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REVES, the European Network of Cities and Regions for the Social Economy, is a network of public authorities and social economy representative bodies in some 50 regions of Europe. It conceived the REVES Financial Programme in 2011, in response to its members’ long-standing need for better access to finance for social enterprises.
The programme is based on a partnership with the European-level ethical investors SEFEA (Société Européenne de Finance Ethique et Alternative) and SOFICATRA. It aims to:
- attract ethical financiers to the most promising territories, in terms of social economy development
- trigger local unused or underused resources
- generate a stable system of matching for public funding for social economy and social enterprise, of local or EU origins
REVES has developed a seven-step methodology for setting up local social economy funds:
- A REVES member identifies a need in its territory
- REVES identifies the most appropriate financial partners and products
- Territorial due diligence is carried out
- The competences of the local intermediary body are verified
- A memorandum of understanding is prepared detailing the products, the management system and the relationships between the partners
- An operational programme is drawn up, defining funding criteria and risk allocation
- The fund is launched
A single loan fund designed for and adapted to the needs of the social economy acts as a one-stop-shop and makes it easier for social enterprises to find a source of finance. It also facilitates the private matching of public funds such as those released under the ESF and EaSI. The REVES Financial Programme could have a function of ready-to-use match funding for any revolving instrument built in the framework of an ESF national programme. This would make it easier to create and manage such funds.
The first European region to make use of REVES Financial programme is Västra Götaland in Sweden, which includes the city of Gothenburg. Here, a strong partnership between the county and city authorities and the social economy exists in the form of a consultative council which developed an action plan for the sector’s development. Following the rapid growth of the social economy locally, in 2012 the City of Gothenburg and the sector agreed a compact, which led to the City investing €1.1 million to support the social economy.
The bulk of the investment is managed by Mikrofonden Väst, which grew out of a mutual guarantee association that had been established in 2005, and has grown to comprise 48 members and a capital of €143,000. The REVES Financial Programme enables this to be geared up through access to European ethical investment funds.
The programme ensures that clients of the fund also have access to business support, provided by the regional branches of the support network Coompanion.
There are plans to start similar funds in five other Swedish regions.
Lessons of regional financial instruments
- Historically support for social enterprises has come largely from public sources, using relatively unsophisticated financial instruments. This has led to a low capacity among social enterprises to access private finance, and a low level of interest from financial institutions in developing appropriate products;
- Partnerships between local authorities, social economy organisations and ethical finance providers are a win-win game, from which all partners gain: the financial partners gain easy access to potential clients, and local territories gain more resources and a better partnership between public and private funders. The initiative is also a showcase to EU and national authorities for the more efficient use of public funding;
- The partners make complementary contributions: local authorities provide finance, EU-level ethical and alternative banks gear up this finance and provide know-how, REVES makes connections and provides a political guarantee, and local social economy support organisations provide business support;
- The design of a joint fund must include safeguards to preserve each partner’s control over the use of its funds;
- It is important to work on both the supply and demand sides, by both making suitably designed financial products available, and by building the capacity of social enterprises to use them. This capacity can be built into a financial institution through partnership with local social economy support organisations.
General context (definition, recognition)
There are currently estimated to be around 70,000 social enterprises in the UK, contributing over £24 billion to the UK economy and employing around 973,700 people. The social enterprise sector’s economic and social contribution is also increasingly recognised by government, business and individuals alike – from the Treasury’s announcement of a tax incentive for investment into social enterprise to the increasing procurement of social enterprise in private sector supply chains.
Summary of the July 2013 survey findings conducted by Social Enterprise UK:
- The social enterprise sector in the UK is thriving, with a huge proportion of start-ups and high expectations of growth. It is hungry for finance of all forms (e.g. grants, loans, equity, etc). Social enterprises are attracting more female leaders and more leaders from Black and Minority Ethnic communities than mainstream businesses.
- Common indicators of business success – growth, optimism and innovation are very healthy among social enterprises compared with mainstream businesses. Social enterprises are more likely than SMEs to report that their turnover has grown in the last year.
- The sector is not, of course, immune to the country’s economic problems. These survey results show an overall reduction in the sector’s median turnover in the last two years.
- One important barrier to growth and sustainability that is commonly cited by social enterprises is public procurement policy: in this year’s survey the number of social enterprises citing it as a principal barrier has increased markedly.
• The proportion of start-ups in the social enterprise sector is extraordinary. Close to a third of all social enterprises are three years old or younger, with three times the start-up proportion of traditional SMEs. This is a trend that has increased since our 2011 survey.
• 11% of social enterprises export or licence abroad – and the newer start-up social enterprises are more likely to export than established social enterprises.
• Social enterprises are very heavily concentrated in the UK’s most deprived communities. 38% of all social enterprises work in the most deprived 20% of communities in the UK.
• Social enterprises are far more likely to be led by women than mainstream businesses. 38% of social enterprises have a female leader, compared with 19% of SMEs and 3% of FTSE 100 companies. 91% of social enterprises have at least one woman on their leadership team. 49% of mainstream SMEs have all-male directors.
• 56% of social enterprises developed a new product or service in the last 12 months compared to 43% of SMEs. New product or service development is often used as a proxy-indicator of business innovation.
• 15% of social enterprise leaders are from Black, Asian and Minority Ethnic (BAME) communities, the same proportion as the population in general. 28% of social enterprise leadership teams have BAME directors. Only 12% of SMEs report having directors from a BAME background .
• Business optimism has improved since our 2011 survey, with 63% of respondents expecting their turnover to increase in the next two to three years – compared to 57% two years ago. Only 37% of SMEs expect their turnover to grow.
• 38% of social enterprises saw an increase in turnover compared with 29% of SMEs, in the last year. This means that proportionally, almost a third more social enterprises grew based on turnover last year than SMEs.
• 22% of social enterprises experienced a decrease in turnover in the last year compared with 31% of SMEs.
• The median amount of finance sought by social enterprise was £58,000 – below the minimum thresholds of many specialist social investment vehicles.
Barriers for sustainability
The survey also sought to explore what is currently holding organisations back – we asked what the three most significant barriers were to the organisation's sustainability and/or growth. The results are:
- Lack of, or poor access to, finance or funding 39%
- Economic climate/recession 32%
- Prohibitive commissioning/procurement with public services 18%
- Cash flow 17%
- Time pressures 10%
- Lack of marketing expertise 10%
- Affordability of finance 9%
- Regulatory issues 7%
- Understanding/awareness of social enterprise among general public/customers 6%
- Government policy/change 6%
There is a huge range of different types of social enterprises in UK from cooperatives via charities to a specific form of community interest companies. Public support for social enterprises does not privilege any sectors above others.
The United Kingdom is a home of many private and social initiatives providing bussines support for social enterprises - both starting and developing. One of the most important are sectorial, like Social Enterprises UK. But there are also differnet local and national-wide organizations like UnLtd, which identify the promising social enterprises, train them and help them to acces to the investments. The models of acces, services provided, fees etc highly vary depending the initiative.
The very important role on that field is also played by the public authorities. The vast majority of the upcoming ESF funding (2014-2020) in England will be allocated to Local Enterprise Partnerships (LEPs). LEPs are partnerships between local authorities and businesses. They decide what the priorities should be for investment in local areas. In 2010, the Government decided to promote LEPs and replace the regional administration that used to manage structural and investment funds in the past. Therefore, unlike previous ESF Programmes, which were managed primarily at national or regional level, what happens under the 2014-2020 programme will depend on what LEPs propose in their strategies. The Government’s Supplementary Guidance to LEPs (July 2013) gave them considerable freedom to decide how they want to write their Strategies. Social entrepreneurship and social investments models are among the activities suggested in the Guidance, specifically:
- helping grow the social investment market to support social enterprises and the social economy,
- developing the capacity of social entrepreneurs to address the needs of their local communities,
- encouraging Social Investment models by providing (matched) outcome funding that enables payment by results programmes to be established in support the Government’s agenda on Social Justice and encourage innovative delivery models within local communities.
It’s the last type of activities that become particularly relevant to the subject of this paper, especially due to its innovative nature. The focus of these activities will be on disadvantaged individuals and families, in areas such as NEETs (young people Not in Employment, Education or Training), employment and training, drug addiction and other issues which are usually part of the cycle of deprivation. Therefore, these actions will be targeting the typical ESF participants. Department for Work and Pensions (DWP) is particularly interested in exploring how this might work with LEPs covering the most deprived areas.
Such thinking opened opportunities for cross-departmental co-operation between DWP and Cabinet Office who are leading on a number of social investment initiatives. Both Government departments are deeply interested in collaboration with the newly established Local Enterprise Partnerships.
The financial eco-system
The UK is a pioneer when it comes to social enterprise and the social investment that helps finance it, attracting the interest of international practitioners and policymakers alike.
According to a recent report produced by SEUK, based on a survey of their members, social enterprises are generally thriving in the UK, but, the same report highlights a number of issues that are holding respondent organisations back, the top three being ‘Lack of, or poor access to, finance or funding’ (39%).
At some levels, significant action is already underway to address the first issue, most notably the activity of Big Society Capital in starting to deploy its £600m of wholesale funds to social investment finance institutions (SIFI’s) and the use of Regional Growth Fund (via the Community Development Finance Association) by some operating in this space. However, despite these interventions, it is apparent from a number of research reports and through engagement with stakeholders that there is a prevailing gap around the provision of small amounts of ‘risk’ finance to develop and grow new enterprising activity.
Growing the Social Investment Market: The Landscape & Economic Impact (July 2013), focuses almost completely on the active SIFI’s and found in 2011/12 a profound concentration of capital within the market, with four banks providing 82% of the total funds invested in the market, but only supporting 30% of the total number of investments, suggesting a low number of high value investments being made.
By contrast, the 9 largest investors outside of the banks provided 15% of the total funds, but accounted for 57% of the total number of deals, suggesting higher volumes to more clients. It also found that secured lending accounts for 90% of all deals by value (£182m) and only 5% is unsecured (at £10m). Predictably the report argues that there is a need to support unsecured lenders: ‘in the absence of sufficient identified high risk unsecured social investment, grants are in effect playing this role and without an investment mindset.’ a gap still appears to exist in this market place.
The Social Enterprise UK report mentioned earlier identified that the median amount sought is £58,000 which is ‘below minimum threshold of many specialist social investment vehicles’. It also reports that 52% are looking for development capital, 25% applied for between £10,000 and £50,000 and that of those applying, almost a third have been established for three years or less, all of which make the finance options open to them incredibly narrow. This is compounded by the fact that 61% have a turnover under £250,000 per annum, with 41% having turnover under £100,000 making their ability to service debt in the medium term, even at less than the median of £58,000, very doubtful. Perhaps unsurprisingly, the report calls for more finance and the increased offer of ‘soft investment’.
Investment Readiness in the UK (July 2012) estimated that based on current demand figures obtained from their research, that possibly 70,000 to 140,000 VCSE organisations will require investment support in the next five years, which even with a 1 in 5 success rate (which is the current ratio), will mean that SIFI’s will require .75bn of funding. Their survey of VCSE organisations found that 57% had engaged or wanted to engage with social investment (15% were in process) and that the majority are looking for long term finance under £100,000 to enable growth, with the majority looking for around £80k. It also found that ‘higher risk capital is hard to secure, is in much shorter supply and is concentrated in the hands of fewer investors, when compared to the provision of asset backed finance to the sector’.
This market failure seriously challenges VCSE organisations attempting to make the transition from grant dependency to trading models. It therefore presents a major barrier to the goal of developing the social investment market in a way that supports VCSE organisations to become more sustainable and grow to better serve those most in need. As such, Big Lottery Fund, Big Society Capital and Cabinet Office are working together to understand the roots of the market failure related to lower value ‘risk’ funding and to test out emerging ideas for how to address these, including hybrid models (using mixed grant and debt). As part of this, wider consultation has been carried out with a range of stakeholders, including a number of SIFIs and the main barriers preventing this kind of investment activity have been identified as:
• A lack of appropriate funding (particularly grants)
• High transactions costs
• Detachment of many SIFI’s in geographic terms
Similarly, the third issue identified by the Social Enterprise UK report remains a significant challenge, particularly when the direction of travel for public sector service delivery is towards payment by results models, including Social Impact Bonds, which are often more complex. The HMP Peterborough SIB being a good example. In order to enable organisations to engage in this area, the Big Lottery Fund have developed the Commissioning Better Outcomes Fund.
Commissioning Better Outcomes, is a £40m fund established with the aim of growing the market in Social Impact Bonds (SIBs) and other outcomes based investment instruments. The fund offers finance of up to £150k to support the development of propositions (which are often complex), as well as top-ups for outcomes payments (up to 20%). Social Finance and the Local Government Association have been contracted to provide a programme of awareness raising and engagement, as well as support to clients in the early stages of developing applications. The fund is aligned with the Cabinet Office’s Social Outcomes Fund to create a total pot of £60m.
Social impact bonds are new and innovative financing mechanisms for social programs in which government agencies pay only for real, measurable social outcomes—after those results have been achieved. These tools effectively invert traditional government financing for preventive social services: In a social impact bond agreement, the government pays for realized outcomes at the conclusion of a contract, rather than paying upfront for programs or activities that may or may not have their anticipated effects .
SIBs can enable innovation and improve outcomes in some of the most complex areas, including social exclusions, while generating significant savings. 13 SIBs are now in operation tackling issues including NEETs, children in care and adoption, homelessness, employment, drug addiction and social care.
The Government pledges to increase the amount of money available for social investment, increase the demand for social investment, create an environment that encourages social investment opportunities.
The Government aims at removing rules and regulations that stop social investment through the Red Tape Challenge and increase the number of social investment opportunities for social entrepreneurs through: the Social Incubator Fund, Big Society Capital, the Investment Readiness Programme, the Centre for Social Impact Bonds, the Social Outcomes Fund. A social investment tax relief has been introduced to give investors in qualifying social organisations a reduction in their income tax bill.
The government is working to make the UK a global hub for the social investment market. The government is working to put the UK on the map as the global centre of the social investment market by: 1) mobilising stakeholders and promoting the UK’s social investment offer, by capitalising on the UK’s G8 2013 presidency through a conference focusing on catalysing the global social investment market - the G8 Social Impact Investment Forum; 2) and working with UKTI to promote the UK offer abroad.
Identity and visibility of social enterprises
In the recent three years, there have been a number of significant developments in the sector. 2012 saw the launch of Big Society Capital (BSC), established to develop and shape a sustainable social investment market in the UK. BSC aims to give organisations tackling major social issues access to new sources of finance to help them thrive and grow. Also in 2012, the Public Services (Social Value) Act received Royal Assent – it is a law calling for all public sector commissioning to factor in social value. All these developments were set up in a challenging economic climate and a public service delivery environment characterised by both austerity and reform. Recent data (The People’s Business), shows that “the social enterprise sector in the UK is thriving, with a huge proportion of start-ups and high expectations of growth. Social enterprises are attracting more female leaders and more leaders from Black, Asian and Minority Ethnic communities than mainstream businesses. Common indicators of business success – growth, optimism and innovation – are very healthy among social enterprises compared with mainstream businesses. Social enterprises are more likely than SMEs (small and medium-sized enterprises) to report that their turnover has grown in the last year.” According to the 2013 SEM Annual Review: Social enterprises contributed £5,4 billion to the economy http://www.socialenterprisemark.org.uk/social-enterprise-mark-publishes-...
Still, there is a common understanding between the sector the government and funders that visibility can be increased. Several recent initiatives can be listed:
1. Social Value Hub, funded by Social Enteprise UK (as described in the article: http://socialeconomy.pl/node/156)
2. Impact Investment report, and the work of its Taskforce
3. https://socialinvestmentawards.org.uk organised by Cabinet Office
England is the cruddle for the social economy mark. What is now the Mark came out of extensive testing of different visual models and builds on the pilot in the South West, designed by Rise (social enterprise based in Bristol). In 2008 research conducted by COI on behalf of the Office of the Third Sector found that even when pitching the concept of (and words) ‘social enterprise’ to sympathetic sections of the population, there was little recognition of the term and even some scepticism by the public that combining business practice with delivering social good was possible. Research had suggested that a way to raise awareness would be through a ‘social enterprise identifier’ or ‘a social enterprise brand’.
The Social Enterprise Mark was launched in early 2010 and had been awarded to 462 organisations in January 2012. It had been registered as a community trademark in the EU in January 2012. The primary objective of the Mark is to provide a guarantee when a business genuinely operates as a social enterprise. The Mark develops knowledge and understanding of social enterprises by establishing a social enterprise definition and independent certification to represent businesses trading for people and planet. The second objective of the Mark is to create a network of social enterprises. Having the Mark will give a social enterprise access to a network that connects them not only with each other, but with consumers and other businesses for trading opportunities. The Social Enterprise Mark had been awarded to 462 organisations in January 2012. It had been registered as a community trademark in the EU in January 2012. It is available internationally, being the only international, independent, certification authority that guarantees when a business operates as a social enterprise, using profits or surpluses to improve society and protect the environment, rather than making profits for shareholders or owners. The Social Enterprise Mark Company had become independent after the closure of its owner, the regional social enterprise umbrella body Rise.
Social Revenue Of Investment (SROI) and Social Accountancy and Audit are widely used mesurments tools in England.
Customers may use the e-commerce platform ‘Just buy’ for searching social enterprises to provide services or goods. Social Firms UK also offers a telephone helpline. There are also several local initiatives, i.e. Birmingham City Council developed a website called Find it in Birmingham that promotes social values and local contractors. http://www.finditinbirmingham.com/.
This outline is based on the papers produced for SEN peer reviews by the British partners
- General context (definition, recognition, partnerships)
1.1 Brief history and legal framework
Italy has been historically characterised by a strong ability in terms of self-organisation of citizens and civil society. This has created, throughout the years, a peculiar richness of social enterprises (in terms of numbers but also types and quality). Therefore, Italy has traditionally enjoyed the presence of a rich social fabric made up of non-profit organisations widely disseminated in all its territories.
