entrepreneurs, advising on existing sources of financing and assisting in applying for financing.

Many of these centers have been established as projects (with no legal status and with limited time of operation) financed by the Operational Programme Human Capital (PO KL), and have been playing an important role in developing social entrepreneurship. In most of cases, the OWESs have been launched in order to carry out the projects consisting in initiating and supporting the creation of new social cooperatives. It should be noticed that e.g. from 2010 until 2013 the number of social cooperatives increased from 160 to 800 (343 new cooperatives were established thanks to the ESF funds under the Operational Programme Human Capital).

The social economy support centers - OWES - are supposed to work together to form a coherent network of support in the region and a permanent element of the social economy system. However in many cases the funds at their disposal are limited and earmarked for specific activities.

In each macro-region a new entity has been created – a social economy support center (CES). CES themselves are not legal entities either, they are projects carried out by sustainable organizations, active in the social economy sector, mostly foundations.

The main purpose of CES’ activity was to create a coherent and sustainable infrastructure network of institutions, which would become the base for a system to support the development of social economy in Poland.

The work of five social economy support center (CES) is coordinated by the National Centre for Social Economy (Krajowe Centrum Ekonomii Społecznej) established by the Department of Public  Benefit of the Ministry of Labour and Social Policy.

The tasks of the National Centre for Social Economy have been described as follows:

  • ensuring the flow of information between the CES,
  • coordinating and enhancing CES skills and expertise,
  • monitoring of the existing legislation,
  • support for public administration, aiming at development of social economy,
  • supporting and taking initiatives to develop recommendations and solutions to strengthen social economy and its environment,
  • initiating international cooperation with organizations promoting social economy at the European level.

Depending on their individual involvement, other public administration institutions like: ROPS (Regional Centers for Social Policy), PUP (Local Labour Offices), ROEFS (ESF Regional Centers) can also contribute to the social economy promotion.

At the national level the social economy is the object of the special interest of two ministries: Ministry of Infrastructure and Development (MIR) and Ministry of Labour and Social Policy.

Centrum Rozwoju Zasobów Ludzkich (Human Resources Development Centre) - a budget unit accountable to the Minister of Labour and Social Policy participates in the implementation of operational programs, in particular the Operational Programme Human Capital (PO KL) and Operational Programme for Civic Initiatives (PO FIO) in the area of social economy at the central level.

Apart from that there is a regional co-ordination of projects within so called “regional component” of the Operational Programme Human Capital.  

Public policy and legal background

Currently there is no comprehensive law regulating the social economy in Poland.

Given the fact that the social economy contributes to employment growth and social inclusion, its development is in line with the priorities of the national strategic documents, namely:

  • Długookresowa Strategia Rozwoju Kraju (Long-term National Development Strategy)
  • Polska 2030 – Trzecia fala nowoczesności (Poland 2030 - The third wave of modernity)
  • Strategia Rozwoju Kraju 2020 (National Development Strategy 2020)
  • Krajowy Program Reform na rzecz realizacji strategii „Europa 2020”. Aktualizacja 2013/2014 (National Reform Program for the implementation of the strategy "Europe 2020". Update 2013/2014)

The acts currently in force governing the social economy sector, in particular setting forth the principles of social economy entities operation are the following:

  • Ustawa o spółdzielniach socjalnych (Act on social cooperatives,  dated April 27th, 2006)
  • Ustawa o działalności pożytku publicznego i o wolontariacie (Act on Public Benefit Activity and Volunteer Work, dated April 24th, 2003)
  • Ustawa z dnia 27 sierpnia 1997 r. o rehabilitacji zawodowej i społecznej oraz zatrudnianiu osób niepełnosprawnych (Act on Vocational and Social Rehabilitation and Employment of Disabled Persons, dated August 27th, 1997)
  • Ustawa o promocji zatrudnienia i instytucjach rynku pracy (Act on employment promotion and labor market institutions, dated April 20th, 2004)
  • Prawo spółdzielcze (Cooperative law, dated September 16th, 1982)

At the end of last year the works on two important documents were accomplished.

A large group of social economy and public administration experts was mobilized to prepare the National Program of Social Economy Development (KPRES). It is an attempt to analyze the Polish sector, determine the directions of its development and design the comprehensive support mechanisms to create a favorable environment for its development and raise public awareness of the social economy.

