Krzysztof Cibor
30 December 2014

CZECH REPUBLIC

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.

Support infrastructure

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):

National scope:

  • 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

Regional scope:

  • 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.

OPZ:

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:

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)