Starting in the late 1970s, in Italy groups of people began establishing initiatives for employing vulnerable people. They developed as a bottom-up process and most of them assumed the legal form of cooperatives, since in comparison to other third sector organizations they were allowed to conduce productive and commercial activities. The government recognised these organizations with Law n. 381 promulgated in 1991, which institutionalised the so called ‘social cooperatives’, the first and most representative form of social enterprises in Italy. This law (n. 381) is still one of the most interesting and innovative laws on social enterprises in Europe (and in fact, other European countries -for example Poland- have taken it as a model for elaborating their own national legislation).
The law explicitly distinguishes social cooperatives into two types: ‘A-type’ social cooperatives are devoted to the production of general interest services (i.e., education, healthcare services, social services, etc.), while ‘B-type’ social cooperatives provide work integration services for disadvantaged people (so that we will call them WISCs hereinafter). These latter organizations configure as the first world experience of work integration social enterprises (WISEs).
The Italian model of WISCs assumes by law specific traits. First, WISCs are required to have 30% of the entire workforce composed of disadvantaged persons as defined by the law. The definition of disadvantaged workers is quite extensive in comparison to previous (but also to other international) legal definitions, since it includes people with physical and sensorial disadvantages, people with mental disorders and psychiatric problems, and also drug-addicts, people suffering alcoholism, convicts and ex-convicts who qualify for alternative solutions to prison and young people with family problems. Second, disadvantaged workers must be ensured a wage and also a contractual relationship that follows the normal rules in force for ordinary workers. Third, the law requires that disadvantaged workers be made members of the cooperative (barring a few exceptions). At the same time, and with the aim of ensuring disadvantaged people a real work experience and training, the law allows WISCs to conduct any activity in any industry, with the exception of services provided by A-type social cooperatives. Moreover, it leaves WISCs the freedom to choose their objectives, and specifically to decide how they aim to re-integrate disadvantaged workers back into the open labour market rather than keeping them perpetually in the social cooperative. In order to support their activity, the law also ensures WISCs some financial benefits and specifically exonerates them from the payment of some corporate taxes, payroll taxes, and social security costs for each disadvantaged employee. Finally, Law n. 381 ensures easier access to public tenders, although this channel has not been pursued much to date.
The rapid development of the sector of social cooperatives in general (with a huge increase in number and services supplied by both type A and type B social cooperatives) has brought to the elaboration, in 2006, of a new law concerning social entrepreneurship. The legislative decree n. 155/2006 on social entrepreneurship is the result of a tentative to recognize also to organizational forms different from social cooperatives a possible social role and entrepreneurial dimension. Therefore, the law does not introduce a new legal form but rather it introduces a “qualification” that can be acquired by a number of entities that are normally part of the so-called “Third Sector” such as: associations, foundations, religious bodies but also private companies and cooperatives.
Even though of a significant political importance, this law has not had a strong practical impact yet (the number of organizations assuming this qualification today is very restricted - 500 in 2010). Organisations have been reluctant to apply to this qualification because it would bring additional bureaucratic burdens (e.g. producing official balance sheets) without bringing significant advantages. Nonetheless, this law is currently being revised and in the future it may play a greater practical role in supporting the social entrepreneurship sector in Italy.
1.2 Main figures
According to EURICSE data, at the end of 2011 active non-profit organisations in Italy amounted to 301,191 (i.e. 28% more than in 2001). Also very important is the contribution of the sector in terms of human resources: 4.7 million volunteers, 681,000 employees, 271,000 external workers and 5,000 temporary workers. Within the Italian productive fabric, the non-profit sector represents 6.4% of the active economic units and 3.4% of employees. As far as the specific economic activities are concerned, it is important to notice that, the non-profit sector represents the key productive entity within the social assistance area (with 361 non-profit entities every 100 enterprises) and the cultural, sports and entertainment areas (with 239 non-profit entities every 100 enterprises).
During the last twenty years, the growing importance and role of social cooperatives in Italy (between 2001 and 2011 the number of social cooperatives has grown by 98% reaching 12,264 units in 2011 while the number of employees has grown by 115% reaching more than 365,000 employees and 42,000 associates volunteers), has widened and legitimised the cultural, scientific and political debate around social cooperation itself and has promoted new ideas and visions.
After the legal recognition, the number of social cooperatives grew exponentially. By looking to WISCs only, the national institute of statistics (ISTAT) calculated in 2005 the presence of 2,419 work integration cooperatives in Italy (on a total of 7,363 social cooperatives) employing over 30,000 disadvantaged workers, but they grew at over 5,200 units (against more than 8,000 type A social cooperatives), according to the national Chamber of Commerce (Euricse, 2012). WISCs are mostly small to medium sized firms (43% of them employ between 15 and 50 ordinary employees), while volunteerism represents a very important resource available to more than 60% of WISCs. Looking to other national data, interesting to note is the strong involvement of WISCs in networks: 96.7% collaborate with other social cooperatives, 85% with local administration (mainly municipalities, but also the Province or the Region), and 79.4% with for-profit organizations (for selling their products or for supplying trained disadvantaged workers future job opportunities).
1.3 Partnership with public authorities
Italy is characterised by a very long tradition in terms of social enterprises development. This tradition is based on the endogenous creation of social enterprises (particularly in the form of social cooperatives) which have developed throughout the years as a bottom-up phenomenon. The central and regional governments have subsequently created specific regulations for the sector. This process has taken several decades and, as a consequence, has created a rather sophisticated and complex system in terms of both policy and legal frameworks.
Therefore, as far as the Italian case is concerned, the difficulties concerning policy co-ordination are not so much linked to the lack of policy or legal frameworks but rather to the co-existence of different systems (at regional and local level) and the plurality of practices and experiences developed in different territorial realms.
In spite of the complexity of the national system of social enterprises, public authorities at different levels have established, throughout the years, intense relations and collaborations which of course include the more practical service delivery function but have increasingly touched the programming of such services and the wider policy elaboration.
The institutional framework has managed to adapt to and support the evolution and the growth of the social enterprises sector in Italy for example through the Law n. 328 of 8 November 2000 “Framework law for the implementation of the integrated system of social interventions and services”. This is a key law which has favoured the implementation of the subsidiarity principle (both horizontal and vertical) and the promotion of actions for the support and qualification of non-profit organisations and social enterprises.
In this context, a very important role has been played by the Constitutional modification of 2001 which has revised the competences of State bodies and public authorities and has changed the distribution of competences and powers. In particular, the Constitutional changes have introduced the principle of vertical subsidiarity (attributing to the Regions and the local authorities specific competences within the social policy area) and of horizontal subsidiarity (promoting the involvement of civil society organisations in the programming and management of services).
At national level, social enterprises have historically been involved (through their official associations at national level) in the elaboration of inclusion policy through a number of tools such as the Inter-ministerial Group on inclusion policy (which involves different national level ministries, employers organisations and trade unions). Also, the Third Sector Forum is a well-established structure which participates to different national tables. Recently, new forms of policy co-design have been established also as a consequence of the implementation of the partnership principle contained in the Structural Funds and, more in general, of the attention currently increasing at European level in relation to social entrepreneurs and entrepreneurship. For example, the Ministry for Employment and Social Policy has recently created a Multilateral Group on Social Entrepreneurship which involves not only other ministries but also social enterprises representatives and representatives from European non-profit networks working in the field.
Innovative public-private partnerships have been then experimented to deal with complex social challenges as a multidimensional and crucial aspect to be tackled from different point of views starting from social cooperatives but including also a number of entities that share the same competences and objectives. This approach has been used in Italy and it has brought to the creation of innovative forms of public-private collaborations. For example, the renovation of public spaces and public real estate through joint investments from the public sector itself and social enterprises has allowed for the creation of new social activities (social services, cultural initiatives etc.). These collaborations have represented true management challenges (for both social enterprises and public authorities) but have proved to be forward-looking approaches producing very positive impacts for local communities who benefit from new social or cultural initiatives and at the same time see reduced public spending (for example in maintenance of unused real estate).
At the Regional level, there frequently exist strong cooperation between public authorities and social enterprises in all relevant fields from service actual delivery to programming and organisation of such services to the programming and elaboration of actual policies.
As far as the Lombardy Region is concerned, collaboration between the two sectors is intense and largely fruitful. The Region in fact has established a structured dialogue with the non-profit sector through the organisation of periodic round tables. The main aim of such round tables is not only to plan and program the services but also to prevent difficulties. Such round tables are organised as follows:
1- Secretarial Table on the Development Pact
This round table is responsible for the overall programming of all Regional Development Policies. It is held and organised by the Regional Presidency and involves all relevant Regional DG, Employers organisations (including social enterprises) and Trade unions.
2-Structural Funds Tables
Both the ESF and ERDF have a specific regional table for programming and monitoring the elaboration and implementation of Structural Funds in Lombardy. As far as the ESF is concerned, the round table involves regional as well as local authorities and employers and workers associations. Social enterprises are largely represented.
These tables represent very practical opportunities for programming and where necessary re-programming of specific policies. Social enterprises are very important actors within the tables that are relevant to them such as those concerning disability, services etc. As far as services are concerned, it is important to underline that there are two separate tables i.e. one made up of Management agencies and then separate content tables for each type of service (even though they are not organised very often).
Together with these regional tables, it is important to highlight that the policy co-ordination structure is also based on provincial round tables that are organised regularly by each Province in relation to the specific themes they are also responsible for i.e. Training, Employment and Disability. Social enterprises are largely represented at these tables too.
In the province of Trento, the so called Action 9—re-named in 2012 “Intervento 18”—regulates in a specific way the relationship between the Employment Agency of the autonomous Province of Trento and local WISCs.
Intervento 18 characterizes by the decision to include WISCs as actors of active labor policies and for supporting their activity by distributing financial supports depending on the employment impact and on the innovation of the work integration practices and procedures (expressed in training activities and investments in tutors and individual programs).
By looking to the action in detail, the relationship between the local Employment Agency and WISCs is more structured than a simple supply of subsidies from the public administration, since there is a frequent exchange of information and somewhat co-planning on the integration projects. Specifically:
- Subsidies are assigned after an attentive evaluation of the cooperative and of its work integration project.
- The evaluation ex-ante of the WISCs’ projects is then integrated by a final evaluation of outcomes achieved and by annual monitoring;
- In the case of disabled workers (having a certification of psychiatric disability according to national law 68/1999) the Employment Agency co-plans with the WISC itself and with some local social services the individuation of vulnerable people to be integrated, although the cooperatives can (and frequently do) propose the name of the person to be integrated;
- The Employment Agency helps WISCs in individuating possible partners for the hiring of trained disadvantaged workers, especially on the open labor market and among local business firms.
The tools supported by the Employment Agency to finance WISCs are:
(1) the availability of individual additional subsidies for the first three years of employment of disadvantaged workers in the cooperative; individual subsidies can be extended to six years more for those workers with psychiatric problems who are evaluated as not employable in an ordinary position after the three years period. Individual subsidies cover 60% of the total labor costs in the first year of employment in the WISC, 40% in the second year, the 30% in the third year, while for people with psychiatric problems the coverage is of 20% of the labor costs for the following six years;
(2) a subsidies for the coverage of the labor costs of tutors (for a total of max 50% of their labor costs when the number of employed people is over 3 persons) and of the so called social responsible (for the 60% of their labor costs);
(3) general subsidies to social cooperatives which are also provided for specific activities, such as feasibility study and business plans for new social cooperatives start-ups, training activities for ordinary workers in social cooperatives, investments in new products and procedures necessary to innovate the social cooperatives’ action.
The total amount of subsidies supplied to social cooperatives is as a consequence quite huge: they were about 300thousands Euros in 1994 and they rised progressively to 1,5million Euros in 2010, with an increasing impact also in terms of number of beneficiary social cooperatives.
- Support infrastructure
For a long time both the Italian movement of social enterprises/social cooperatives and the legislator have developed policies to support the growth and development of social enterprises:
(1) there are many consortia and umbrella organizations that support the start-up of new social cooperatives by providing them knowledge, experience, training, services and these same services are supplied by consortia to all their social cooperative members in order to strengthen their entrepreneurial traits and help the achievement of some economies of scale;
In general terms, social cooperatives’ collaborative structures are of two main kinds (within which they can take different forms):
a) Political (e.g. federations, confederations etc.)
b) Economic (e.g. consortia, joint groups, network contracts etc.)
Federations are characterised by the following functions:
- They have a watchdog function (e.g. they carry out external audits on behalf of the public national authorities; they watch on the implementation of the mutualistic objectives of social cooperatives etc.)
- Represent the voice of social cooperatives and their needs towards public authorities at different levels as well as other type of entities (e.g. trade unions)
- Promote the creation of new social cooperatives
- Promote restructuring and merging processes among social cooperatives,
- Provide legal, administrative and fiscal advice
- Support social cooperatives in accessing credit and funding.
Consortia of cooperatives do not simply deliver services to their members but they act as economic and legal actors.
The key features of consortia include:
- Strong territorial identity (Consortia are in fact built by cooperatives working within the same geographical area (usually at provincial or regional level but also national);
- Mutuality (The actions of consortia need to have a social utility function for the local community);
- Cross-sector composition (consortia bring together cooperatives from different sectors so that they avoid being over-specialised, they can create synergies among different types of cooperatives and can experiment activities in new sectors).
The main activities of consortia are:
- Promoting collaboration between social cooperatives;
- Providing support services as well as technical and administrative consultancy;
- Promoting training activities;
- Supporting activity development for their members by helping them sell their products or by offering services to third parties (public and private entities);
- Promoting and managing relations with public authorities;
- Acting as a general contractor in public tenders (which means that consortia can participate in public tenders in the name of their members and then manage the contract directly however involving the members of the consortia in the activity);
- Promoting access to credit and funding of their members
It is important to notice that not all consortia carry out all the above activities. There are in fact two type of consortia:
- “Light” consortia (These provide only basic services and support to their members (i.e. training opportunities, administrative support etc.).
- “Heavy” consortia (These have a more structured approach and have many key functions, including the general contractor function).
In the Italian experience, both type of consortia have proved to be effective in delivering their objectives and in supporting the growth of social cooperatives.
These consortia represent in Italy a real tool for increasing the critical mass of social cooperatives allowing for a better and more effective placement on relevant markets. In practice, consortia have, in many cases saved social enterprises (particularly the smaller ones) and have allowed for greater (and at the same time more equitable) competition among cooperatives and between cooperatives and other types of enterprises.
(2) both the national law and consortia themselves have supported the creation and growth of funds and institutions for the financing of social enterprises. For example, the law provides that when social cooperatives go bankrupt they are obliged to devote their assets to a common fund for the development of new social cooperatives (see following paragraph).
(3) in the last ten/twenty years some incubators have been created in order to support the development of single social enterprises and the networking and reciprocal support among them; these institutions have been called “Hub” and they emulate the structure and aims of the famous The Hub in London; the Hubs’ aim is to give space to entrepreneurial ideas with a considerable sustainable and social impact by providing services and creating vibrant communities. In the Trento province, The Hub Rovereto was founded some years ago as a space and network for supporting social innovation and it mainly supply services, diffuse knowledge, train young social entrepreneurs through events and seminars, ensure a peer-to-peer system;
(4) as a self-promoted initiative and a natural evolution of Italian social enterprises, Italy has experienced the continuous growth of the sector in terms of imitative processes and spill-overs; this phenomena has been known as the ‘strawberry field’, since social cooperatives diffuse more and more because supported by a network system but also by a ground in which social capital and willing to cooperate represents the fertilizer;
(5) the law also provides for the inclusion of some special clauses in public procurement, which ensure higher scoring to enterprises having the legal form of social cooperatives and to some characteristics achieved by social cooperatives (e.g., number of disadvantaged workers employed). Social cooperative representatives (e.g., consortia and umbrella organizations) work together with the public administration in order to define these clauses.
(6) training is promoted at different levels and schools or single courses for social entrepreneurs have been established in order to diffuse specific education and sensibility to the social enterprise topic. At national level, there are some universities degrees for social entrepreneurs (Master degree in Management of Social Enterprise in Trento, many single courses promoted in the academy, as the course in social entrepreneurship at the faculty of Sociology in Trento); universities and institutions are involved in networks and ESF projects for mobility and training in social entrepreneurship (e.g., Leonardo or Ariadne projects, Marie Curie projects, etc.), executives have been also planned by consortia or research institutes to supply training opportunities to managers of social enterprises in order to help them in innovating their activities and growing (e.g., training in the national consortia of social cooperatives CGM, promoted by the local Federation of cooperatives, or by the research foundation Euricse and in Bologna by the institute Aiccon).
(7) Research and knowledge are two fundamental aspects for the creation of social cooperation and social enterprises models. They have in fact supported the analysis of the phenomenon and the development of a deep understanding of its working and impact through specific studies of both theoretical and practical models. These processes have significantly supported the evolution and the development of the sector.
(8) In Italy there has been the development of both a strong theoretical framework as well as practical tools for the measurement of the social and economic impact of social cooperatives and social enterprises (for example through the development of social accounting models). The legislation in the field has supported this development by providing for a standard “social balance sheet” which contains the minimum requirements for social accounting process therefore allowing for a development of specific tools adapted to specific contexts and objectives.