The document was meant to be a set of guidelines to plan the new financial perspective 2014-2020.

The final draft was finalized in September 2013. Together with the draft of the Act on Social Enterprise that sets forth the principles of obtaining social enterprise status, it was submitted for the inter-ministerial consultation.

Financing social economy in Poland from EU funds

After Poland’s accession to the UE in 2004 the social economy movement development was fostered by several projects within the framework of the EQUAL Initiative. Out of these, the sector meeting has proven to be a permanent element of the social economy landscape in Poland. It started in 2002 during the First European Social Economy Conference in the EU Candidate Countries in Prague. In 2004 the Second Conference took place in Kraków. Since 2006 the annual national social economy conferences have been organized in Poland by SKES (voluntary Initiative of nine member organizations active in social economy).

The various projects implemented under the EQUAL initiative have contributed to popularizing the idea of ​​social economy, expanding knowledge of the sector and enriching experience of entities undertaking the projects. A group of people who build competence in this field has been steadily increasing.

In the programming period 2007-2013 the social economy was supported in Poland under the Human Capital Operational Programme (PO KL):

  • Measure 1.2. System support to institutions of social assistance and social integration (in the area of social economy),
  • Measure 1.4. Support to financial engineering for the development of social economy,
  • Measure 6.2. Support and promotion of entrepreneurship and self-employment (in the area of support for the establishment of social co-operatives),
  • Measure 7.2. Counteracting exclusion and strengthening the social economy sector,

              Sub-measure 7.1.3. Enhancement of qualification of personnel of social assistance and social integration (related to preparation of regional multi-year programs of social economy development),

Sub-measure 7.2.2. Support to Social Economy(grants for the establishment of social-cooperatives, support to OWES, searching for the alternative  sources of finance)

At the  regional  level the biggest emphasis has been put on the creation of supporting institutions dedicated to assistance in establishing social enterprises. At the beginning of the programming period 2007-2013 less attention was paid to making the latter survive on the market, to building models of cooperation and promoting them among the social sector players.

The lack of financing proved to be the main difficulty for social economy entities, hindering their development. The financing offer of banks and of loan funds available on the market does not take into account the specific nature of these entities. The sources of external financing addressed to the social economy are very limited. There are only two private, commercial loan funds targeting this group: PAFPIO (providing funding to NGOs) and TISE (financing all types of social economy entities).

Initially, the financial support for existing and new social economy entities was limited under the PO KL as well. Only the sub-measure 7.2.1 secured the funding for creation and operation of social integration and inclusion entities  - CIS, KIS, ZAZ, WTZ. 

Finally, in order to encourage the development of social entrepreneurship, the funds for setting up social cooperatives – a grant of up to PLN 20,000 per person (~ EUR 5,000) together with consultancy services for people willing to start business activity - were secured by the sub-measure 7.2.2.

As a result of the mid-term review of the Programme, the additional financial tools were introduced under the measures 6.2 and 1.4. The first loan and guarantee funds for social economy have been implemented and tested inter alia in Dolnośląskie and Kujawsko-pomorskie region (both administrative regions).

As part of an innovative project called "Loan and guarantee fund as a tool to ensure sustainability of social economy entities" the Non-governmental Loan Fund was implemented in the Dolnośląskie region by the consortium of five entities: Regionalne Centrum Wspierania Inicjatyw Pozarządowych (Regional Support Centre for Non-Governmental Initiatives),  Dolnośląska Federacja Organizacji Pozarządowych (Lower Silesia Federation of NGOs), Fundacja Rozwoju Ekonomii Społecznej (Foundation for the Development of Social Economy),  Forum Aktywności Lokalnej (Local Activity Forum) and BIC Ligura S.c.p.A. The project consisted in market research, product, procedures and loan analysis methodology design and implementation during the period of 30 months. The Fund offered the guarantees for individuals setting up or joining the social cooperative and loans up to PLN 150,000 of the maximal maturity of 36 months for the social economy entities running income-generating activity in the Dolnośląskie region. The annual interest rate of the loans was fixed at 7.9% and the up-front fee was 1%. In total 18 social co-operatives and NGOs submitted loan applications. As a result of the project, twelve entities were granted start-up loans or liquidity financing for the total amount of PLN 559,000 (~ EUR 160,000).

