Krzysztof Cibor
31 December 2014

HUNGARY

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.

Support infrastructure

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

Further activities:

• 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:

http://tarsadalmivallalkozasoknapja.wordpress.com/english/

http://tarsadalmivallalkozasoknapja.wordpress.com/english/speakers/

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.

(See more at: http://www.nesst.org/blog/2013/06/23/sunny-skies-for-social-enterprise-i...).

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