- Specific support measures in the Province of Trento
The Trento province is experiencing different approaches and diverse strategies for supporting the growth and development of social enterprises. We can specifically mention two main projects:
(I) Linked to the European Regional Development Funds, during the summer 2013, the Autonomous province of Trento has opened an invitation to tender for projects promoted by young people aged under 35 in order to support the start-up of new enterprises in the province; one of the main comma of the tender provides that a part of funds will be dedicated to new social enterprises and social innovation, that means, to new ideas for enterprises working in the fields of social services and having consistent social impact. On a total of 180 projects submitted, about the half concern social services provision and the creation of not-for-profit social enterprises. The funding refers to the so called ‘seed money’ project and will allow selected new social enterprises to access the funding for covering their start-up costs. Furthermore and interestingly, the announcement also provides for the financing and the creation of special incubators supporting the development of these new enterprises. Incubators will work together in a network in order to support with specific training, knowledge, and services the new enterprises. Therefore, they are not generic and all-encompassing incubators, but each one will be dedicated to specific sectors and activities so that the social enterprise may access to more than one hub depending on the need and activity promoted.
(II) The Employment Agency is for many years supporting the growth and development of work integration social enterprises not only by providing financing to their activity and by co-planning the integration processes (as described in the previous cluster), but also by working together with the local consortia of social enterprises (Consolida) and financing some training activities and special projects for a better development [we remember that the Employment Agency is financed by the funding of the Autonomous province of Trento, which in part comes from ESF]. Among these projects, interestingly in the last months the Employment Agency has supplied to local work integration social enterprises and to Consolida some guidelines to be respected for a better growing process. On these guidelines new activities are evolving in the social enterprise network. First point in the guidelines, each social enterprises is invited to write its own guidelines for a good work integration process; the guidelines represent in the strategic planning of the enterprise the ideas to be developed and therefore are useful instruments for a better understanding of aims and gaining awareness of its own role. Training activities are therefore suggested to social cooperatives and the local consortia. Second point in the guidelines, social enterprises should adopt the social reporting and specifically this document should include some self-evaluation of the efficiency of the activity promoted; social cooperatives are asked to adopt some methodologies for evaluating the work integration process in terms of benefits for the public administration and the local consortia is asked to train its cooperatives and to share with them a cost-benefit analysis to be implemented yearly in the social accounting system. Third and last point, social enterprises should work together for a collective strategic plan; social enterprises working in the same municipality should share ideas and planning to better answer local social needs and to also coordinate their activity with the local public administration.
- The financial eco-system
In the Italian experience, an important contribution to the development of the sector has come from the specialised finance and the ethical finance that has grown around the sector. Specialised actors (both private and public) have in fact created a number of specific tools and innovative financial solutions dedicated to the support of entrepreneurial projects particularly within the credit sector, the fundraising and the workers-buy-out of enterprises hit by the crisis mechanisms. These financial solutions have significantly helped the growth of the sector by bringing venture capital and investments which, by selecting projects where to invest on the basis of sustainability criteria aimed at evaluating the objectives, the feasibility and economic viability of initiatives, have helped the implementation of innovative projects.
Moreover, social enterprises nowadays enjoy the same accessibility of funding of other types enterprises (particularly SMEs) from both the public (procurement, grants etc.) and private (access to credit from the banking system).
In relation to the criteria used in to evaluate the capacity of social enterprise to get access to financing and credit, it is important to underline that, in general term, the Italian banking system and its system of financial institution uses, for social enterprises, the same system as for other SMEs even though there are small differences in some of the terms (i.e. interest rates etc.) due to the nature of the enterprise and its normally low capitalisation. Therefore, even though some banks (particularly those from the ethical banking sectors), do tend to evaluate the social added value produced by social enterprises in their evaluations, they have to comply with the rather rigid regulations of the sector (i.e. BASEL III) which do not leave significant room for manoeuvring in terms of social impact evaluation.
3.1 Main sources of financing for social enterprises in Italy (national level)
- System of Mutualistic Funds
Social cooperatives contribute directly to the creation of these Mutualistic Funds by paying in 3% of their profits each year. These Funds then re-invest the funding collected with the aim of helping new and existing social cooperatives develop, supporting innovative social projects and opening up new markets to social cooperation.
- Tax relieves and tax incentives applicable to social enterprises
Social enterprises are exempted from paying the tax on company’s income (IRES tax in Italy). Moreover they do not pay taxes on profits if they are classified as indivisible reserve (i.e. reserves which cannot be distributed to the associates).
- Other support instruments
Law 460/97 establishes that social enterprises have to be “ONLUS” i.e. non-profit making and socially useful. For this reason, they are entitled to other special terms such as the exemption from the stamp tax (i.e. a tax normally paid to produce official documents and certificates) and other specific taxes such the tax on government concessions.
- Asset lock
At individual or micro-level, SEs are themselves sources of self-financing. One of the main traits of Italian (and mostly European) SEs is the strong legal bond to accumulate profits totally or mostly to asset locks, with the consequence of increasing total equity and organizational solidity. Asset locks represent therefore a guarantee also to access to the debt market. Furthermore, in order to collect a higher amount of shares, in 1992 the Italian legislator enacted the law 52, which recognised the possibility for cooperatives to involve ‘financing members’, i.e. members who acquire specific shares that ensure them higher profit rights. So that social cooperatives can involve as members people interested also in the opportunity to make profits from the entrepreneurial activity and can skip the problem of under-capitalization that sometimes characterise small enterprises. Close to these self-financing strategies, social enterprises are searching for new partnership and for complementary solutions to answer their financial needs.
- Private banks and foundations
At the macro-level, when looking to institutions and to the financial market, first of all microcredit and cooperative banks are increasing their role. Banca Prossima and Banca Etica are two important institutions for supplying loans to the third sector organizations; the mission of credit cooperatives is to supply financing mainly to families and local enterprises of small-medium size in order to support local development, and they have explicit social aims to support local social activity. While the attention to social enterprises by banks is therefore mature, these institutions are increasingly in need for methodologies that allows evaluating the social impact generated by SEs and therefore are able to select those project with higher positive impact on local economies.
Other institutions are supporting the development and financing needs of SEs. Bank foundations and national institutions are increasingly supporting SEs start-ups (as an example, Unioncamere, the Italian Union of Chambers of Commerce, Industry, Handicraft and Agriculture, proposes to new social entrepreneurs a compound offer of training programs, financial services and monitoring services through a complete supervision of their business plan in order to ensure long-term sustainability of financed organizations) and specific activities proposed by SEs (as an example, Fondazione Cariplo is supporting for several years the employment of disadvantaged workers in WISEs by providing grants and subsidies).
3.2 Funding at regional level (in the Lombardy Region)
- Regional law n. 1/2008
It provides for a tax break for NGOs (among which we find social cooperatives as well) which reduces workforce costs by 4.25%.
- Subsidies on newly created jobs
Work integration of disadvantaged people (particularly disabled) benefits, within the Lombardy region, from additional funding known as “Disabled Work Dowry”. The Dowry is distribute by the Region to the different provinces and the dowry allocated to each beneficiary can vary between €7.000,00 and €12.000,00 per year for each disadvantaged worker. The same Dowry system provides for a small grant for new social enterprises start-ups working in the field of work integration (in 2010 the maximum amount allocated to each new start-up amounted to €35.000,00).
- Other subsidies related to social enterprises
The Lombardy Region has set up the so-called FRIM Cooperation fund (i.e. Entrepreneurship Rotation Fund) which provides funding for setting up new social cooperatives (max €250.000,00 for each new cooperative) or for widening and developing existing activities (max €1.000.000,00). Under FRIM, funding allocated may not cover more that 80% of the overall costs of the project or initiative.
- Innovative financial tools
To further help social cooperatives working in the field of social and working inclusion of disadvantaged people, a few Italian regions (among which also the Lombardy Region) have activated the Jeremie ESF fund. The funding has operated during the past programming period (from 2009 onwards) and was open to cooperatives whose working force was made up of at least 30% of disadvantaged people. Yet, to allow for large participation from the cooperative world, the regions did not use the definition of “disadvantaged people” included in Italian law (which is rather restrictive) but the definition used by the European Commission which together with physical and mental disabled includes also immigrants, people over 50 years old who have lost their jobs and have difficulties in finding a new one and other categories of disadvantage.
In Lombardy, Jeremie ESF was created in 2009 with an allocation of €10.000.000,00. In Septembers 2010 it was re-financed with an additional €10.000.000,00. The fund has loaned a maximum of €4.000,00 for each social enterprises’ associate (up to a maximum of €200.000,00 for each enterprise). If the associate stays within the social enterprise for more than 5 years the loan becomes a grant and it must not be repaid.
3.3. Funding at local level (autonomous province of Trento)
- Subsidies provided by provincial Public Administration
As discussed at Section 1.3, through the policy intervention called “Intervento 18”, the Employment Agency of the autonomous Province of Trento provides a series of subsidies to support the job integration of vulnerable workers within the cooperative system. It is interesting to highlight that these incentives are delivered for a three-year period with a “decreasing subsidy approach” with a view of supporting a parallel “increasing empowerment” of the vulnerable worker benefiting from them.
The Employment Agency also provides a second stream of incentives which support the labour costs of tutors/social responsible working in social cooperatives.
A third stream of incentives aims to cover the “research and innovation” dimension of social cooperatives i.e. it aims at supporting, inter alia, the development of feasibility studies, business plans and training activities.
According to the last available data, in 2010 social cooperatives based in the province of Trento benefited from 1,5 million Euro of incentives.
- Financial tools provided by the local federation of cooperatives
In the Trento province, Cooperfidi has been created by the local federation of cooperatives to supply loans and financing to members cooperatives, and Promocoop is the local fund for the development of cooperatives in the region and it collects the 3% of yearly profits of members cooperatives.
- Identity and visibility of social enterprises
Italian social enterprises are working in different directions to increase their identity and visibility and they are supported by a quite complete regulation, by their umbrella organizations, and by a long-time experience.
Firstly, since 1991 social cooperatives are regulated and they are recognised as a specific legal form. The term ‘social cooperative’ therefore helps these organizations in communicating to their stakeholders and the community in general that they respect the legal provisions of production of welfare services or integration of disadvantaged workers, and of non-profit distribution. The legal form therefore represents itself an instrument for visibility and identity. The same can not be said in general for social enterprises. While the intention of legislative decree 155/2006 was to offer all enterprises with social aims and bounded in profit distribution to acquire the qualification of social enterprise, the law has had several limitations and organizations have not recognised in it the opportunity to better identify their activity and make more visible their aims. Contrary to the intention of the legislator, the qualification of social enterprise does not represent today a ‘mark’ and it is adopted for a very small percentage of potential social enterprises. Furthermore, while the Ministry has provided for a public register where social enterprises are asked to register, no rigid controls are conducted on registered social enterprises to ensure that the qualification is effectively adopted by those organizations only answering to the requirement of the law. A reform is thus in act to renew the law on social enterprises, but its consequences can be evaluated only in a few years. It can therefore be concluded that having an appropriate legal form (as the law on social cooperatives demonstrates) helps a better development and visibility, while qualification are too general and less accepted by organizations themselves.
Second, the evidence base is strengthened from both the presence of research institute on social enterprises and the attention of umbrella organizations to their members. In Italy, and in the Trento province specifically, the European Research Institute on Cooperative and Social Enterprises (Euricse) is carrying out annual investigations on social enterprises, which are aimed at both evaluating the trend in numbers and financial characteristics of social cooperatives (the so called Observatory) and studying in detail several topics (from governance system to members participation, from accounting to managerial strategies, from job satisfaction to managers traits, etc.). IRIS network is the other institute located in Trento that has the aim of connecting Italian experts of social enterprises and from some years it publishes an annual report on social enterprises in Italy (by estimating the number and characteristics of Italian social enterprises). Also the national umbrella organizations (Legacoopsociali and Federsolidarietà) have their research offices in order to investigate their social cooperatives members. And the National Institute of Statistics (ISTAT) is periodically monitoring the non-profit sector and social cooperatives. The attention to social enterprises is therefore quite diffused in research activities also, and the number of meetings, conferences, conventions, workshops per year supports the importance of this instrument. Nonetheless, other instruments for the dissemination of data among the society must be developed and therefore both the research institutes and the single social cooperatives must develop better instrument for dissemination to increase visibility for social enterprises.
Third, Italy has not jet formalized any social impact measurement technique. Maybe the creation of standard indexes for estimating the social impact of social enterprises is impossible to achieve due to the variety of social cooperatives or social enterprises to be included in the evaluation process. Nonetheless, the presented case study of Italian social balance –instrument that is adopted today by many social cooperatives- represents a good example of social accounting and of finding in social cooperatives diverse information about their activity and structure. The social balance required by law to social enterprises includes a specific lists of information that must be transmitted from the organization to its stakeholders, and therefore it can be concluded that the social balance is effectively the most diffused and complete way for giving visibility to social enterprises and demonstrating their added value in the society. Furthermore, social balance has the advantage to be built by the single social enterprise without following standard indexes, but representing in a subjective way the social impact of the organizations.
Fourth, with regard to quality standards and brands, Italian social enterprises have well worked on the former but less on the latter dimension. Quality is certificated by different recognised standards, which have been developed by the government. Although quality standards and certification can represent an opportunity to formally recognise the added value of services supplied by social enterprises and to certify through objective parameters the quality of inputs, social enterprises supports high costs for achieving quality certification. Social enterprises must follows the rules imposed by the government and therefore the standardization have the characteristics of bureaucracy and centralization of control; the procedure to achieve the certification is time-consuming and some parameters are not included in the quality standards, with lack of information and inefficiencies. Therefore quality standard are only in some cases efficient instruments for increasing visibility of social enterprises. With regard to brands, Italian social enterprises have not jet adopted specific marks to certify that the organization comply with certain social criteria. The legal form demonstrates per se the social nature of the organization and the compliance with the law and its boundaries. Marks are in case perceived by social enterprises as instruments for increasing their visibility among citizens and in the community as a whole. Consortia are helping in developing these strategies and sometimes the logo of the Consortia represents for members social enterprises the way for increasing their visibility.
Fifth, Italian social enterprises support dialogue and collaborative relationships with their stakeholders by organizing open meetings and moments of discussion, by developing projects together with local public bodies and private enterprises, by formalising relationships in networks and ATI (temporary enterprise associations), etcetera. Frequently, Italian social enterprises have multi-stakeholders governances and therefore other organizations, citizens, representatives of different interests and stakeholder groups are members of the organization. By looking at the type of collaboration and dialogue, social enterprises usually works especially with local bodies and local governments than with the central governments, since local bodies have in Italy more power in deciding about contracts with social cooperatives. Consortia and representatives of the social enterprise movement (like national scholars) are instead working with the national government and ministries in order to support the development of social enterprises and to come to a complete and clear regulation of these organizations (since some gaps of decree 155/2006 on social enterprises).
Finally, as already claimed, social enterprises practice networking with other stakeholders, while it is mainly developed through individual relationships than thanks to formalised instruments. Social enterprises generally have their own websites, but websites mainly help the communication from the social enterprise to its stakeholder than the opposite also. Tools like digital social networks are not very diffused among Italian social enterprises, although the bigger organizations tend to use also these instruments to contact their stakeholders. Investments in these technologies is somewhat supported by consortia at national level, but Italian social enterprises have certainly the need to invest more on these tools.
Developing higher visibility for social enterprises thanks to modern tools and maybe some common marks can be therefore a challenge for the future years. And Italian social enterprises must certainly work more in order to give higher visibility and identity to the movement as a whole instead of their single organizations.
In this general view and context, structural funds have helped single cooperatives to develop their instruments for networking, implementation of standards, innovation of tools, etc. For example, in the Trento province the Regional structural funds managed by the Employment Agency has been partially used by local social cooperatives to develop websites and social accounting practices, and to innovate their activity thanks to better relationships with stakeholders. In other regions, single cooperatives have developed better visibility and identity thanks to the financing of their projects by public funds or European funds. Nonetheless, many social enterprises initiated their activities for increasing visibility and identity in total autonomy, with internal resources and private initiatives. Public (and European) funds should be instead intercepted to develop large-scale projects, like websites for all social cooperatives, national tools for consultancy and networking, standards of evaluation, etc.
It is important to consider that social security costs amount in Italy at more than 33% of the gross wage.
- General context (definition, recognition)
In Finland we can see the social economy building from these actors:
- In Finland we have traditionally strong third sector which provides different kind of voluntary and non-profit activities for citizens. During last decades third sector associations have also offered more services for public and private sector. Some strategic partnerships have arisen between third sector associations and public sector. In third sector organizations there has also been some movement toward more entrepreneurial actions and some associations have altered their activities as businesses. They are also considered to be companies for the taxations point of view. These new and more entrepreneurial actors of third sector can be considered as a part of social economy.
- In Finland we have also strong co-operative movement and from the mid 1990s we have had vivid wave of new co-operatives. These new co-ops are a definite part of Finnish social economy. In the beginning of 2014, our legislation will facilitate co-operative entrepreneurship for instance by enabling incorporating a co-operative for one person.
- In Finland we have few big foundations and mutual societies which could be considered a part of social economy.
- In 2011, the Ministry of Employment and Economy created a High Level Working Group which represented various stakeholders, including social entrepreneurs, to examine and define social entrepreneurship and its model of action and make proposals for developing it. Besides setting a definition, the Working Group launched an idea of a Social Enterprise Mark to promote the special characteristics and visibility of the social enterprises. This contained promising elements for the development of social economy. At the end of 2011, The Social Enterprise Mark was published by the Finnish Work Association, and today they also grant and manage the Mark. In summer 2013, there were 37 enterprises which had received the right to use the Mark, and the number is increasing. These companies can definitely be considered as a part of Finnish social economy.
- Since 2004 we have had special legislation on “social firms” (work integration social enterprises; Act on public employment and business services 916/2012; Act on social enterprises 1351/2003, 924/2012; “sosiaalinen yritys”). A social firm has to fulfil specific requirements, for instance employ a certain percentage of people with disabilities or illnesses or long-time unemployed. The social firm is entered in the register of social firms maintained by the Ministry of Employment and the Economy (23.8.2013 there were 54 social firms; they do not necessarily overlap with those 37 which have got the Mark after applying for it and having fulfilled its criteria).