A similar initiative called “Pl: ES Loan Fund” was undertaken as an innovative project implemented in the Kujawsko-pomorskie region by Stowarzyszenie Partnerstwo Społeczne CISTOR (Social Partnership Association) and Kujawsko-Pomorski Fundusz Pożyczkowy Sp. z o.o. (Kujawsko-Pomorski Loan Fund).

As a result of the project 10 loan applications were submitted and finally 5 entities received loans. The project was carried out from January 2012 to October 2013. The target group were social economy entities from the Kujawsko-Pomorskie region, except for social integration organisations (CIS, KIS, ZAZ, WTZ). Running income-generating activity was not a necessary condition for clients who could apply for liquidity loans, working capital loans, investment loans directly related to their business or statutory activities. Interest rates on loans from 5.51% to 8.91% were increased by the guarantee fee ranging from 0.6% to 3.6% of a guaranteed amount.

Origins of the good practice – ESFund / TISE

ESFund/TISE, the pilot program of preferential loans for social economy entities, is implemented under the Systemic Project "Supporting financial engineering  for social economy" financed from the Measure 1.4. of the PO KL. The allocation has amounted to EUR 7.5 million, including 6.4 million (85%) from the EU funds (ESF).

The aim of the Measure 1.4. defined in the PO KL is to implement and test the financial instrument dedicated to the social economy. It is the first project aiming to facilitate access to finances for social economy, covering the whole country.

The project started in 2010 by designing the financial instrument to facilitate the business activity of the social economy entities. It was developed by the expert team established to work on system solutions in the field of social economy, and more specifically, by the financial group of the team consisting of people directly involved in the social economy sector, working under the chairmanship of dr Irena Herbst. The general idea was to create a repayable financial instrument and a system of advisory services. Given the fact that this target group performs the important social goals, it was agreed that the financial facility should be offered at the preferential conditions (de minimis aid) and the consulting should be free of charge (de minimis aid). The project was supposed to diagnose the needs and benefits for the borrowers and assess the capacity of service providers (financial intermediaries). The results of the pilot were to be used to build a future system of financial support and business advice for social enterprises. The works on drafting and developing the concept of the facility took two years.

At the beginning of 2012 the most important principles and guidelines of the pilot program were presented to the Ministry of Labour and Social Policy and the Ministry of Regional Development.

After the inter-ministerial consultation, on July 19th 2012 the financing agreement was concluded between the Ministry of Labour and Social Policy (Intermediate Institution) and BGK (state-owned bank - Systemic Beneficiary) chosen to carry out the project.  Approximately PLN 30 million was entrusted by the Ministry to the Bank to establish the trust fund.

The objective of the project was to delegate the management of public funds to non-public institutions in order to increase the efficiency of the operation. BGK was obliged to select the financial intermediaries responsible for providing services directly to the social economy entities in five macro-regions covering the whole country.

In order to make a selection of the financial intermediaries, BGK invited bids in September 2012.  The open tender consisted of 5 parts, each covering one macro-region.

The applying financial intermediaries could select from one up to five parts of the tender and were obliged to: grant a minimum established number of loans and provide advisory services to at least 80% of financed social economy entities (the limits were fixed for each macro-region separately).

There were the same criteria in each part of the tender:

  1. Business  plan assessment  – 55%
  2. Fund management cost – 38%
  3. Advisory service cost – 7%

In January 2013 BGK signed five agreements with TISE to act as the financial intermediary in all five macro-regions.

2.Summary of main characteristics of good practice approach

TISE as a loan fund manager started the project in the first quarter of 2013 under the label:  ES Fundusz (Social Economy Fund).

The goals to be achieved within the framework of the pilot project are :

  • providing during the two and a half year period (until July 2015) at least 251 loans at the total amount of PLN 25.1 million for social economy entities to finance their economic activity (financing at preferential interest rate, de minimis aid);
  • providing up to 30 hours of advisory services to at least 200 social economy entities once a loan has been granted but before September 2015 (in total 4 000 hours, total value of the de minimis aid – PLN 400 000);
  • Overdue  and lost loans ratio should not exceed 15%
  • Creating minimum 50 new jobs;
  • Sustaining at least 1 100 jobs;
  • Assessing financial  condition of the social enterprises based on the result of financed and rejected clients; 
  • Determining financial needs of the social economy entities;
  • Checking in practice the risk assessment methodology designed for the sector, proposed by BGK.
  • Creating a sustainable financial instrument for social economy entities by reusing of the repaid funds. 

The whole project, including loan repayments and monitoring will be implemented for eight years. The deadline to accomplish the task is December 2020.

According to the terms of the pilot program, the preferential loans from the sources of ESFund / TISE might be granted to the defined social economy entities. The potential clients must meet the following criteria:

  1. have an appropriate legal form
  2. have an appropriate size in terms of number of employees and turnover or balance sheet total (micro or small enterprises)
  3. have a minimal business activity history

The program criteria limit the group of potential borrowers to the following :

  1. In terms of legal form:
  • Cooperatives of employees,
  • Cooperatives of the disabled and the blind
  • Social cooperatives,
  • NGOs
  • Ecclesiastical legal persons or organizational units provided that their statutory objectives include carrying out public benefit activities,
  • Joint-stock companies, limited liability companies and sports clubs organized in the form of a company which are non-profit (their purpose cannot be profit-making, all income must be allocated for statutory objectives and any potential profit may not be distributed to shareholders or employees)
  1. The above-mentioned entities must be micro or small enterprises according to the definitions set out in Annex I to Commission Regulation (EC ) No 800/ 2008, dated  August 6, 2008 (Official Journal EU L 214, 09.08.2008). Therefore, these are the entities that employ less than 50 people in the business activity, and their annual turnover and / or total annual balance sheet does not exceed EUR 10 million.
  2. The above-mentioned entities must be registered and engaged in economic activities for at least 12 months at the date of loan application.

Moreover, the ESFund clients cannot have tax arrears nor overdue social insurance contributions.

The key features of the offered loans are:

  • amount up to PLN 100,000
  • maturity up to 5 years
  • grace period up to 6 months
  • purpose of financing: business development aiming to achieve an income or employment growth
  • preferential interest rate: 50% or 25% of the rediscount interest rate
  • no up-front fee, no administration nor any other extra charges

The preferential interest rate was defined as a half of the rediscount rate at the date of loan granting (currently the rediscount rate is 2.75%). The interest rate is even lower – 25% of the rediscount rate - for the clients who meet one of the additional criteria:

  • they are social cooperatives that generated the annual revenues lower than PLN 100,000 in the last financial year;
  • assigned at least 10% of the profit or surplus for public benefit purposes;
  • employ at least 50% of people who are recruited from groups at risk of social exclusion: the homeless, addicted to alcohol or drugs, mentally ill, discharged from prisons, refugees or workers with disabilities.

The ESFund/TISE provides both financial support and advisory services in accordance with the rules regulating the de minimis aid.

Risk assessment carried out by TISE is based on the methodology provided by BGK for the project of ESFund/TISE and consists of:

  • Formal verification;
  • Evaluation of the project profitability (business plan, financial projections);
  • Examination of the creditworthiness of an entity (financial data);
  • Evaluation of securities (a blank promissory note with a promissory note declaration is a minimal required security).

Main financial parameters taken into account to evaluate the profitability are :

  • cash flows,
  • EBITDA /debt repayment,
  • debt ratio,
  • return on sales ratio,
  • fixed assets to fixed  capital ratio.

The social objective of the ESFund/TISE is to finance business activity that creates and sustains jobs. Numbers of employees is the social impact indicator taken into account in loan analysis and in monitoring.

ESFund/TISE provides preferential financing for groups of social economy entities that meet the specific criteria, i.e. they are operating social enterprises with at least 12 months of business history. Financing of social cooperatives’ start-ups has been ensured under the grant scheme.

From the ESFund/TISE resources only social enterprises registered in Poland are financed. TISE’s lending activity abroad is carried out from its own funding sources.

TISE is obliged to grant preferential loans under the available funds in each macro-region. The funds must be distributed in the course of the 2007-2013 programming period and the deadline to build the whole portfolio of PLN 25.1 million is June 30th, 2015. On December 31st, 2014 the portfolio should achieve at least PLN 20 million (80%).

In addition, TISE provides on average 20 hours of free advisory services per each borrower willing to use them. Each client might select the area according to his/her needs. The selection might be done among: marketing, finance, HR or legal issues.