The definition of social economy in Finland was first made by Niina Immonen in her thesis on the Finnish social economy. “In the Finnish context, social economy can be briefly defined as follows: “Social economy is economic activity carried on by co-operatives, mutual societies, associations or foundations in an effort to enhance socially and financially sustainable welfare among their members and the surrounding society through democratic co-operation.”
The challenges promoting social economy in Finland are:
- General knowledge of social economy and social enterprises is weak (both in wider public and among business advisors).
- The language/definitions are unclear and a little bit confusing (at least in Finnish).
- Still quite few (visible) social enterprises (“yhteiskunnallinen yritys”) in Finland.
- Social enterprises can perform in any form of enterprise, also as limited companies or sole proprietors. Social economy actors usually perform in enterprise forms which emphasize democracy and participation (in Finland mainly co-operatives) There is a lot of confusion about concepts regarding to social economy, social firms and social enterprises. There are not any national statistics or other comprehensive data/information about social economy or social enterprises.
- There aren´t any social investment markets or special financial tools for aimed especially at social economy or social enterprises (even though the general instruments are available).
- Partnership between the social economy and public sector actors may be undeveloped even though e.g. at the local level new ways of co-operation and service production can be tested.
Some good news about social economy in Finland:
- Knowledge about co-operative model and new models of entrepreneurship is spreading, and business advisors are more eager to promote also co-op start ups. Promoting entrepreneurship (and at the same time employment and the sustainability of the economy) is one of the strategic objectives of the Government.
- General opinion is positive about co-operatives and social economy and responsible business in general. Entrepreneurship is seen as a positive option for gaining livelihood.
- Arvo-liitto ry, the umbrella association for social enterprises and a member of the influential employers´ organization, has been launched in 2014. It gathers some prominent Finnish social enterprises and is gaining new members.
- The Social Enterprise Mark was launched, and new social enterprises (with a Mark) are born.
- Co-operative model is developed and used also in social enterprises. New legislation is being drafted also for foundations.
- in addition to new ways of self-employment and entrepreneurship, also new means of funding the start-ups and other enterprises are spreading and sparking interest like crowdfunding, impact investing and ethical banking; hubs for social enterprises etc.
- Various policies as well as national funding instruments, ERDF and ESF do not exclude promoting social economy but look e.g. for social innovations.
- Support infrastructure
There have been few ESF funded projects for instance to support the establishment of social firms and social enterprises. Especially Community Initiative Equal was important in this respect, but also afterwards there have been a wide range of successful projects, even though their number has not been great. There has been e.g. projects to support the start up of new co-ops. During the period 2009-2013, Tampere Region Co-operative Centre was appointed by the Ministry of Employment and Economy to run a national ESF project called “Enterprising together!” The main aim of the project was to provide the regional/local business advisors nationwide with expertise in co-operative entrepreneurship. There have been also some other organizations promoting the social economy:
- The HUB -network
- The SYY (association for social enterprises)
- The coalition for social enterprises (unofficial)
The Structural Funds OP for 2014-2020 includes no particular objective to support social economy. However, social firms or enterprises are eligible to apply ERDF funding to start or develop their business. Both ERDF and ESF funding are available to develop social innovations, which can be relevant for social economy. Funding is available in particular for measures increasing work ability and employment of disadvantaged groups, but also for improving the quality of working life e.g. by establishing more flexible methods or organisation of work.
In Finland, social economy has not acquired a special position but is promoted among the promotion of entrepreneurship which is one of the key areas in developing the competitiveness, growth and employment of the country.
In Finland the social enterprise sector and social economy in general are being developed under overall enterprising policy. During last few years some developing actions have occurred. One of the important ones is the Finnish Social Enterprise Mark. In addition to the Mark there have been some grass root actions among social economy actors and social enterprises themselves in order to improve their business activities. These action are carried out by the SYY Academy.
The Ministry of Employment and the Economy has published (5.11.2013) a guide to socially responsible procurement. This guide is the first national guide trying to develop the knowledge about the possibilities of the social clauses in public procurement.
Next summaries about these three support systems:
2.1The Finnish Social Enterprise Mark
To promote public awareness of social enterprises there is a social enterprise mark created about two years ago by the Association for Finnish work. The Finnish Social Enterprise Mark is a registered collective trademark that is granted to enterprises who aim to bring about positive social or environmental change and work for the good of the Finnish society.
The new Finnish Social Enterprise Mark is granted to enterprises that try to find solutions to social and ecological problems. Their business operations have positive side effects that benefit society. The Finnish Social Enterprise Mark is meant for enterprises that aim to solve social and ecological problems and promote social efforts with the help of their business operations. They use most of their profits to benefit society according to their goals and values. Openness and transparency also characterise their business model.
A diamond model of social entrepreneurship
Social enterprises can be described and evaluated based on how much attention the company pays to the areas illustrated in the diamond model.
It has been estimated that there are thousands of social enterprises in Finland. Many Finnish social and health care enterprises, business models aimed at developing rural areas and local communities, companies employing persons unable to cope in the labour market, businesses working in the art and culture sector and companies promoting sustainable development can be described as social enterprises. Bu there are not any legal status for them and any official statistics.
The Social Enterprise Mark is granted by the Committee of Social Enterprises. The enterprises applying for the mark are assessed based on the criteria described in the rules. The assessment focuses on three primary criteria but other characteristics of social enterprises are also taken into consideration.
* The primary objective and aim of a social enterprise is to promote social well-being. A social enterprise acts responsibly.
* Limited distribution of profits. A social enterprise uses most of its profits for the benefit of society either by developing its own operations or by giving a share of its profits to charity according to its business idea.
* Transparency and openness of business operations. In order to assure transparency, the company applying for the mark must write down its social goals and limited distribution of profits in the company’s articles of association or rules.
In addition to the above-mentioned key characteristics, one or more of the following features are related to social entrepreneurship: promoting the well-being of employees and developing ways for the personnel to get their voice heard, customer-oriented approach in developing the business and tight relations to local communities, minimising health and environmental hazards caused by the business, developing local economy, paying special attention to those belonging to vulnerable groups and demonstrating the company’s social effects.
2.2 Social Entrepreneurship Academy of Finland co-operative
There is an umbrella organization for social enterprises, the Social Entrepreneurs’ Association of Finland (SYY ry). The members of SYY ry have established a co-operative to help promoting the growth of social enterprises. Social Entrepreneurship Academy of Finland co-operative, established in 2012, is a social enterprise that helps other social entrepreneurs and enterprises to start and build their responsible, financially sustainable, value- and impact –creating businesses.
Their concept for social enterprise start-ups:
Right connections (networking and peer support) + social entrepreneurship skills (training and coaching)
+ lobbying power (through one of the founding members, Social Entrepreneurs Association in Finland)
= A complete program that helps the social entrepreneurs take their idea forward.
Their concept for growing social enterprises, Kasvuhuone© (Growth Room)
Identification of enterprise and impact growth potential “Best practices” (Kasvuhuone© Social Enterprise Analysis) + selection of training modules (coaching + business / impact assessment advise) + connections (negotiation power with new local partners) = Complete program that helps the social enterprises to grow and establish chain models/social franchises.
Their team consists of diverse, experienced individuals that are motivated to build the social enterprise sector in Finland. The team has experience in social business, training and coaching from various fields as well as vast networks within Finland and abroad.
- The guide to socially responsible procurement
The purpose of the guide is, in as practical terms as possible, to describe the benefits of responsible public procurements and to discuss the contracting authorities’ possibilities of taking social considerations into account in their procurement procedures. These possibilities are significantly affected by the valid legal provisions on public procurement.
The tendering procedures of Finnish government units are subject to the Act on Public Contracts (348/2007) and the act on public contracts of units operating in the water and energy supply sectors and transport and postal services sectors (laki vesi- ja energiahuollon sekä liikenteen ja postipalvelujen alalla toimivien yksiköiden hankinnoista,349/2007). The guide also highlights the possibilities offered by the public contracts legislation and case law to make socially responsible procurements.
Government units can take into consideration the societal impacts of their purchases in a broader sense than merely looking at the purchasing price or the price-quality relationship. The guiding influence of public procurements, which is of key importance in society, is associated with corporate social responsibility. By promoting socially responsible public purchases, the authorities can provide companies with genuine incentives to develop corporate social responsibility in their activities.
Government Resolution of 22 November 2012 contains the following statement on social corporate responsibility:
”Socially responsible procurement aims to set contract conditions that encourage suppliers to ensure that during the contract period goods and services have been produced in conditions where human rights and core labour standards are respected. In effect, suppliers must comply with international human rights conventions, such as the ILO conventions, the UN Convention on the Rights of the Child, legislation on minimum wages and working hours in the production country, and general environmental, health and safety requirements.”
In the European Commission Guide to Taking into Account of Social Considerations in Public Procurement, socially responsible public procurements are defined as:
”...procurement operations that take into account one or more of the following social considerations: employment opportunities, decent work, compliance with social and labour rights, social inclusion (including persons with disabilities), equal opportunities, accessibility design for all, taking account of sustainability criteria, including ethical trade issues and wider voluntary compliance with corporate social responsibility (CSR), while observing the principles enshrined in the Treaty for the European Union (TFEU) and the Procurement Directives.”
The guide was prepared by the officials of the ministry of employment and the economy. The guide does not include any specific point of view about the social enterprises or the social economy, but for example ideas about social integration through work and employing disadvantaged or long –term unemployed are included in the guide.
Minister of Labour, Mr. Lauri Ihalainen made an appeal 20.11.2013 in the press release of the publication of the guide to the public sector that it would pay more attention to the social responsibility of its procurements, for instance supporting employment, working conditions and human rights. The present legislation offers several opportunities for this. The Ministry of Employment and the Economy has launched a total review of the public procurement legislation. For instance employment, health and social aspects are going to be taken better into account in procurements. In addition, the purpose is to improve the participation of the SMEs in the procurement, examine the national thresholds and build a monitoring mechanism for procurements.
- The financial eco-system
The Ministry of Employment and the Economy (MEE; www.tem.fi) is responsible for enterprise strategies and policies and also acts as the Managing Authority of the Structural Funds (SF). MEE controls and manages the 15 regional Centres for Economic Development, Transport and the Environment (ELY centres; www.ely-keskus.fi). These i.e. grant support measures and subsidys either from purely national budgetary resources or EU funds (the rural/fishery/maritime policy funds, the ERDF and the ESF). The ELY centres steer and supervise the 15 Employment and Economic Development Offices (TE Offices; “employment offices”). Tekes (the Finnish Funding Agency for Innovation) is the most important publicly funded expert organization for R&D financing, partly acting in ELY centres. MEE is also responsible for the management and control of Finnvera plc, a specialist financing company owned by the State. Finnvera provides its clients with loans, guarantees, venture capital investments and export credit guarantees.
No new organizations have been established for managing and implementing the SFs but national authorities have taken care of the tasks according to their respective national competence. The ELY centres, Finnvera and Tekes as well as the Regional Councils have acted as Intermediate Bodies (IB) of the ERDF. The ELY centres have also been the most important IBs in the ESF. In the SFs, only grants and tendering have been used with the exception of i.e. the financial instruments of Finnvera which may have been co-financed by the ERDF (loans, guarantees, venture capital investments). Finnvera will not continue as an IB in 2014 - 2020.
Strategic objectives of Finland include promoting start-ups and growth and sustainability of the enterprises, especially SMEs. There are numerous various support systems funded and developed either by national or EU funds. All the systems are open for social enterprises (later called SEs) as well since they are treated like any other enterprises or organizations with a similar legal form. Finland has invested remarkably, also by using ESF funds, in developing multichannel and other services and support for entrepreneurs, i.e. the nationwide one-stop-shop “Enterprise Finland” (www.yrityssuomi.fi). The aims have been to promote the start-up and growth of the enterprises as an essential part of the Europe 2020 strategy and to reduce administrative burden. This has been done also for instance by revising legislation and procedures on incorporating an enterprise.
The alignment of the Working Group of MEE in 2011 noted that new solutions and production models that increase productivity and effectiveness were needed in order to meet the growing need and demand for public services, especially the welfare and care services. A SE can be a modus operandi which enriches manners of production in this respect. However, it operates in the service market according to the same conditions and prerequisites as any other enterprise. New or separate direct support systems or tax relieves were not to be created for SEs. These alignments have formed the basis of the policy of Finland.
3.2 Support measures for enterprises for starting-up and developing the business
Various enterprise consultants at the Enterprise Agencies (www.uusyrityskeskus.fi), business incubators or other regional business services, also directly with the support of the electric Enterprise Finland, can offer advisory services which are generally free of charge. They have often been ERDF developed. Also other important stakeholders incl. the Federation of Finnish Entrepreneurs and the Chambers of Commerce offer i.e. consultation and mentoring.
According to the Act 916/2012, a start-up grant (www.mol.fi) aims to secure the livelihood of a person who becomes an entrepreneur during the time that it is estimated to be necessary to start and establish full-time business activity (max. 18 months). The grant is discretionary social assistance provided by the State, and it is personal and taxable income. The applicant must have or acquire the sufficient capabilities for the intended business operations which must be full-time; and the requirements for continuous and profitable operations must be met. Earlier, the grant could be ESF funded if the applicant took part in an ESF project. In addition to the grant, i.e. a Finnvera loan or guarantee can be applied for and ELY centres/TE Offices may arrange entrepreneurship training and other capacity building. Generally, financing from Finnvera cannot be granted for agriculture, forestry or development in the field of construction.
Finnvera has previously funded enterprises owned by non-profit organizations mainly in the sectors of tourism and health care. These enterprises fulfill the criteria of SEs, since the most of their profit is allocated to non-profit purposes. However, there have not been many applications for support from SEs, and there are no special instructions. Financing would be given under normal conditions and products. In addition, the credit policy of Finnvera defines that funding cannot be allocated to organizations, the business of which does not fulfill the criteria of industrial and commercial activity.
Regarding Finnvera (www.finnvera.fi), the minimum amount is 5 000 euro. Finnvera can be the sole financier only when the amount which is applied for is less than 35 000 euro. For larger amounts, more providers of financing and adequate self-financing are required.
Finnvera assesses the chances of success of the enterprise on the markets: the targets, development plans, training and experience, market situation in the sector and competition in the region as well as the adequacy of the overall financing that is needed in the business. The expectation is that the enterprise is able to operate on a profitable basis. The need for collateral is examined case-by-case.
The biggest difference between financing from Finnvera and banks is in collateral practices. The banks base their financing decisions more on the available collateral whereas Finnvera is able to take bigger collateral risks than banks in a situation where an enterprise is considered to have reasonable chances of success. However, Finnvera is not competing with banks. The role of Finnvera as a financier is always temporary. In a long term, the enterprise should get its financing from the open market.
Finnvera always requires that the principal shareholders in a limited liability company provide absolute guarantees (= guarantors are liable for the debt in the same manner as debtors with personal liability for the sum). The guarantees must be limited in euro terms. Sole proprietors and general partners in general partnerships and limited partnerships are personally liable for the loans of their enterprises. Business mortgages or real property mortgages are often used as collateral in projects requiring more substantial financing. However, Finnvera does not use the apartment owned and used by the entrepreneur as collateral.
Besides i.e. banks and other financing institutions, enterprises may apply for loans from Finnvera for various other purposes than starting-up. The loans must be paid back in full, and they carry a price equivalent to the risk incl. the available securities.
The enterprise must have long-term opportunities for profitable business. A corporate analysis is normally conducted on the enterprise applying for financing. This analysis estimates the chances for success. Finnvera will normally fund about 50% of the project to be financed. In smaller projects, the portion can be larger.
Enterprises can use Finnvera's guarantees as collateral for credits received from banks, insurance companies or other lenders and for other bond guarantees, such as delivery collateral. Some examples:
- Part-guarantees provided by Finnvera may help an enterprise to get financing from a bank. The bank will apply for guarantees on behalf of the enterprise when the guarantee requirement is less than 85 000 euro and no more than 60 per cent of the bank loan. In larger guarantees, Finnvera usually provides max. 50 per cent of the total.
- Micro-guarantees help SMEs to obtain financing for different investment and working capital needs. They are intended for enterprises employing max. 49 persons. The enterprise applies for financing in a bank which makes an assessment of its prerequisites for profitable business and the collateral risks involved in the financing. The bank then applies for the guarantee electronically on behalf of the enterprise.
Tekes programmes (www.tekes.fi) is a key player in promoting research, development and innovation actions in Finland. It has also used ERDF funding. About half of the funding is programme/project based. Funding can be granted as a subsidy or a loan or a combination of the two. Loans are especially intended to create marketable products, service or business concepts. The enterprise must have the prerequisites to cover its proportion of internal financing. In 2014, Tekes is launching a new scheme on capital investment for private early phase capital funds. It is possible to get Tekes funding also for developing work organizations.
Tekes does not have special definitions of policy for SEs. Normal alignments on enterprise financing are followed: the essential criterion is the influence of the project to growth and internationalization of the business. From this point of view, the non-profit nature does not matter as such. A SE can employ and create export income as any traditional enterprise. Business venture, at which development action and financing are aimed, has to be profitable.
Potential investors or “business-angels” normally search for profitable endeavours. The enterprises which limit distribution of profit may not be very attractive. As a consequence, it may be that an organization which promotes public good finds it difficult to raise capital from mainstream sources. The result may be a whole variety of funding sources including project activities. However, interest in ethical investing or saving seems to be growing. Also, new models of financing enter, i.e. crowdfunding. With the help of the Finnish pages www.lainaaja.fi ordinary people are able to lend money to each other; and www.mesenaatti.me might give projects an opportunity to collect funding. The activities seem to have dealt with art and culture to large extent. Collecting funds without remuneration is regulated by law (255/2006), and it is not an option for enterprises.