The capacity building services are the integral component of the support system under the ESFund/TISE. The social economy entities often need support on financial issues and business development. Areas where the improvement is recommended might be suggested by a loan officer analysing the social enterprises.  Post investment services contribute to stabilising performance and achieving sustainability of the financed entities, which increase the probability of loan repayment.

The costs of advisory services is first incurred by TISE and then reimbursed by BGK.

Within the framework of the program TISE grants loans only from the entrusted funds. No own financial contribution has been required in the project.

Under the project BGK provides TISE with funds to:

  • Grant loans up to the limit fixed in the call for tender / cooperation agreement
  • Reimburse advisory services cost up to the fixed limit
  • Reimburse management costs up to the fixed limit

The owner of the funds available within the ESFund / TISE pilot project is BGK. Any repayment of principal and interest on loans made ​​by borrowers is immediately transferred by TISE to the BGK’s bank account. At the end of the project BGK will recover all the funds from repayments of loans granted by TISE and all interest paid on the borrowed capital.

The performance of the fund is monitored by BGK on a monthly basis. BGK as well as two ministries involved in the project and the EU institutions are authorized to control if TISE’s activity is compliant with the terms and conditions of the project.

The ESFund / TISE  loan fund is a pilot project, its continuation and modifications will depend on the assessment of its performance and achieved effects.

3. Evidence/Justification for Good Practice

Preferential loans dedicated to social economy entities are a new financial instrument in Poland. So far the external financing was offered only at market terms by PAFPIO  and TISE and to a limited extent by a few local self-governmental funds (i.e. in Cieszyn and Gliwice). Loans provided under the pilot program are available for social enterprises all over the country within the limits fixed for the macro-regions.

The portfolio of loans granted so far proves that the pilot program might be considered as a good practice. During the first year of operation ESFund / TISE granted 115 loans for the total amount of PLN 10.1  million across the country. The performance is in line with the plan and the defined milestones.


ESFund activity (number of loans granted and % of funds used out of allocation after 1 year of operation)                       

Two regional pilot loan funds’ activity  (projects accomplished)

Two previous pilot programs financed from PO KL operated at the local level and targeted clients only from one region each (Kujawsko-pomorskie or Dolnośląskie). In both regions the lending activity was run by a few agencies on the site. ESFund relies on its locally rooted partners in the macro-regions (14 formal cooperation agreements). In addition to the formal partnerships, a few OWES cooperate in the ESFund / TISE project. All administration and loan applications analyses are performed by the team of analysts at TISE. This model of operation has proven efficient and adequate for the sector.

ESFund / TISE loans are a suitable financial product for the target group, especially for the social cooperatives who are the most numerous client group.

Trade and production is the domain of one-fifth of ES Fund / TISE clients.  Most of the borrowers pursue service activities.  

Catering and hotel business are predominant (approximately 25% of the portfolio). A large group of clients provides services in tourism/recreation/culture (11%), training/consultancy/education (17%) and medicine and elderly care industries (12%).

As a result of ESFund / TISE up-to-date operation 115 business activity development projects of the social economy entities have been financed and implemented.

The borrowers have declared to sustain and to create 146 new jobs. 24 entities have already benefited from counselling services in a selected area..

Each borrower to whom a loan is granted participates in a satisfaction survey. According to the questionnaires analysis, 94% of clients are satisfied with the terms and conditions (loan amount, interest rate, maturity, required collaterals) of the facility. Only a small percentage of clients finds the maximal offered loan amount too low.

The standard of services provided by TISE as a manger of ESFund / TISE (competence, expertise, communication, punctuality) is also highly appreciated by the clients.

The managing authority performs check-ups and periodical evaluation of the project. Thanks to the good results of the pilot, the program it will be extended up to December 2017 and the amount will be increased.

4.Outcomes (for different stakeholders)

As of March 31st, 2014 the pilot program outcomes have been as follows:

  • Financing 115 investments with growth potential
  • Sustained or increased employment in 115 entities
  • 65% of the supported entities declared interest in advisory services
  • Advisory services were provided to 20% of the supported entities
  • Increased understanding of the financial needs of the social economy entities (the ESFund/TISE’s clients report difficulties to get liquidity financing. They would appreciate the most to get grants to develop their businesses)
  • Assessment of the financial situation of the social enterprises based on the group of financed and rejected clients; 
  • Practical verification of the risk assessment methodology designed for the sector
  • Overcoming “aversion” of some part of clients to external financing/ contracting a loan
  • Experience gained by the social enterprises in contacting the financial institution (for most of the clients it has been the first experience)

In the longer term the program will help to:

  • Assess the sustainability of outcomes for supported entities (their ability to remain on the market, financial performance, employment sustainability);
  • Evaluate the business projects of the supported entities;
  • Evaluate the supported entities’ capability to repay loans;
  • Create a model of delivering financial services to social enterprises

Less obvious but very important outcome of the pilot program was achieved already at the moment of opening of the tender offers by BGK. It gave a picture of the potential financial intermediaries interested in the distribution of funds for the social economy.

In total thirteen offers were submitted for five macro-regions by 9 institutions and consortia.

Mostly they were the local development agencies who answered the call. Besides TISE, the only competitor who could demonstrate experience in financing social economy was PAFPIO. The consortium of two entities: MARR (Regional development agency) and Małopolski Fundusz Ekonomii Społecznej (Regional Social Economy Fund) showed the knowledge of the sector.

Despite earlier declarations no commercial nor cooperative bank took part in the tender. BGK selected the intermediary based on the expertise and the price.

The participants proposed the management costs within the range from 7.57% to 44.52% (a total cost for the task implementation up to 2020, expressed as a percentage of the allocation in a macro-region).

The operational activity of the ES Fund has helped to deepen the knowledge of the target group’s needs and analyze the level of their capability to report on their financial situation, to make a forecast,  plan and project business activity.

It appeared that filling in a loan application with the historical data as well as preparing financial projection for the next five years of operation causes much trouble. Most of the clients are unable to do it themselves. Thus, much assistance from the loan officers is needed to complete a loan file.

Many borrowers are not familiar with the procedures because they have not contacted any financial institution before applying for a loan at ESFund/TISE.

The added value of the project is that the clients are obliged to prepare the financial projections for the period of loan maturity. Many of entities have not projected their business activity in so distant future before.

To develop the ESFund / TISE lending activity TISE established partnerships with several organizations active in the social economy sector (National Auditing Union of Workers’ Co-operatives and the foundations and associations promoting social economy and entrepreneurship and supporting local development). The up-to-date operation showed that the cooperation with the OWES whose main objective is providing  a wide range of consultancy was not satisfying. In most cases these entities were not well prepared nor eager to help clients to complete the necessary documentation to apply for a loan.

On the other hand, other institutions open for cooperation for the benefit of social enterprises were identified and this experience might result in building a long-term partnership.

5. Strengths and Weaknesses

From the perspective of the government policy bodies the strengths of the ESFund / TISE  are:

  • reuse of the funds – the tested instrument is repayable
  • large impact given the number of supported entities and territorial coverage –  251 is the minimal number of loans to be granted whereas the advisory services will be provided to at least 200 beneficiaries all over the country
  • building financial and expertise capacities of the social economy entities
  • time restriction – the financial support must be distributed until June 2015
  • increasing the probability of achieving sustainable effects by the supported entities – decision on granting financial support is preceded by a financial analysis and conditioned by a positive evaluation of the business idea prospects
  • assigning a certain percentage of surplus for public utility purposes gives the supported entities an advantage in the form of the lower interest rate
  • performance monitoring – all supported entities are monitored during the maturity of the loan
  • low cost of the program – the management cost depends on the macro-region and ranges from 7.57% to 9.24% of the allocated amount for the whole duration of the project (2013-2020)
  • opportunity to extend the project

The weaknesses are:

  • lack of flexibility to introduce changes in the project during its implementation
  • no financial contribution of the financial intermediary, no risk participation
  • no social impact measurement of the supported entities is performed during the project

From the perspective of the social economy entities the strengths of the ESFund / TISE are:

  • the offer is addressed to various social economy entities;
  • easy access to external financing;
  • the cost of external financing is very low (low interest rate, no up-front fee, nor administration charges)
  • fast procedure - a loan decision is taken within 10 days (maximum)
  • wide range of possible collaterals
  • each client can use free of charge advisory services depending on the needs
  • a necessity to prepare the forecasts and business development description has an additional educational effect, it raises self-awareness and encourages planning  
  • one financial intermediary operating all over the country – easily accessible by social enterprises that know who to turn to.