Service providers operating on the market have normally used equity type of crowdfunding. Financial Supervisory Authority has made alignments that if the service provider only gets the potential investors together with the one who is looking for financing by offering a service platform and does not make any actions concerning the investment of the capital, no licence is required.
However, crowdfunding has been considered to be somewhat grey area since it may have points of contact with regulations on financial market. In addition, it has connections with legislation on taxation (value-added, income, business and gift taxes), companies (i.e. managing a limited company with thousands of share-holders: share-holders´ meetings and exit –questions from the investors´ point of view), personal data (i.e. maintenance of personal data of thousands of investors) and money laundering (i.e. for service provider ensures that it complies with “know your customer“ - obligation). Insolvency may cause problems in a situation where investors have paid their investments to a service provider which goes into bankruptcy before finalization of the investment process. It is being discussed how to ensure the sustainable growth and support of the crowdfunding market so that diverging interests of the various stakeholders in crowdfunding (i.e. legislators/regulators, consumer investors, service providers and target companies) are duly taken into account.
Sitra, a public foundation operating directly under the Finnish Parliament and anticipating the social change and its effect on the people, has promoted social enterprises and the related financing models. At the moment, Sitra is investigating the potential of impact investing in Finland.
In 2014 – 2020, entrepreneurship is to be supported with the ERDF, while earlier the ESF played an important role in developing i.e. various training and mentoring services; new models of entrepreneurship; and methods of measuring social impact and social criteria in public procurement. The EQUAL programme was an important initiator of SE. Later, social entrepreneurship was included in the ESF OP 2007 - 2013. Now, social entrepreneurship can be supported from the SF OP under the ERDF Priority “Enhancing the competitiveness of SMEs”:
the IP 1: “Promoting entrepreneurship, in particular by facilitating the economic exploitation of new ideas and fostering the creation of new firms, including through business incubators”; the special objective: “Creating new business”
the IP 2: “Supporting the capacity of the SMEs to grow in regional, national and international markets and to engage in innovation processes”; the special objective “Promoting growth and internationalization of the SMEs”.
Development aid for enterprises and aid for improving the environment of businesses (the Act 9/2014) are meant to promote especially creation of new firms, renewal of business, growth and internationalization of SMEs, low carbon activities and the environment of businesses. They are to be used among the main ERDF funding instruments of the ELY centres in 2014 – 2020 as during the previous periods, when they have played an important role in implementing the ERDF. Aid is granted primarily to SMEs when they start-up or develop their activities:
- in developing new products, services and production processes and methods;
- in developing business skills;
- in developing skills and abilities for internationalization;
- in adopting new technologies; and
- in preparing new research- and development activities.
It is possible to grant aid also to non-profit enterprises for their venture capital projects under certain conditions.
The whole life-cycle of an SME is covered with various tailor-made support measures funded either from the national budget or the ERDF (or the agricultural/maritime/fishery funds) and complemented with the ESF funding on human resources. Previously, there has been a strong input from the ESF in the development services for SMEs (see the annex), offered by the ELY centres. From 2014, these services are mainstreamed into national budget funding. In the regions, ELY Centres have a major role in granting comprehensive support for SMEs together with Tekes and Finnvera, while Regional Councils can fund ERDF actions which are aimed at regional development.
3.3 Other support measures for enterprises
Joint Purchase Training, which has been mainly funded with national funds but also from the ESF,
- is based on joint planning, purchasing and financing by the employer, the training institution and the ELY centre/other actors in the MEE administration;
- can be planned in co-operation with several employers;
- is tailor-made to meet the enterprise’s and/or participants’ needs (flexibility; no dependency on degrees)
- may help to secure the availability of workforce;
- may promote the employer’s operating conditions; and
- can contribute towards prolonging working lives, maintaining jobs and preventing unemployment.
However, vocational training and ordinary introductory and staff training are ineligible for financing.
The operating model of Change Security service in temporary and permanent lay-offs has been (and will be) developed with the ESF funds. The model is supposed to enhance cooperation between the employer, employee and the TE office as well as to improve and expedite the availability of a new job (or entrepreneurship) for laid-off or temporary employees. By developing and training the personnel further in corporate changes, an enterprise may improve its competence and competitiveness.
Work integration social enterprises (“wises”; the Act 1351/2003, revised 924/2012) provide employment opportunities particularly for persons with disabilities and the long-term unemployed.
A registered trader may on application be entered in the special register of social enterprises if inter alia it
- produces goods and services on a commercial principle;
- at least 30 per cent of the employees are persons with disabilities or at least 30 per cent of all employees are persons with disabilities and long-term unemployed (percentage of placed employees); and
- pays to all its employees, irrespective of their productivity, the pay agreed in the collective agreement, and if no such agreement exists, customary and reasonable pay for the work done.
The employment authorities may, within the limits of the national budget, provide support for the establishment of a wise and the consolidation of its operations, if the specific aim of the trading is to employ people in a disadvantaged labour market position.
The TE Office may grant financial support to the employer for the wage costs of an unemployed person (“wage subsidy”; the Act 916/2012). In addition to the basic wage subsidy, an additional wage subsidy of 60 per cent of the basic wage subsidy will be granted, if a wise employs in an employment relationship an unemployed jobseeker, whose disability or illness hampers employment; or who has been an unemployed job-seeker 12 months straight or who has been unemployed in total 12 months in several periods and who can be compared to the former one on the basis of the frequency of unemployment and its total duration.
4. Identity and visibility of social enterprises
In 2011, the High Level Working Group of the Ministry of Employment and the Economy (“the MEE”) outlined the strategy and the policies for social enterprises. The WG stated that it is necessary to define the business model of the social enterprises to distinguish it from corporate social responsibility and charity. In addition to the general objective and the business idea, the characteristics for a social enterprise were listed as openness and customer-orientation; transparency of the activities; and social impact. The WG did in practice recognize the social mission and the special characteristics of the social enterprises but stated that these enterprises should be in an equal position as other enterprises in granting support.
The work and the definition made by the WG built the ground for the Social Enterprise Mark (“the Mark”). The WG proposed that a mark, representing the business model, should be adopted. In December 2011, the Mark was launched.
The Mark is meant for enterprises that aim to solve social and ecological problems and promote social efforts with the help of their business operations. They use most of their profits to benefit society according to their goals and values. Openness and transparency also characterize their business model. The defined characteristics took the definition of the “Social Business Initiative” of the European Commission into consideration.
It has been estimated that there are thousands of social enterprises in Finland (5 000 – 12 000). Many Finnish social and health care enterprises; work integration social enterprises; business models aimed at developing rural areas and local communities; businesses working in the art and culture; and start-up companies for instance promoting sustainable development can be nowadays described as social enterprises. Finland also has a long tradition of various kinds of co-operatives as well as associations and foundations doing business for social benefit. However, all of them do not necessarily fulfill all the criteria of a social enterprise.
Work integration social enterprises (“wises”) are regulated by special national legislation, but they do not necessarily have to be social enterprises fulfilling the criteria of the Mark or the EU. The registered wises have a green butterfly –mark of their own. However, some of the wises have also received the Mark.
There has been an umbrella organization for social enterprises, the Social Entrepreneurs’ Association of Finland (SYY ry).
A new association for social enterprises Arvo-liitto ry was launched in September 2014. Since it is a member of the Confederation of Finnish Industries (the employers´ organization in Finland), it has strongly added to the visibility and influence of the sector.
This outline is based on the papers produced for SEN peer reviews by the Finnish partners (The Ministry of Employment and the Economy and Tampere region co-operative centre)
 Text about the social enterprise mark is from: http://www.avainlippu.fi/en/symbols/finnish-social-enterprise-mark
 Text by Elina Vanhapiha as a member of the co-op
 The discription of the guide is from: http://www.tem.fi/files/38102/TEM_Opas_Sos.hank_EN_netti.pdf
General context (definition, recognition)
The social economy sector in Poland has a long history (first consumers cooperatives were established in mid-19th century) but survived strong crisis after II World War (nationalization of coop movement) and during the economic transformation after 1989 (strong attitude to private, not cooperative ownership).
The current social economy movement is not strong enough to be an important partner for both public and private entities. For example there is no national federation of social enterprise nor important local or sectorial federations. Only workers cooperatives have strong national level federation, but this is not powerful enough to be – for example – member of tripartite commission nor to have strong impact for the legislative process.
Nevertheless in the recent years the stress has been laid on the development of the sector, mainly using public funding, including the funds from the European Social Fund under the Operational Programme Human Capital (PO KL). In 2007-2013 many institutions and projects assisting entities or individuals tending to establish social enterprises and promoting the idea of social economy (i.e. social economy support centers - OWES) have been created thanks to the possibility of financing from the EU structural fund. At the same time the number of social enterprises has increased with and without support of the European funding.
There is now specific legal form for social enterprise. There are many different definitions of social enterprise in Poland. One of them was formulated when drafting the Social Enterprises Act (not adapted yet – January 2015). According to that definition a social enterprise is a small-medium size enterprise of a various legal form, which give an employment for people from disadvantaged group (at least 50% of all posts) or is providing public interest service, one of the described in the bill.
One of the most recognizable form of social entrepreneurship is a social cooperative. The social cooperative is relatively new legal form. It was implemented by Polish law in 2006. There are more than 1200 social coops registered in Poland, almost all of them are micro enterprises (below 10 employees). They are operating merely on local markets. The social cooperative should be an enterprise set up by 5-50 people or by at least two legal persons (NGOs or public authority) and have to employ mostly people from disadvantage group.
There are many NGO’s (associations and foundations), which are perceived as a part of social economy (especially those of them, which employ people and have any form of economic activity).
Another, yet rather marginal legal forms perceived as social enterprises are Vocational Activity Entity (where people with severe disabilities are employed) and non for profit companies with limited liabilities.
The level of understanding of socially responsible purchases is very low among both public and private customers. Public authorities are rarely keen enough to perform in an innovative way. They are bond by restrictively understood procedures.
Since the second half of 2014 the National Program of Social Economy Development (KPRES), a set of guidelines determining the directions of the sector development and designing the support mechanism is adapted by government.
The challenges faced by social economy sector in Poland are to:
define and legitimize the social enterprise status
introduce appropriate instruments and mechanisms supporting social economy entities, facilitating economization of their activity and surviving on the market
build a sustainable model of cooperation of the social economy sector players
promote and increase the notion of the social economy in the society
Within the frames of an ESF-funded project called Integrated system of social economy support (ZWES, 2009-2014), there was an effort to build a sustainable network of institutions, offering standardized and comprehensive support for the social economy sector.
The core of the system are the bunch of OWES (Social economy support centers). About 100 of them were active all over the country at the end of 2014, but their amount dynamically decreased by the beginning of 2015, as they were funded from ESF 2007-2014 financial perspective.
They are expected to provide a wide range of advisory and consulting services, supporting entrepreneurs, advising on existing sources of financing and assisting in applying for financing.
They don't have a legal status as for now. Providers are mostly NGOs, but also private business or high schools and public administration. OWESes have been established as projects financed by the Operational Programme Human Capital, ESF (beneficiaries are not participating financially to the services provided). The centers are for that reason limited in terms of amount of beneficiaries as well as of the period of activity (about 2 years).
To assess the supporting initiatives and activities in the field of social economy an external evaluation was performed in 2013 by Coffey International Development for the Ministry of Regional Development.
The report on “Assessment of support in the area of social economy granted using financing from the European Social Fund within the Human Capital Operational Programme” confirms that most of the activities for the development of social economy were mainly financed by the Structural Funds.
Despite numerous measures and undertaken actions, the level of development of the sector is unsatisfactory. Employment in the sector has reached 3.7% in Poland compared to the European average of 6%. According to the assessment, the social economy support under the PO KL failed to build an effective and sustainable social economy infrastructure. Especially in the first stage, OWES were not fully prepared to professionally realize their tasks. However, there is a number of successful OWES which are recommended as partners for future development.
The OWESes are going to be finances in the similar way within the financial perspective 2014-2020, although the managing of the big part of ESF money will be set up on regional level, which could cause some substantial differences of support system policy among regions. To guarantee the appropriate level of standards, the certification comitee was established in 2014 and produce a set of guidelines which should be fulfilled by entities which want to provide OWES for the current period.
Support centers are also mentioned in National Strategy for Development of Social Economy as well as in draft of Social Entrepreneurship Act.
Apart of ESF-funded support centers there are some projects funded by national money (Fundusz Inicjatyw Obywatelskich), provided mostly by NGOs and social cooperatives, which aim is to create new social cooperatives and promote them. For the funding and projects' durations are strongly limited, the idea doesn't create any sustainable system.
There used to be at least three universities providing courses on social economy on a post-MA level - Warsaw University, Krakow Economic University, Poznań Economic University. They were financed by ESF money. They had rather theoretical approach to the issue.
The traditional sectorial help and support was provided by workers coop federation (ZLSP).
During the last years there were some new, private or social initiatives focused on supporting social entrepreneurs, independent from public funding. One of them is NESsT, international organization financed in Poland by JP Morgan, which provides advisory and investments for about 12 social start-ups. NESsT have their own tutors but it uses also a number of business people from medium-level management of international corporations cooperating with the organization. Another initiative is Sieć Sensownego Biznesu (Network of Business with Sense) accelerating system, where social entrepreneurs and people willing to establish social enterprise are cooperating with businessmen and investors to grow up their social ideas. The similar but not permanent initiative was held in Warsaw in March 2014 as Waw City Hub as an informal network of social activists, entrepreneurs, business- and public administration-people. It is too early to predict any viable results of such initiatives, but they attracts different actors and have rather good media coverage.
The financial eco-system
The insufficient supply of funding for new businesses was identified as a major barrier for development of the social economy sector.
In the mainstream finance there are no special banking products for the social entrepreneurship sector in Poland. It might be explained by the specificity and the large diversity of the sector, which makes it difficult for commercial or co-operative banks to develop coherent criteria for the evaluation of non-governmental organizations, social cooperatives, labour cooperatives and other entities. At the same time the potential group of clients is not sufficiently large for the financial institutions to be inclined to prepare a separate risk methodology. Only large entities, such as foundations with high turnover can count on financing from banks. However, banks often offer them less favorable conditions than to the regular clients.
Cooperative banks have about 8% share in the market and are well recognized in Poland. There are more than 570 of them across the country (compared to 40 commercial banks), but they are also not geared to cooperation with the social economy sector. They do not offer special products for cooperatives, nor other social economy sector entities organized as cooperatives.
Today the Polish social finance market is composed of a few main types of instruments:
1) Public grants for social enterprise start-ups
2) Loans for social economy entities
3) Guarantees for social economy
Public grants available for the social economy entities (social cooperatives) are financed from the state budget (from the Labour Fund distributed by the regional labour offices - PUP) as well as from the ESF.
There are two commercial loan funds dedicated to supporting social economy entities, operating on a regular basis: PAFPIO financing nongovernmental organizations (offering loans at 12% interest rate, mainly to associations and foundations) and TISE financing all social economy entities, including social enterprises (interest rate of 9.5%). Both funds grant loans based on their internal risk assessment methodology and credit policy defining loans purpose, amounts, accepted collaterals.
Currently up to 2015 (depending on the funds available) TISE provides preferential financing for social enterprises within the framework of the social economy pilot program (financed from ESF and managed by BGK). The total facility size is app. PLN 25 M. Only microloans (up to PLN 100 K) for investment or job creating purpose are granted to the social economy entities running business activity for at least 12 months.
Małopolski Fundusz Ekonomii Społecznej is a foundation established to support the development of the non-governmental organizations and social enterprises by providing loans and guarantees. The founding members are: Fundacja Gospodarki i Administracji Publicznej (Foundation of Economy and Public Administration), TISE, Krakowski Bank Spółdzielczy (Co-operative bank in Kraków), Małopolska Agencja Rozwoju Regionalnego (Małopolska Regional Development Agency) and BGK (state-owned bank). During three years of the operation it has provided over 70 guarantees to the social economy entities.
Beside the financial instruments and players targeting the social economy that operate continuously, the financial eco-system is diversified from time to time by some small local initiatives such as pilot microloan and guarantee funds and first social venture capital fund. The aim of the project financed by the EU fund implemented by the Centre for Economic Development in Pasłęk is to develop and test a model of capital support (VC) in vocational integration. The project will consist of preparing people to lead social enterprises with a focus on return on capital (disinvestment) along with the profit generating by the social enterprises. The timeframe is August 2012 to August 2015. Under the pilot program the projects established by three groups of the young unemployed from the Warmińsko-mazurskie region will be financed.
There is an unsatisfied demand for products allowing 'to increase' the equity of social enterprises (i.e. subordinated debt, mezzanine). Despite an identified need for financing in form of capital, such a solution has not been included in the national strategy. On the Polish market there are no special financing instruments dedicated to the sector, no specialized funds, no form of crowd-funding nor social impact bonds.
In the new financial perspective the support for the social enterprises will be available within the mono fund operational programme (ESF) managed by the MIR (Ministry of Infrastructure and Development) and 16 multi fund regional operational programmes, supervised by the regional self-government authorities (Marshal Offices).
The aim of the investment priority 9.8. on social entrepreneurship and work integration in social enterprises within the new operational programme - PO WER (the national one) is the improvement of the conditions for the social economy development and the expected result is the strengthening of the economic performance of the social economy entities measured by the number of social economy entities whose economic performance has got improved after receiving the support from the ESF.
The total financial allocation of this investment priority is dedicated mostly to the policy coordination and issues like:
- Monitoring of the sector development, evaluation of its effectiveness;
- Development of the existing services’ standards, implementation and monitoring of standards;
- Development of legislation and education aimed at creation of favorable environment for social economy development;
- Certification of services provided by social economy entities and social enterprises;
- Promotion of social economy and social entrepreneurship (coordination of regional activities);
- Enhancing knowledge of stakeholders, public administration and local leaders with regard to the role of social economy;
- Building the networks of social economy entities and social enterprises; initiating the cooperation between social enterprises (and social economy entities) and local / regional government, business, academic centers, NGOs, including national and inter-regional clusters and social franchising;
- Subsidizing revolving financial instruments; building on the experience of the pilot ESF loan programme established in 2012, the new loan programme will be constructed. Additionally, the guarantee programme as well as other innovative financial instruments, such as social venture capital, will be developed. All the revolving financial instruments will be managed at the central level but implemented regionally (by the regional financial intermediary institutions). These instruments are addressed to the existing social economy entities to sustain and develop their economic activities.
The expected number of social economy entities which will benefit from the repayable financial instruments under the investment priority 9.8 is fixed at 1 313 (to be achieved by 2023).
A much larger pool of funds will be spent by individual governments at the regional level than in the previous period. Individual entities, including social enterprises will be supported under the regional operational programmes. Within the same investment priority (9.8) the regional authorities are going to implement the following types of activities:
- Subsidies for start-ups (not only social cooperatives as it was stated in 2007-2013 but also other legal forms)
- Vocational reintegration through the Social Integration Centre (CIS) and Social Integration Clubs (KIS)
- Development of the services of Social Economy Support Centres (OWES)
- Building the local / regional partnership for social economy development
Within another investment priority (9.3) in the regional operational programmes there are ERDF allocations foreseen for the subsidies for social enterprise infrastructure (introduction of new products and services accompanied by advisory support at the stage of business plan preparation and analysis of the market) and social enterprise incubators.
Identity and visibility of social enterprises
a. EVIDENCE BASE
There is still lack of good evidence base of statistical (and equally viable) data about Polish social economy. However, first attempt to conduct systematic research of the Social Economy, Monitoring of Social Cooperatives or database of not-for-profit corporate organisations in TISE are signs of growing interest in the hard evidence data. Another movement is systematizing of the systemic and conceptual approaches through academic research and publishing (mainly done by ISP – Instytut Spraw Publicznych – Institute of Public Affairs).
Social Cooperatives are monitored by government (it is forced by the Soc Coop Act). The first monitoring contains data back to 2010-2011 and the recent one – 2012-2013.
Associations and Foudations are yearly surveyed by National Office for Statistics.
About 40 best practices in social economy could be found on the database managed by FISE (atlas.ekonomiaspoleczna.pl).
B. social impact measurement
Attractiveness of SROI brought the decision on elaborating Polish equivalent. The work was done by Kraków Economic Academy – School of Public Administration remains a study. Another attempt to establish Polish measurement technique for social enterprises was ProveIt PL tool provided by FRSO Foundation. Both tools aren’t very popular and don’t have a widespread audience. One of the reason is that the customers of social enterprises (both public and individual) don’t try to get more information of social impact made by enterprises, so they aren’t focused on searching of the method.
In parallel, attempts to calculate “costs of abandonment” (Mazowsze Region) and internal tool to evaluate projects for SE loans in TISE (Pilot project) were noticed. The debate on introducing the SROI or another measuring techniques appears to attract less attention than above-mentioned standards building for social assistance services, including social economy.
C. quality standards and brands/marks for social enterprise
There were a number of activities aiming at building the visibility and identity of social enterprises /social economy in Poland.
The social economy marks are provided by FISE and Foundation of Queen Jadwiga (Poznań), but they are both on a very beginning stage (about 20-30 mark-holders).
The main information channels about social economy in Poland are:
Internet with ekonomiaspoleczna.pl, and ngo.pl
Publishing, being extensive activity, widely supported by EU funds and projects
Meetings and conferences like OSES (annual national meetings of social economy) and its regional analogues.
National-wide competition for Social Enterprises (5th edition is going on this year) and its regional analogues.
This outline is based on the papers produced for SEN peer reviews by the Polish partners (Ministry of Infrastructure and Development, Ministry of Labour and Social Policy and FISE)
- General context (definition, recognition)
Cyprus has a long history of cooperative tradition, mainly in the banking sector, as well as a strong sector of volunteer and charity organisations.
Social entrepreneurship, however, is a relative new term for Cyprus, introduced in the public sphere in late 2008 and first appeared on the governmental agenda last year. Efforts to promote the field of Social Entrepreneurship are recorded as far back as December 2008, with the presentation to the Cypriot public and policy makers of a Work Integration Social Enterprise (WISE) from France. In the same year, a comprehensive study was completed on behalf of the Social Welfare Services on the implementation of social economy programmes for the activation of vulnerable groups of people, which explored social entrepreneurship as an approach. In 2010, in an effort to create more awareness of the field, the first Conference on Social Entrepreneurship was launched in Nicosia. Between 2010 and 2013, efforts to promote the sector took place mainly in the form of conference and training events and were the result of private efforts.
Since 2013, Social Economy/Social Entrepreneurship has been included in the Government’s agenda for the Economy. Within this scope, the Ministry of Labour and Social Insurance has been working to develop a funding programme for newly formed Social Enterprises. This programme is of primary importance for the growth of the sector as it can kick-start social enterprises by providing initial funding in the form of grants and/or fund activities of social economy. It also has the capacity to provide definitions for social enterprises and accordingly define the future of social entrepreneurship in the country.
As Social Entrepreneurship is a recent phenomenon, Cyprus has no legal, regulatory or fiscal framework for social enterprises. In addition, there is neither a strategic plan for the development of social entrepreneurship nor a recent completed mapping that will provide the necessary information on the number, size and scope of social enterprises.
Yet there is growing interest in the country on social entrepreneurship, and the current economic crisis provides an opportunity to push the sector forward and create the ecosystem that will enable its growth.
- Support infrastructure
In 2003, the Government of Cyprus supported the development of four business incubators: Diogenes Business Incubator, Helix Business Incubator, Hermes, and Prometheus Business Innovation Center. The incubators were developed through support by the Ministry of Commerce and Industry.
The main target group of these business incubators has been high-technology enterprises. For example Diogenes Business Incubator’s vision is “to pioneer the transformation of Cyprus into an important center, in the Eastern Mediterranean, in the area of commercializing high technology research and innovative ideas through supporting the creation and development of innovative start-ups.”
The services offered by incubators include entrepreneurship training/coaching, access to funding, accommodation (furnished, equipped office, internet, telephone, meeting rooms facilities, etc), office support (secretarial and reception service), legal, accounting/taxation assistance. In exchange of their services, the incubators often become shareholders of the start-up company and have a share in its profits.
In addition, the government is in the final phase of establishing the first Science Technology Park in order to create an important infrastructure for the promotion of research, innovation and high technology in Cyprus. Its ultimate goal is the “contribution towards the diversification of the country’s economy and the transformation of Cyprus into a regional applied knowledge-based hub.”
The companies which are targeted by both the current business incubators and the Science Technology Park are mainly technology-oriented and/or enterprises with high potential for profits. As social enterprises are not profit-oriented, the chances that they will be accepted in such a support infrastructure are rather slim.
However, there is a growing trend by government departments on all levels in Cyprus to promote entrepreneurship by addressing issues highlighted in the Small Business Act. Support infrastructures that are created in this way could and should include segments that focus on Social Entrepreneurship.
Also, Cyprus boasts a very active voluntary sector and there exists a Volunteerism Ombudsman as well as the Pancyprian Volunteerism Coordinative Council which offer support for new or existing voluntary organisations and could provide a springboard for more general Third Sector support structures.
In addition, in countries such as Cyprus where recognition of the sector of social entrepreneurship is minimal, social enterprises need an environment where their mission and scope of work is acknowledged. Thus, support infrastructure for social enterprises need to be separated from mainstream SMEs; or alternatively, already established structures must be trained to address the specific needs of social entrepreneurs and social enterprises.
In the 2014-2020 Programming Period ESF aims to support the Social Economy through a single Incentive Scheme for the Creation of a number of Social Enterprises. This will be augmented by the development of a tool for the set-up and running of a social enterprise on the use of which, interested parties will be trained. The support structures that would be required are, at present, planned to be provided through existing public sector institutions that will customize certain services in order to cater for the social enterprises emerging from the scheme.
- The financial eco-system
Funding and access to finance seem to be the number one problem for social entrepreneurs in the country. Initial funding is currently provided to start-up companies through the programmes for Youth and Female Entrepreneurship offered by the Ministry of Trade, Industry, Commerce and Energy.
Although these programmes do not exclude social enterprises, they exclude those operators of social economy, which are not registered as limited liability companies, such as associations, volunteer organisations or foundations.
Financing is often provided through bank loans, normally at high interest rates, and those loans are applied to SMEs or large enterprises. There are no specific financial instruments exclusively for the entities of social economy.
Alternative sources of funding and financing associating with social entrepreneurship, such as angel investors, crowdfunding, and Social Impact Bonds are almost unknown in Cyprus.
Social enterprises, like SMEs, are especially dependent on banks’ ability to provide loans. However, as a result of the banking crisis in the country which erupted in March 2013, banks have preferred to keep their funds in-house to strengthen their balance sheets. When they do provide financing, they do it by charging extremely high rates. In fact, Cyprus lending rates for SMEs is the third highest in the Euro Zone, after Greece and Portugal, averaging nearly 6%.
The Cyprus Entrepreneurship Fund
To address the issue of liquidity that enterprises face and to create growth and jobs, the Government of Cyprus has developed the Cyprus Entrepreneurship Fund (CYPEF). CYPEF is an initial 200 million euro fund pooled together by the Government and the European Investment Fund (EIF). It aims to support and strengthen entrepreneurship in the country by enhancing access to finance for SMEs and self-employed entrepreneurs by providing working capital as well as investment loans. A first call for financial intermediaries was announced in March 2014.
The Fund does not state any special criteria in terms of added social value or social impact.
When fully implemented, the CYPEF should be expected to contribute to the financing of social enterprises, at least those which are registered under the Company Law. However, the Fund does not mention eligibility of financing of operators of the social economy (such as associations, voluntary organisations or foundations).
4. Identity and visibility of social enterprises
Efforts to develop visibility of the field of Social Entrepreneurship are recorded as far back as December 2008, with the presentation to the Cypriot public and policy makers of “Acta Vista,” a Work Integration Social Enterprise (WISE) from France at a European Conference organised in Nicosia titled “European Heritage for Employment.” The Acta Vista model of employment and work inclusion has been presented on many occasions since then in order to raise awareness of social entrepreneurship and its potential to address social issues, such as unemployment and social exclusion. In the same year, a comprehensive study was completed on behalf of the Social Welfare Services on the implementation of social economy programmes for the activation of vulnerable groups of people, which explored social entrepreneurship as an approach.
In 2010, in an effort to create more awareness of the field, the first Conference on Social Entrepreneurship was organised in Nicosia by the SYNTHESIS Center for Research and Education Ltd, an enterprise which has been working to develop and promote social entrepreneurship in Cyprus since 2010. Between 2011 and 2013, the efforts to promote the sector took place mainly in the form of conferencing and training events and were the result of private efforts, through self-financing or through support of the Life Long Learning Programme of the European Union. The Leonardo project “Ignite Europe: Training Trainers to Develop and Support Social Entrepreneurs” was implemented in Cyprus as well as the United Kingdom, Bulgaria, Lithuania, Germany, and Sweden during the same period.
In 2013, two European Conferences on Social Entrepreneurship were held in Cyprus: “Social Entrepreneurship: Innovation for the Future,” aimed to provide visibility of social enterprises that work in the environmental sector, and the European Conference “Social Entrepreneurship in an Economic Crisis,” which focused on the potential of Social Entrepreneurship to alleviate Cyprus problems’ during the financial crisis.
In May 2014, the Cyprus Unit of the European Social Fund organised the “Workshop on Social Economy and Social Entrepreneurship” with local and foreign experts. The Workshop aimed to provide information on social economy/social entrepreneurship and open a forum for discussion for policy makers, social partners, and public administrators. The discussion centred on the competition social enterprises can pose to the market; the pros and cons of establishing a legal framework in a top-down approach or allowing the sector to develop itself, in a bottom-up approach and then recognised or regulated.
Today a growing number of Cypriot institutions, including universities, business schools and NGOs, show an increasing interest on the field and undertake initiatives that increase awareness of the field of social entrepreneurship. Hub Nicosia, a community space for social entrepreneurs which will also serve as an information point on Social Economy is also underway. The project has received partial funding from the Stelios Philanthropic Foundation and the Norwegian grants.
Visibility efforts on social entrepreneurship have been so far the result of private initiatives in the form of conferencing events, seminars and trainings and have been self-financed or through funding from EU’s LLP programme or other donors.
As already mentioned, in the 2014-2020 Programming Period the ESF aims to support the Social Economy through a single Incentive Scheme for the Creation of a number of Social Enterprises. The implementation of the programme has the potential to enhance the visibility of the sector of social economy as a whole.
This outline is based on the papers produced for SEN peer reviews by the Cypriot partners and experts (ESF Unit, Ministry of Labour, Welfare and Social Insurance and George Isaias)
 “Preserving heritage can help ensure social inclusion,” The Cyprus Weekly, October 17-23, 2008. http://www.actavista.fr/IMG/pdf/cyprus-weekly-2008-preserving-heritage-can-help-insure-socialinclusion.pdf
 Prepared by the Institute of Social Innovation
 Both conferences were organised by the SYNTHESIS Center
General context (definition, recognition)
The social economy as a phenomenon, alternative way of making business was introduced in Hungary not long ago. The story got the momentum when in 2005 under a Regional Operative Programme the National Employment Foundation (OFA) network (called at that time OFA ROP network) was created. It means that besides the Budapest headquarters 7 regional offices were open to provide wide scale, free of charge professional services for the alternative employment initiatives, especially on the field of social economy. In the frame of the work there were trainings, workshops, continuous consultancy with the most accepted experts on the fields of legal issues, business planning, etc. The role of network was to coordinate the regional and national network of employment agreements, pacts and help them to fulfil their projects. The longer term objective was to create, establish, introduce and broaden the issue of social economy in Hungary. When the legislation made the establishment of social cooperatives possible, the network became a strong advocate of the issue.
There is no government agency dedicated to the social economy right now. Nor is the concept used in legislation or statistics. Nevertheless, the concept has already appeared in both employment policy and political discourse. Hungary’s EU-cofinanced Social Renewal Operative Programme (SROP = TAMOP) for the period 2007-2013 contains a component entitled ‘Social economy, innovative and local employment initiatives and pacts’, which is one of the interventions aimed at improving employability and promoting entry to the labour market. The concept of ‘social economy’ is now also used by another SROP grant programme for social cooperatives (its website is called www.szocialisgazdasag.hu, Hungarian for ‘social economy’).
Social enterprises exist in the nongovernmental sector as foundations, Non-profit companies, social cooperatives, cooperatives. The size of the whole sector has grown steadily in the last decade, however it is difficult to be quantified. Neither the Central Statistical Office of Hungary, nor surveys have used the concept. One approach to make a more realistic guess about the size of the social economy is to identify those non-profit organisations which either support employment or social policy in some way, or provide employment to socially vulnerable, disadvantaged groups.
The social cooperative is the most common legal form for social enterprises in Hungary. Social cooperative is a cooperative which has to have at least 7 members. There is no minimum capital that a social cooperative has to register. The difference between a cooperative and a social cooperative is that a social cooperative’s aim is to create workplaces for unemployed or socially disadvantaged people. Cooperative members can be individuals, and (after a change in the regulations in 2012) local governments. There are two acts regulating the establishment of social co-operatives as organizational form: Law X./2006 and the government regulation about social co-operatives 141/2006 ( VI.29 In Hungary the national law and other related regulations (law on accounting, law on taxation, etc.) considers the basic type of social cooperatives to be for-profit enterprise.
There is about 1500 social co-operatives registered in Hungary. However, we have no comprehensive information as yet about the work and output of this sector, as compared to other member states.
Research implemented on behalf of OFA proves that the social co-operatives formed in the last couple of years need permanent professional support, and more support is necessary to create more social enterprises. OFA’s existing and successfully operating regional network provides a sound base for this support, reducing the risks of failure to minimum. Research also showed that many social co-operatives were formed in response to the financial and technical support offered via tendering, which means significant risks regarding the survival potential of these organisations.
Furthermore, collaboration with local government offices is not always smooth, since mayors do not immediatly see the benefits of social co-operatives in the provision of community services. Moreover, in many cases they consider them rivals rather than partners. However, the change in the regulation of 2012, which makes it possible for local governments to gain membership in co-operatives, could ease the tension amongst local stakeholders.
In 2011 the Hungarian Government accepted the Hungarian Employment Plan. It is a three-pillar-based system of employment-related supports. The first and most important pillar is the promotion and reinforcement of employment in the open labour market among others through wage and contribution subsidies, paying special attention to micro, small and medium-sized companies. The second pillar is social economy, which organises the employment of jobseekers based on local opportunities by means of public funding and partly of own income. The third pillar is public employment.
The above described system is important in terms of governmental recognition of social economy. Now it is considered to be important part of national labour market, however there is no government agency dedicated to the social economy right now. Nor is the concept used in legislation or statistics. Nevertheless, the concept has already appeared in both employment policy and political discourse. Social enterprises in Hungary emerged in the last 10 years, and they exist in the nongovernmental sector as foundations, Non-profit companies, in for profit sector as social cooperatives, cooperatives, social enterprises. The size of the whole sector has grown steadily in the last decade.