The weaknesses are:

  • entities at the early stage are excluded from the program;
  • entities with no legal personality are excluded, i.e. ZAZ (Vocational Training Center)
  • entities employing more than 50 people cannot be financed;
  • the maximal loan amount (PLN 100,000) is considered insufficient
  • the loan assessment methodology is not adapted to small entities and hardly adapted to NGOs which run also statutory activities
  • restricted purpose of the loan – investment aiming to business activity development, no on-going liquidity financing

From the perspective of the financial intermediary the strength of the project is the appropriate partner in the project. The Systemic Beneficiary guarantees the relevant standards and good cooperation. The strictly defined parameters of the financial products and procedures might be considered as weaknesses of the ESFund.  Moreover, the selection of financial intermediary by way of tender procedure gives a limited possibility to negotiate or adjust the project during its implementation.

6. Comparisons with other experiences (alternatives or complementary - in same territory or elsewhere)

Today the Polish social finance market is composed of few main sources:

  • Preferential loans for social enterprises from ESFund / TISE managed by TISE within the framework of the social economy pilot program
  • Loans for social economy entities, including social enterprises, offered by TISE
  • Loans for the third sector entities, mostly NGOs, offered by PAFPIO
  • Loans and guarantees offered by small funds established by local authorities
  • Public grants i.e. for setting-up a social enterprise

The main difference between the loans from the ESFund / TISE source and TISE standard offer is the flexibility of approach and the interest rate. The parameters of the ESFund / TISE loans are strictly fixed (maximal amount, maturity, defined purpose of financing) and addressed to the defined type of entities.

TISE runs its lending activity upon availability of funds without any territorial limitations. The company provides loans also abroad. Any social economy entities regardless their legal form and operation history can be financed. The loan portfolio consists of the loans supporting business activity and public benefit projects. Depending on the needs it might be liquidity, working capital, investment or bridge loans. The loan decision is taken depending on individual risk assessment in accordance with the TISE’s methodology.

From a client perspective the loan procedure is less complicated when applying for the standard loan at TISE. 

ESFund / TISE’s loans have preferential interest rates. There is no upfront fee nor administration charges. The basic interest rate is 50% of the rediscount rate.

Most of clients meet the additional conditions and the interest rate is reduced to 25% of the rediscount rate. Thus, approximately 90% is granted at the lowest rate, currently 0.69%.  

Furthermore, the interest rates were falling in Poland in 2013. At the start of the loan activity by the Fund the rediscount rate was 4.25%. Since July 2013 it has been 2.75%.

In its standard activity, TISE aims to offer moderate pricing. The loans in PLN bear the interest at fixed rate of 9.5% The preparatory commission is 1% of the loan amount.

7. Overall assessment and transferability

Regardless of an organization model and a territorial scope, the presented example of preferential loans for social economy entities in Poland constitutes already a part of the traditional social economy financing eco-system i.e. in the United Kingdom,  Scotland, Lombardy and Trentino regions in Italy and in Flanders.

The practice is interesting for Finland and Sweden, in particular because of the facility size, its nationwide range and complementary counseling services available for social enterprises.  Despite the fact that microfunds exist in these countries, it might be interesting to provide financing for social economy entities on a regular basis on a greater scale in Sweden. However, to build a model similar to the Polish one, the state’s  support -  political and financial (the ESF funds cannot be used)  – would be needed.

The other countries - Cyprus,  the Czech Republic, Greece and Hungary -  where the supporting system for the social economy is less developed and a similar financial tool has not been yet implemented, show interest in the practice. 

No special financial tool is ensured for social economy in Cyprus. To fill this lack two instruments are considered – global grants for start-ups and microloans for operating entities.  For a preferential loan system, it is envisaged to use the available ESF funds. When designing the financing system, the priority should be given to finding reliable partners/financial intermediaries, drafting a relevant evaluation methodology to assess the social economy entities and to match refundable and non-refundable financing.