The governmental concept papers describe, that in spite of successes achieved in the supporting period 2008-2013 it will be the task of the next programming period 2014-2020 to utilise the economic potential of social economy in Hungary. Hungary - in harmony with the ESF objectives and European Economic and Social Committee’s recommendation – should focus on to help employees with disadvantages to access jobs and income in the social economy sphere. It is important especially in the regions where there is a shortage on work places. In some cases to help employees to move from the social economy to the open labour market is also an objective. And here is one more change in thinking: besides the support and development of social cooperatives it will be needed to support the other actors of social economy.
This might need some clarification. So far in the ESF based programs only the social cooperatives were eligible to get funding through different OPs and it is because basically only the social cooperatives have legal basis, legal platform as social enterprises. There is no legal form of general “social enterprise” or social economy company. It can be beside the social cooperatives - a non-profit association, foundation, international charity, non-profit company to “normal” ltd company. The new concept from the side of the government is change in the approach: the activity counts, not the legal form and the national concept papers use the list of SBI to identify the social enterprise.
The best known and supported by the state form of social enterprise is social cooperative, however there are some private programs (NESST, Norwegian Civic Found, Swiss Found), which support social enterprises in general.
The ’Kooperáció’ (Co-operation) Project
OFA Kooperáció Project between 2007 and 2011 supported the development of social cooperatives by ensuring funds, providing professional help and awareness raising to advertise the sector.
The Kooperació+ project promotes adaptability-improvement of social economy organisations, increases efficiency of programs (both in field of social cooperatives and labour market service providing NGOs), and helps their capacity-development. It operates in the institutional framework of National Employment Non-profit Public Company (OFA). Its long term professional role (established in 1992) ensures the high quality of the work. Kooperació+ provides professional support for project implementer organizations: networking, spread good practises and operation-models among the actors, help institutionalisation, and experience transfer. The big advantage of the Kooperació+ project is, that it is already a national network with 7 regional offices, covering whole Hungary. The headquarters are in Budapest, where the project management is taking place.
Objectives of the project
• Development of Social Economy: increasing efficiency of programs, founding and developing social-cooperatives; helping formulation and professional support of SE networks by transferring experiences (subproject 1)
• Support labour market services providers (NGOs): strengthening their service capacities; enriching both organisation-development and quality-management methods of these NGOs; spreading good practices, well working models among them and providing professional support to system-level adaptation of such models. (subproject 2)
Kooperació+ free of charge services include:
• Professional support in the time of project generation
• Counselling, professional support, consulting, independent external experts in the time of project development and implementation
• workshops throughout the country,
• strengthening management capacity through trainings
• on-going evaluation embedded in process during the whole project time
• methodological, and other professional publications,
• website and newsletter services,
• services supporting growth and development, mentoring program of social cooperatives
• other services required by the target-groups
• Network-building, generating network collaboration, exchange of experience (professional events) throughout the country
• Setup a knowledge-base (information and methodological development)
• Feedback development results to employment-policy actors
• Experience exchange at national and international level
• Dissemination activities
Research implemented on behalf of OFA suggests that social co-operatives established in recent years must not be abandoned/require further support, while more support is necessary to create more of them. The existing and successfully operated national network of OFA provides a sound base for this support, reducing the risks of failure to minimum.
From 2013 to 2015 the National Employment Non–profit Public Company (OFA) is continuing to support the sector in Hungary. There is a need to create, and support networks of cooperatives and develop the sector. The ESF project’s aim is to help to create social cooperatives, support them by projects, offer professional help with legal experts, financial expert, and business expert through the Cooperation project. One of the biggest results of the project is the national advisory network. Each region has advisory offices which support the development of social cooperatives.
The NESsT activities
The NESsT international organization, which was first established in Hungary, provides a range of bussines support for starting social enterprises.
Three main branches of their support are:
• Capacity support: mentoring and training to increase entrepreneurial skills and strengthen management capacity
• Investment: seed capital in the form of grants and soft loans
• Social capital: access to a network of corporate professionals providing pro-bono consulting support
The mission of NESsT is to find solutions for the most burning social problems in the new market economies with the development and support of sustainable social enterprises. They are active in Hungary since 2001. Each year there is a call for proposals, where emerging social enterprises can became the part of NESsT portfolio. To become member of this portfolio guarantees a long term support both in technical assistance and financial terms. (http://www.nesst.org/hungary/portfolio/).
NESsT feels that the marketing of a social enterprise should be introduces from the beginning, when the business idea is just to develop. As the social enterprises should live on the open market, they should be aware and use all tools, instruments the “ordinary” business do. Thus marketing and related capacity represent a very strong part of the NESsT incubation.
Traditionally NESsT in Hungary has supported social enterprises created by non-profit organisations, but from 2009 they provide this type of support independently from the legal form of the candidates, concentrating rather on the social problems to be solved by the social entrepreneur and the viability of the proposed business idea.
The joint initiative OFA-NESsT: Mentor Program
The social cooperatives in Hungary face with lots of operational challenges in their everyday work, caused often by the lack of business knowledge and business sense. The mentor program aims to give a solid base for the leaders of social cooperatives to find sustainable way of its operation, create jobs for disadvantaged people on a long run and make the social cooperative well embedded in the society. We hope, that social cooperatives can give answers for some social and economic challenges, but they need to overcome first some obstacles:
• Social cooperative is a relatively new form of business, it is mostly unknown for the economic sector, for the decision makers, public sector and for the population in general.
• Lack of suitable infrastructure (lots of them need to produce goods, provide services with insufficient stuff)
• Financial problems – the funds available are mostly strictly supervised, not connected to real needs
• Lack of business knowledge and experience
• Problems in the motivation structure of leaders, fear from taking responsibility
The mentor network wants to provide very practical tools to deal with some of the above challenges. The business planning is difficult for some of the managers of the social cooperative. The market research, the analysis of the business idea needs to be done. And this is especially true for the social cooperatives, where they want to create stable jobs for disadvantaged people. It is a real pressure, responsibility.
The role of the mentor in this program is to help the development of the realistic business plan, to help achieve sustainable operation and to support them in becoming a real social enterprise with the measurable social impacts. The mentors have received an intensive training, the curriculum is developed (Social Cooperative Mentor Handbook) and the training is provided by the NESST experts. There is one mentor in each region (7 mentors in the network), responsible for 3-4 social cooperatives. The mentors are working by a strict programme, and they meet regularly to share experiences and they have opportunity to meet the NESsT experts, too. The program has just started, so there are no results yet, but the acceptance from the side of social cooperatives is very positive.
The financial eco-system
The social cooperatives in Hungary could be founded through:
1. National funds: The Ministry of Labour and Social Affairs assured an allowance of HUF 945 million (aprx. 4 mill EUR) from the Labour Market Fund for a program promoting social co-operatives during 2007-2009. The coordinator for this program was the National Employment Non–profit Public Company (OFA).
a. Let’s cooperate 2007! (Szövetkezz 2007!) call for tender was launched as a two-step program to support launch and operation of social cooperatives, which turned out to be useful. In the first round the minimum 7 members (and among them 50% at least 3 months unemployed person) submitted a project idea together with a short budget plan. The maximum grant amount was 20 million HUF (80000 EUR)with 100% intensity. 36 cooperatives received support and started to operate.
b. Let’s cooperate 2009! call for tender invited the previously supported and sufficiently operating social cooperatives, which could apply for grants to strengthen their position and improve their operations in the next operational year. The support could reach 10 million HUF (40000 EUR) with 50% intensity. From the applying 20 social cooperatives 10 organizations received support.
2. European Funds: there were two rounds as well, based on ESF funding on the frame of Social Renewal OP (TAMOP)
a. TAMOP 2.4.3./09: with the amount of nearly 2 billion HUF supported 46 social cooperatives all over Hungary. The tender was open for operating social cooperatives
b. TAMOP 2.4.3/13: there are two types of support: one is “small grants” where the social cooperatives could apply for maximum support 10 million Ft. There are 49 beneficiaries in this type, the total amount of support is around 2 billion HUF. The second is for bigger programs, the support is maximum 50 million HUF, the allocated amount is 7,5 billion HUF. We are still waiting for the results of this programme, it is known, that there are about 900 applicants. This OP was open for the operating social cooperatives, as well.
From 2013 to 2015 The National Employment Non–profit Public Company (OFA) is continuing to support the sector in Hungary. There is a need to create, and support networks of cooperatives and develop the sector. The ESF project’s aim is to help to create social cooperatives, support them by projects, offer professional help with legal experts, financial expert, and business expert through the Cooperation project. One of the biggest results of the project is the national advisory network. Each region has advisory offices which support the development of social cooperatives.
In spite of lots of successes in the supporting period 2008-2013 it will be the task of the next programming period 2014-2020 to utilise the economical potential of social economy in Hungary, and besides the support and development of social cooperatives we will need to support the other actors of social economy. The last ESF system gave us no chance to provide indirect support or give out loans. There were no longer term, calculable programmes. The project approach can ruin some already achieved results. Also there was a lack of technical assistance in supporting social economy programs. The following strategic steps on the field of supporting social economy should be promoted by the Ministry of Nation Economy to cope with the above mentioned problems.
Micro finance programmes
In 2004 Microloan Company (Mikrohitel Zrt.) was established, following the need. Together with the Autonomia Foundation they had some pilot programs, especially in the less developed regions. The most successful part of Mikrohitel Zrt’s operation is microloans for NGOs for short period (to assure cash flow), but they provide loans for SMEs as well.
Micro finance programmes are another area of public support to the social economy. Notably, ‘Kiút Program” (‘The Way Out’ Programme) is similar to the Grameen bank model. It aims to bring people out of the poverty trap, enhance entrepreneurship and foster the social integration of the poor or disadvantaged (primarily Roma) population.
There were two antecedents to the Kiút Program. Two foundations – SEED and Autonómia – launched micro-finance programmes (separately). SEED targeted women to make their own start-ups but the foundation was unable to find enough clients for its resources. Autonómia ran a programme that was similar to the Kiút programme. It targeted Roma people living in extreme poverty but the program has not proved to be very successful.
In the “Kiút” program the office provides financial education, lifestyle consulting to potential borrowing groups, and if a group can offer sufficient safeguards, a member of the group can get a loan up to 1 million HUF to start business. The resources of the Programme are mainly from the European Union: the project was awarded 1.425 million EUR through the Pan-European Coordination of Roma Integration Methods – Roma Inclusion: Self-employment and microcredit tender. Until the end of 2011, the programme had 70 clients, allocated 50 million HUF and generated 64 start-ups. According to an expert analysis, the repayment rate is expected to be around 60%.
The NESsT Programme
NESst is providing seed capital fund in the form of grants and soft loans for emerging social enterprises. Each year there is a call for proposals in Hungary, where emerging social enterprises can became the part of NESsT portfolio. To become member of this portfolio guarantees a long term support both in technical assistance and financial terms. There are 14 members in the current portfolio (http://www.nesst.org/hungary/portfolio/).
Identity and visibility of social enterprises
In the last years the National Employment Company and its regional network has implemented several projects supporting social economy actors in Hungary, and from 2013 to 2015 the National Employment Non–profit Public Company (OFA), its Kooperacio+ project continues supporting the sector. Some of the program activities are directly connected to the issue of visibility and brand building:
• Project Fairs: In the previous project (Kooperacio) two project fairs were launched in 2011. The big events can turn the attention of the decision makers and general public on the sector, make the big values and potential of social enterprises visible. The project fairs had media coverage, short films were prepared and introduced on the national TV channel (Duna TV).
Worth seeing: https://www.youtube.com/watch?v=puPNiCjrH5M
• Short PR films will be made in 2015 about the most prosperous social cooperatives, and in a lane of a media campaign these films will be showen on Duna TV. According to plans a Budapest based, nationwide project fair is being organises as closing action of the Koopreacio+ project in June 2015.
• Special edition of the “Helyi termék” (Local Products) magazine on social cooperatives in September 2013
• Labelling: a planned initiative to establish such a mark for social cooperatives (as this legal form can be easily identified) and as they are in our focus. Just like in Finland it would acknowledge the added value the social cooperative represents. The system is under development. The name is: “Local Value Added” Award (first edition: 2015.
The programs of the OFA and the ESF contributed to the establishment of social co-operatives and as a result more than 1500 social cooperatives were registered from 2007 to 2013. The above programmes are supporting the development of the visibility of social cooperatives. All the initiatives listed above are free of charge for social entrepreneurs in the frame of the project.
Another important actor on the field is an international organization NESsT, which helps to develop sustainable social enterprises that solve critical social problems in emerging market economies. Their approach is to support low-income communities and help to reduce their vulnerability.
NESsT is organizing, among others The Annual Social Enterprise Day. The first edition took place in 2011. Joining the forces, in 2013 OFA became co-organiser and co-financer of the event, and this is the case in 2014, too.
This festival includes conference, panel discussions, “pitching session”, and a market for the goods and services of the selected social enterprises. Here is some information:
The main topics of the Day:
• Social impact and its measurement
• Beyond the supporting eco-systems? How to involve public?
• Tailor-made financing of the social enterprises: reality or a dream in Hungary?
• Ingredients of the strong social economy in Hungary
• Social enterprises, the social economy in the programming period 2014-2020
The Social Enterprise Market will introduce about 40 social enterprises (of what about 20 social cooperatives). We are expecting a lively and a very positive day, the real celebration of social entrepreneurship. To give an impression, please find the short report on the Social Enterprise Day in 2013.
NESsT organized Social Enterprise Day with cooperation of OFA Kooperacio + project with the intent of maximizing interaction between social enterprise leaders and individuals, NGOs and companies who are only at the beginning in this field, or who nurture the idea of developing a social enterprise.
General context (definition, recognition)
There is no any specific legal form for social enterprises in Czech Republic and there are not any specific tax advantages. Thus, social enterprises in the Czech Republic take various legal forms and this always depends on the specific conditions, the type of services/products and the founders’ approach.
The Czech concept of the social enterprise is broad, with great emphasis placed on equilibrium between the economic and social goal (business and social mission).
There are currently about 135 social enterprises in the Czech Republic registered in the P3 database of social enterprises, doing business in just about every area of the economy (cleaning services, cafés, confectionary shops, restaurants, production and processing firms, graphic studios, digitalization studios, call centers, park and garden maintenance firms etc).
More than 70% of existing social enterprises in the Czech Republic employ people with disabilities. This is influenced by tradition, the relatively clearly defined instruments and status of this kind of disadvantage compared to other types. However, enterprises employing disadvantaged categories such as Roma people, homeless people, former drug-addicted, can be found increasingly commonly, showing an interesting growing trend for the diffusion of social economy in this country.
Social entrepreneurs could carry on their business as natural persons based on a trading license (self-employed people), standard commercial companies (most commonly limited liability companies), cooperatives and social cooperatives (new legal form – introduced by the law from 1 January 2014). Social enterprise is also possible in the legal form of publicly beneficial companies or citizens’ associations, although in this case, these cannot be founded for economic purposes.
According to the agreement from December 2012, responsibility for social entrepreneurship at the central level stays at the Ministry of Labour and Social Affairs, respectively its employment department. Another ministry responsible for this area is the Ministry of Industry and Trade that has incorporated social entrepreneurship into the Strategy of SME Development and will promote it together with CSR.
Nevertheless, in practice there is a lack of cooperation at the central level concerning social economy policy. Social entrepreneurship is going to be supported in the new programming period 2014+ and it is recently incorporated into 5 operational programmes (OP Employment, Integrated OP, OP Prague, OP Industry and OP Agriculture).
Despite the lack of a political support for social economy on central level, there is a growing interest of municipalities and regions.
Concerning the activities at the ground level, there exists since 2009 the Thematic Network for Social Entrepreneurship TESSEA, its predecessor being the EQUAL thematic network for social economy. TESSEA has more than 230 members, both legal persons (organisations) and natural persons (individuals). It is focused mainly on raising awareness, disseminating information and communication with policymakers. A club for social entrepreneurs has been created in 2012. Both TESSEA and club have not its own legal entity and are coordinated by a public benefit organization P3 – People, Planet, Profit that coordinates also a network of ambassadors for social entrepreneurship.
The growth and the development of social enterprises in the Czech Republic is an issue that is underdeveloped. There is a rising need in the society to put social entrepreneurship on the agenda but there is a lack of political support and the whole social enterprise sector is still weak.
Many social enterprises started their functioning with the structural funds funding that has already finished or is coming to its end. These social enterprises are endangered and their sustainability us under threat. Ministry of Labour and Social Affairs originally planned an accompanying support project that would help these social enterprises to survive but it somehow did not happen.
To sum up the situation in the Czech Republic, social entrepreneurship is on the rise with growing interest of public authorities and civil society. Its promotion is associated on both sides mainly with devoted individuals who are able to cooperate in partnership.
There is not any comprehensive system of support for social entrepreneurship in the Czech Republic. Nevertheless there are several opportunities and programmes specialising in support for the social entrepreneurship segment – both public and private initiatives.
Among the main challenges, specific problems and issues one should enumerate:
- The existing support offer focuses more on support during the first steps and overlooks support during subsequent stages of the enterprise’s lifecycle, support in crisis situations etc.
- Support is offered mostly to NGOs and its scope is usually limited to only few organisations.
- There is still a lack of support organisations for social enterprises, especially those free of charge.
- There are no common criteria that would enable to compare the quality of the existing support services.
- Systemic support structure with regional branches is needed because it would help to stabilise the existing social enterprises and help with the development of the new ones.
Below is the list of different current and past initiatives supporting social enterprises (mostly NGOs):
- the Union of Czech Production Cooperatives – provides advice to cooperatives including legal advice and loans. Those who want to set up a social cooperative or transform an existing cooperative into a social cooperative are given legal support. Target group – cooperatives. Free advice, financed by cooperatives membership fees and own income.
- the VIA Foundation – operates the Accelerator of the Academy of Social Entrepreneurship and organises seminars and coaching for NGOs that want to set up social entrepreneurship activities. Target group – NGOs. Free of charge, financed by the Erste Foundation and Ceska sporitelna.