It seems that at present the Czech Republic is the keenest to complement its social economy support system by microloans. Establishment of a loan fund dedicated to social enterprises and other social economy entities is foreseen in the Czech Republic in the current programming period to complement the global grants schemes. The specific financial instruments will be designed at the Ministry of Industry and the Ministry of Labour and Social Affairs. The crucial points will be inter alia to identify the potential partners in the project and to define the criteria of eligibility for loans.

The preferential loans for activity development are a suitable tool for Greek’s social economy entities. The works aiming to establish a Social Economy Fund have been started. A microloan fund for social economy might be organized with assistance of the existing supporting institutions created in the last programming period.

In Hungary the social economy development has been supported also from the ESF funds. So far most of the social economy entities, mainly social cooperatives, have been launched without direct financial public aid. Grants have been offered in the form of counseling and mentoring and to the operating social cooperatives. The important actor is OFA - the National Employment Non-profit Public Company - supporting social economy in all 7 regions of Hungary. The financial system in Hungary does not target the social economy entities, either.

Two financial tools dedicated to social economy in Hungary are planned in the current programming period 2014-2020. Beside global grants, establishment of a “Social Entrepreneurship Fund” is envisaged to provide refundable financing for social economy in Hungary.

The financial tool similar to the microloans provided in Poland by the ESFund/TISE might be tested in Hungary in order to match the grant programs for social enterprises. Given the fact that the latter often lack the business knowledge and focus on social objectives, the advisory services should be the obligatory part of the support model.


Weblinks and bibliography

Assessment of support In the area of social economy granted using financing from the European Social Fund within the Human Capital Operational Programme, Coffey International Development Sp. z o.o., November 2013

National Program of Social Economy Development (KPRES) – draft,  MPiPS, September 2013


Photos/Youtube videos, etc.

Social cooperative « Kraina Rumianku » 

The Association - Stowarzyszenie Aktywizacji Polesia Lubelskiego runs the Regional Education Centre in Lublin and the first “theme village” – “Kraina Rumianku” (Land of Chamomile) . The loan of PLN 100,000 was spent on equipping the kitchen in the building, construction of an educational playground and repair and thermo-modernization of the building, allowing to operate in the wintertime.

Christian social cooperative « Nasz domek » 

Chrześcijańska Spółdzielnia Socjalna „Nasz Domek” (Christian Social Cooperative "Our House") runs the kindergarten, the day-care center and the integration nursery in Warsaw. The TISE/ESFund loan of PLN 100,000 was used for the renovation, modernization and equipping the premises as well as for a promotional campaign.

Foundation « Fundacja Dominikański Ośrodek Liturgiczny» 

Fundacja Dominikański Ośrodek Liturgiczny (Foundation “Dominican Liturgical Centre” in Krakow promotes sacred art and trains persons engaged in religious art. The purpose of the loan amounting to PLN 100.000 was the reissue of the best-selling sacred music songbook (income generating activity), which enabled to develop other statutory activities of the foundation.

Social cooperative « Larigo Group » 

Spółdzielnia socjalna Larigo Group  (social cooperative Larigo Group) operates in the co-packing business (packaging, repackaging and labeling) and destroys documents.

The loan was in large part used to buy a baler to compress paper scraps. This purchase has allowed to increase productivity and downsize scraps which has a direct impact on reducing the cost of storage and transportation.

Cooperative of the disabled in Bochnia

Bocheńska Spółdzielnia Inwalidów (Cooperative of the Disabled in Bochnia) has been running for almost 60 years.  Its activity is production and service. The cooperative is engaged in manufacturing metal products: racks, school furniture, shelves for refrigeration equipment, etc. In terms of services  the cooperative offers: cutting and bending sheet metal and steel profiles, powder coating. It employees  47 persons, including 37 persons with disabilities and runs Occupational Therapy Workshops (WTZ). The loan financed the production of a new model of metal shelving and refreshing of the website and creating an e-shop to  reach a wider range of customers.

Social enterprise - Pottery Village LLC

Przedsiębiorstwo Społeczne Garncarska Wioska Sp. z o.o. (Social enterprise - Pottery Village LLC in Kamionka  - second prize winner in the Competition of the European Commission "European Enterprise Awards" in 2009) runs a theme village where groups and individual tourists can participate in pottery and sewing classes and watch the handmade paper production process.  Thanks to the ESFund/TISE financing the business has been recently expanded and new jobs created. A restaurant employing several people has been opened in the village.