- P3 – People, Planet, Profit, o.p.s. - provides training and consulting including legal advice to start-ups and already running social enterprises. Target groups – without restriction. Municipalities and regional offices are provided consultancy as well. A paid service. Free advice for TESSEA members until 31st June 2014.
- Vodafone Foundation – offers a programme One year in a different way that matches a person from business with an NGO or social enterprises and paid his/her salary. Free of charge, financed by Vodafone.
- CSOB bank owned by KBC with its grant programme Stabilisation of social enterprises – provides small grants and advice to social enterprises as a pilot. The programme is administered by P3 that provides also the advice.
- KPMG – offers a 12 months programme One year together – a step forward, a series of seminars for managers. Target group – NGOs. Free of charge, financed from their income as a CSR activity.
- MoLSA – a network of local consultants and experts/coaches to help existing and future employers who want to set up a social enterprise. Apart from consultations, there is also an offer of study visits to social enterprises. Free of charge, financed by OP HRE (European Social Fund).
- Ashoka – Two Ashoka fellows are social entrepreneurs/innovators who received finances for their 2 years living costs.
- NESsT Incubator
- HUB Prague – a part of the Impact HUB Global Network. They cooperate with the ERSTE Foundation and Ceska sporitelna, organise the Social Impact Award and many events connected to social entrepreneurship. HUBs have been open recently in other two Czech cities.
- The Centre for Social Economy of the Prague Social Services Centre, a semi-budgetary organisation of the Prague municipality – provides consulting and training. Target groups – employers, disadvantaged individuals, social enterprise start-ups. Free advice and attendance, financed by OP Prague – Adaptability.
- Fokus Praha (NGO providing social services in field to mentally ill people) supports the social firms model but their capacity is limited. They provide a limited advice to other Fokus organisations. No financial resources for providing support.
- PPSD – Personal Advice Social Cooperative – provides a paid advice to social enterprises and their start-ups in the Southern Moravia.
- Klastr – A cluster of social entrepreneurship – aims to provide help to social enterprises in the Northern Moravia, recently negotiations take place with the Regional Office about its support.
The new operational programmes
Social enterprises will be supported under 3 OPs within the ESF and ERDF: Operational programme Employment (OPE), Integrated regional operational programme (IROP) and Operational programme Prague – pole of growth in the CZ.
Priority Axis 2 Social Inclusion and Combating Poverty
Specific objective 2: Development of the social economy sector
social enterprises will promote activities intended to strengthen the position of people socially excluded, or at risk of social exclusion from the labour market. Those activities are aimed at social integration of the target group (or, prevention of its exclusion from the society) and facilitation of the entry and retention of the target group on the free labour market.
Activities promoting the access of socially excluded people into the labor market through active inclusion of people in social businesses;
Establishment and development of business activities in the field of social entrepreneurship, start-up support system, development and sustainability of social enterprises (and private sector involvement), including activities aimed to ensure easier access to finance;
The introduction of training programmes, education and counseling related to support the creation, establishment, operation and marketing of social enterprise;
Promoting and creating conditions for the emergence and development of social enterprises, including socially responsible procurement; awareness and information about social entrepreneurship and cooperation of all stakeholders.
Activities under this investment priority are followed up by activities in the priority axis 2 IROP “Quality improvement of public services and conditions of the population in regions“ aimed at the social and healthcare sector.
Specifically, the below IROP investment priority is concerned:
IP 9c: Support for social enterprises:
Launching new and enhancing the existing entrepreneurial activities in social entrepreneurship
Interventions financed by the ERDF will be in particular investments in the construction, reconstruction and rebuilding.
Operational programme Prague – pole of growth in the CZ
Priority Axis 3 Promoting Social Inclusion and Combating Poverty
Social entrepreneurship in Prague will be associated with the activities of cultural and community centres.
IP 2 (9c): Providing support to social enterprises
Strengthening of infrastructure for social entrepreneurship
IP 4: Promoting social entrepreneurship and integration into social enterprises and social and solidarity economy, in order to facilitate access to employment
Development of social enterprises to local communities.
The financial eco-system
In general, one of the main problems with creating a social business in the Czech Republic is to gather the necessary capital to start it. The lack of financial resources was identified as a barrier.
A demand on financial instruments among social enterprises is mapped by P3 surveys. According to a telephonic survey made in 2012, 65% of social enterprises need additional financial resources. From those who need additional resources, 35% prefer grants, 20% mid-term credits, 19% long-term credits, 14% short-term credits and 12% investor´s capital contribution. According to another P3 survey from 2013, half of social entrepreneurs consider financial management to be their biggest problem and they consider grants to be the best solution for their difficulties, followed by consultancy and active labour market subsidies. Only 6% of respondents would welcome loans. They have a bad experience with looking for loans and they have been encountered with distrust on the side of the financial institutions. Part of them did not want any loan because they felt unsure about sustainability of their business.
Social enterprise aren’t very successful in obtaining regular loans because most of the banks consider social businesses to be very risky assets. Private financial institutions are slowly becoming to be aware of the existence of social enterprises but they are very cautious. There are already three of them who implemented special programmes for social enterprises, but they are rather focused on consultancy than on finances:
1) Ceska sporitelna under the transnational group ERSTE Bank launched in 2011 a pilot programme for loans. At the beginning only two social enterprises in the Czech Republic were given the loan. The programme continues in two ways – a very limited provision of loans and a series of seminars for NGOs about financial management. in the cooperation with the VIA Foundation who operates the Academy of Social Entrepreneurship for NGOs – a set of seminars and consultancy for a few chosen organisations.
2) UniCredit Bank together with UniCredit Foundation has launched a programme “Better Business – a support to social entrepreneurship” that is implemented by the VIA Foundation. It provides training to 12 social enterprises and small grants to 5 of them.
3) CSOB, one of the biggest Czech banks owned by KBM, launched in 2012 in partnership with P3 – People, Planet, Profit a pilot grant programme called The Stabilisation of social enterprises. It provided a small grant and consultancy to 4 social enterprises. The programme will continue in 2013 again as a pilot and it will be extended after its evaluation.
A good incentive to the increase of social enterprises came in 2009 from Ministry of Labour and Social Affairs, with two calls for proposals targeting support for the social economy (see the Czech case study about global grants).
Important sources of funding for social enterprises who employ people with disabilities are the tools of active labour market policies. Those who employ people with social disadvantages can use only standard active labour market policy tools for unemployed people. Active labour market policies can be used under the same conditions by any employer (not only social entrepreneur) who fulfils its terms and conditions.
Programming period 2014+ of structural funds
Social entrepreneurship is going to be supported in the new programming period 2014-2020. Most of the needs of the social enterprise sector will be covered from OP Employment. The majority of the activities is planned in the priority axes 2 Social inclusion with the specific objective The development of the social economy sector. A lot of activities is incorporated, among others - grants for setting up social enterprises and opening access to other financial instruments. OP Entrepreneurship and Innovation will provide loans and guarantees for social enterprises – they will be given preferential treatment in scoring. Only SMEs will be eligible applicants. NGOs are not considered to be SMEs so financial instruments will be available only to a part of social enterprises.
Identity and visibility of social enterprises
Identity and visibility of social economy in the Czech Republic is quite weak. The general public mostly does not know what social economy and social entrepreneurship means and those who are more informed know usually social cafés that employ disadvantaged people. Anyway, a lot of awareness raising activities have been already done and the situation is gradually improving.
The thematic website www.ceske-socialni-podnikani.cz serves as the main source of information about social entrepreneurship. There are available many audios, articles and videos and there is an access to a special YouTube channel. It consists also a database of social enterprises with an interactive map and sorting according to the region, target group, field of activity, place of business and social utility. The website has a very good attendance (an average access 150 visitors per day, growing to 250 visitors in peak days). The website was developed and run by P3 – People, Planet, Profit in the ESF project and after its end is co-financed by the Ministry of Labour and Social Affairs.
A network of 8 ambassadors has been created by P3 that covers the whole republic. Ambassadors were very carefully chosen and they have personal experience with social entrepreneurship. They operated nearly 2 years under the ESF project, promoting social entrepreneurship by visiting regional and local stakeholders, organising seminars and panel discussions, contacting universities, media etc. They cooperate with the MoLSA network of local consultants who provide consultancy to those who want to set up a social enterprise. Ambassadors are managed by P3 that supports them by promotional materials. Their work in the ESF project was very effective and the network continues is functioning even after the end of the ESF funding.
Another important organisation in raising visibility of social entrepreneurship is the HUB Praha. It is attended mostly by young people. People connected to HUB perceive social entrepreneurship in a broader context, open more to ICT and social innovations. Each month a Social Business Breakfast is organised where many people exchange the information about their activities in the field of social entrepreneurship and do networking. HUB organises for young people the Social Impact Award that is financed by the ERSTE Foundation. Winners receive financial award and mentoring support.
There exists a trademark the Work of Disabled for the organisations who employ disabled people. The trademark is organised by the Endowment fund for support of employment of disabled people and its partner is the Association for quality evaluation. Up to now 22 organisations succeeded in gaining the mark, most of them being social enterprises. The process of gaining the mark is quite difficult and it is based on auditing procedures.
A new CSR award will be launched in November 2014 called We do business in a responsible way. The award has three categories - for SMEs, family businesses and social enterprises. The award is proclaimed by the Quality Council that works under the Cabinet Office in cooperation with the CSR Association, the Czech Association of SMEs and self-employed sole traders and P3 – People, Planet, Profit (for the category of social enterprises). Winners will be awarded at the Prague castle by the prime minister and it will raise the visibility of social enterprises.
Visibility will be supported in the new OP Employment.
Social impact measurement and reporting systems are not used. There was a pilot measurement of SROI by TESSEA. According to its results the SROI cannot be used widely in the Czech Republic at this point in time. The Czech Republic lacks the standardised procedures, tools and trained experts for this demanding kind of measurement, so the method is too expensive and time consuming for social enterprises. Its application without sufficient expert preparation would create many risks and inaccuracies and could result in the method becoming widely discredited.
This outline is based on the papers produced for SEN peer reviews by the Czech partners (Ministry of Labour and People-Planet-Profit)
SEN made three inputs to the Greek EU Presidency social entrepreneurship conference, held in Iraklion, Crete, on 10 & 11 June 2014. It contributed on networking, finance and impact measurement, and has been invited to present its results to the European Commission policy-makers planning the continuation of the Social Business Initiative.
The Greek Presidency’s conference on social entrepreneurship gave Greek participants a panorama of developments and initiatives in social enterprises across Europe, which could inform Greek policy and practice. At national and local level there is plenty of political commitment to building a social enterprise sector, but equally there was sadly evidence of blockages in implementation.
SEN made three significant contributions. Małgorzata Lublinska relayed lessons from the Warsaw per review on finance, Floriana Nappini described Better Future of Social Economy work on social impact assessment, and Dorotea Daniele outlined the network’s structure and conclusion to date.
The event was preceded by a meeting of the advisory committee GECES, and also saw the awards for the best three business plans from new Greek social enterprises. Some 200 people attended, including 50 from other countries.
The environment is receptive, and there were some important statements of policy intentions. Greece’s Deputy Minister of Labour, Social Security and Welfare, Vasilios Kegeroglou noted that during its EU presidency, Greece has stressed the importance of the European social model, based on social dialogue, and the need to find a new model of production based on partnership between the private, public and third sectors. He was particularly keen to learn for the experiences of other social enterprises and from networks such as REVES. He regretted the delays in improving support for social enterprises in Greece, but promised that it will happen. Emphasising that the government cannot just bring a social enterprise sector into existence on its own if the business culture is not there, he said: “Political will and funding is not enough – it has to be done at local and regional level.”
These good intentions were echoes by Stavros Arnaoutakis, regional governor of Crete, who hoped to achieve better outcomes in the forthcoming Structural Funds programming period, especially in creating jobs for unemployed people.
It should be added that Greece is a member of SEN, but although the government could learn a lot from SEN’s peer reviews, has only attended them sporadically.
It was time to peer into the future. In the ‘what’s happening in Europe’ panel, Anastasia Andritsou of the British Council reported some of the trends identified in their recent scenario exercise. She noted that 38% of UK social enterprises are led by women, and that 75% involved their beneficiaries in their governance. There is shift from identification by organisational form to a focus on social impact. Charities are under pressure to improve the quality of their services and to be more competitive. There is a drift from grant to loan finance. Bottom-up growth mechanisms are benefiting from crowdfunding and social franchising. The role of social enterprises is to create ‘Capitalism 2.0’.
Felix Oldenburg of the Ashoka Foundation expounded on the concept of ‘changemakers’ – young confident people who share the trait that they were trusted to solve a problem. Destination Change – New Solutions for Greece competition as attracted 100 projects, half of which are hybrids between an NGO and an investor-owned social business. He sees a future in a social innovation system that can ‘leapfrog’ over the welfare state.
Amaryllis Verhoeven, the new head of the unit dealing with social enterprise in the Internal Market DG, and Ariane Rodert of the Economic and Social Committee summed up the Social Business Initiative. The EESC’s Social Enterprise Project runs till November this year, and is taking stock of the recommendations of the Strasbourg conference in January, defining new actions, and keeping up the momentum as regards visibility and awareness. It is focusing on Strasbourg recommendations 1, 3 and 5: to co-create new policies, to built capacity through partnerships, and to develop a second phase of the SBI. In September it will produce a set of recommendations on the questions the new Commission and Parliament should address when they get going.
… versus democratic governance
A second panel presented developments in legal structures from four countries. The contrast between north and south was instructive. João Leite told how Portugal insists on democratic governance, and had deleted a proposed category of “social enterprises” from its Social Economy Framework Law in 2013, because “we don’t know what social enterprises are”. Similarly, according to Pablo García Valdecasas, Spain’s 2011 Social Economy Act insists on democracy. There are separate State Councils for the social economy and for corporate social responsibility. Rania Oikonomou described Greece’s 2011 Law on Social Economy and Social entrepreneurship, which also includes democratic governance. It has led to the establishment of 500 social co-operatives or KoinSEps. The government is now trying to create an ecosystem of support, including central and regional support organisations, incubator vouchers, business plan grants per job created and training. It is working with the European investment fund to create financial instruments.
This was in contrast with the approach taken in Denmark, as Ulrik Boe Kjeldsen explained. Here, the government has opted to set up a voluntary registration scheme later this year to raise the visibility of social enterprises, but not a new type of corporate entity. The register will have five criteria: a social, environmental or cultural purpose; independence; an inclusive and responsible nature; profit used for the social purpose; and a commercial activity. However there is no mention of participation. To help them attract capital, social enterprises will be able to pay dividends to investors, but these will be restricted.
How to network
In the networking workshop, Jonathan Bland described is experience as the first Chief Executive of the UK’s Social Enterprise Coalition as being about “networking for influence”. This he said, was a matter of defragmenting the movement, working hard on the technical issues, identifying the good people to work with in administrations, avoiding the blocking tactics of the many “Sir Humphreys”, and adapting to politics. A bottom-up approach with lots of consultation is essential, he said: “Governments can’t do it alone.”
Dorotea Daniele presented ESN’s work so far, summarising the lessons of SEN’s peer reviews as follows:
Public sector capacity:
- partnership for policy planning
- build capacity on both sides
- visible sector – increase capacity of support bodies
- interministerial co-ordination to break silos
- open markets through public procurement and partnership
- social franchising
- combine grants, loans and guarantees
- combine public–private and ERDF–ESF
- different funds for different needs
The presentation aroused considerable interest among the Commission representatives there. This is to be followed up with a presentation to high-level Commission staff involved in the Social Business Initiative on 9th July.
Designing financial instruments
Małgorzata Lublinska relayed some of the lessons for fund programmers that come out of SEN’s peer review on finance, held in Warsaw in April:
The €20m global grant scheme in the Czech Republic offers valuable lessons. It suffered from differing criteria and evaluators between the ERDF and ESF, had no mechanism to evaluate business plans, and was not accompanied by a business support structure. The 157 enterprises aided created 827 jobs.
The Polish financial institution TISE administers an €7.5m pilot loan fund for social enterprises funded by the Structural Funds. Its target is to make 380 loans by 2017. So far, 115 loans have been made, and 156 jobs created. Experience reveals various problems with some of the design features:
- €25,000 is too low a ceiling for the loans
- the fixed loan period of 5 years is too rigid
- the requirement that only job creation and investment can be financed is counterproductive – working capital is also needed
- the ceiling of 50 employees excluded many social enterprises employing disabled people
- the scheme is not available to start-ups and to enterprises with no legal personality (such as vocational training centres (ZAZs)
For the forthcoming programming period, Poland has carried out a financial gap analysis. This shows that grants should be the main means of support for start-ups, with a flexible loan scheme for established businesses. This will have a single fund manager with regional access points. There are to be additional grants scheme for enterprises with an exceptionally high social impact.
Talking to private wealth
In the finance panel, Paul Cheng of Shared Impact gave an insight into the mindset of philanthropists, who have billions of euros to invest strategically and want to create an impact. “Money is not scarce,” he said. “What’s scarce is well-presented investment opportunities.” You need to know your numbers and have a good business plan of course, but there is also a psychological aspect. What investors buy is your motivation, your ‘why’? So you can’t assume you’re doing great work – you have to tell your human impact story first. Secondly, don’t try to raise money too soon. Ideas are cheap – you need to have done something already. Thirdly, investors look for an investable team – they want to invest in good people.
Analysing the different types of finance, he said “Everything started with a grant, even in the commercial world.” grants are the appropriate type of finance for development capital, which is high-risk, equity or quasi-equity for working capital, unsecured loan for prefunding capital, overdraft for cashflow bridging and secured loans for property. “Don’t take on debt to finance growth!” he said.
He cautioned that impact investment is 10 years old in the US and UK, and will take another 20 years to mature across Europe.