Press releases

Finance4SocialChange The EU-funded INTERREG project offers opportunities for the development of the social business in the Danube region.

Nowadays, social impact investment is a relatively new financial instrument that gains visibility and popularity among investors and entrepreneurs. The “traditional investment” advantage aims to ensure that social impact investments address social challenges in addition to business objectives. Brings together capital and expertise from the public, private and non-profit sectors (NGOs). However, the Danube region still lags considerably behind global trends in social investment and social impact investment. It is estimated that only 2 % of overall social impact investments (with an estimated market size of around EUR 450 billion in 2019) are targeted at social enterprises in the Danube region.

To bridge this gap in 2018, the Finance for Social Change (F4SC) project was launched. Supported by INTERREG DANUBE. Finance4SocialChange brings together a partnership of 14 project partners and 6 associated strategic partners from 12 countries to provide improved policy learning and develop practical solutions for impact investment. The Finance4SocialChange partnership promotes mutual exchange of experience between social enterprises, accelerators, impact investors and relevant national and regional policymakers. With a variety of different approaches and activities, Finance4SocialChange aims to improve the ecosystem for social investment in the Danube region.

In the first phase the relevant legal conditions and policy systems of the Danube countries were analysed. The analysis reveals a wide variety of financing instruments and policy measures already in place in the region. These measures and tools include:

— Self-financing social enterprises have some self-financing skills. Is based on the significant contribution of volunteering in the start-up phase of business activities, which also includes, in some cases, real financial support;

— Grants: in most countries there are financing mechanisms through “traditional” non-repayable instruments, which are particularly targeted at the social business sector (and social entrepreneurs). The sources of subsidies are provided by the EU, local governments and municipalities, and a large part comes from private donors;

— Loans: in some countries, financial intermediaries already provide credit to social enterprises. Existing intermediaries include traditional banks, socially oriented banks and financial institutions.

• Miscellaneous traditional banks created specialised institutions or private departments (e.g. in the case of the Danube: ErsteBank), which provides financial support through EU funds or specifically provides financial support to non-profit organisations.
• Socially oriented banks such as cooperative banks and ethical banks (social, civic or sustainable), are in principle willing to finance local initiatives, especially those promoted by social enterprises.

In countries where the social enterprise sector is well developed, such as Germany and Austria, traditional financial intermediaries they are in principle able to meet the needs of social enterprises by offering credit. In these countries, banks are generally willing to lend to social enterprises, as the sector appears to be less affected by the economic situation than traditional SMEs and is generally low risk due to the small size of social enterprises.

— Innovative social finance instruments: The role and opportunities for innovative financing of social enterprises are generally growing. In the Danube countries, the development of tailored alternative financing schemes for social enterprises is mainly supported by European funds. These schemes and instruments are:

• Social impact investments;
• social impact bonds,
• social Venture Capital,
• other crowdfunding such as crowdfunding.

Next step our analysis included an overview of government policy measures targeting social enterprises. Based on this systematic policy analysis, selected project partners with so-called “good practice policy measures” can act as “role models” for policy learning and inform and help policy makers across the Danube Region. This so-called “policy learning tool” provides information on policy measures targeting the social impact market in the Danube countries. These policy measures demonstrate a wide range of approaches that are currently being used to improve the functioning of social impact investment markets in the Danube region. Out of the total list of policy measures submitted, 15, the best were selected, discussed and analysed by the project partners. The selection was based on a standardised system with 11 evaluation criteria, such as: the proposal of value for investors, the key actors needed to set it up, the possible impact for the investor, the cost structure, the key resources needed, etc. A particularly important criterion was transferability, as this instrument is intended to facilitate the adaptation of the best measures in other countries/circumstances.

Based on the evaluation, 4 case studies were selected as state-of-the-art tools from different sectors supporting the impact investment. These case studies include the following programmes/tools:

— Social bonds (public-private measure), Bavaria/Germany;

• Mezzanine equity investment model managed by Agensocial Insurance Fund (FASE), Germany/Austria;

— Public funding programme – FFG Impact Innovation (funding programme managed by a public agency (FFG), Austria;

— Youth Bank (social enterprise) organised by an international charity fund (YouthBank International) with local partners, Bosnia and Herzegovina.

Overall, the following conclusions can be drawn from these policy analysis and evaluation activities for a step-by-step approach to stimulating and encouraging social and impact investments in the Danube Region:

Step 1: Encouraging young founders and young people with an initiative

Phase 1 starts with encouraging young people with an initiative and young founders to explore social entrepreneurship through programmes such as the Youth Bank (run by the social enterprise) or – at a later stage – programmes with an impact in innovation such as the funding programme managed by a public institution/agency (Public Funding Programme – FFG Impact Innovation). These programmes allow young people with an initiative and young founders to direct their efforts towards social impact goals, structure their ideas and engage stakeholders and target groups early on in order to reach the best solution (i.e. market for products and services). This makes it easier for them to access initial funding. These programmes may include a stronger mentoring component to deepen the learning experience of participants in order to improve the outcome. Further funding opportunities are also emerging for the best ideas that result from such processes. A good example of Phase 1 activities is the Bildünger programme, which is an inter-sectoral campaign aimed at transforming the Austrian education system. This campaign consists of different levels of engagement, community building and funding of project ideas as well as projects of young social enterprise founders. The advantage of the campaign is that the selected social enterprises/founders are introduced into a network of education actors, allowing them to access the education system, find partners and apply for funding.

Step 2: Support for the development of social enterprises and their preparation for investment

Following our analysis, we understood that more developed social enterprises (with a visible impact model with the already existing product/service offer, proven social impact, and a stable team) will rely on tailor-made impact funding provided by the ‘impact angels or private foundations. Impact angels, in addition to financing social enterprise, can act as mentors. At this stage, an angel impact will not expect a financial profit. However, impact angels and social enterprise will align in a team to further develop the impact and business model, create a development and growth strategy (from partnerships to social franchising) and improve organisational performance. As a result of this step, professional social enterprises would be expected to take a development path towards measurable impact and represent business models. An interesting strategy in Phase 2 can be financial support for social enterprise incubators, for example provided by Austrian good practices AWS Jumpstart. The programme funds incubators that provide support to start-ups and/or social enterprises to build their capacity. Part of the funding is directly dedicated to social enterprises, supported by the incubator.

Step 3 Ensuring private investment for investment-ready social enterprises

At this stage, the social enterprise is already ready to apply for impactful investments based on records and evidence of achieved social impact, organisational performance, supply of products/services and proven market demand, but it is also a smart replication/development model. it allows social enterprises to increase income over time. At this stage, financing instruments such as the mezzanine capital instrument used by the Social Enterprise Finance Agency FASE can be applied. These models operate with low but realistic returns on investment, with the social enterprise’s impact objectives at its core. Investment communities represent a new trend in the social impact investment sector. A group of investors has established a common process and criteria for the identification, evaluation, selection and financing of social enterprises. More than this group has created processes to generate a number of new social enterprises ready for investment. The investment pool may, for example, be connected to an incubator programme.

Step 4: Providing long-term funding opportunities for social enterprises

The instrument – the social impact bond appears to be designed to provide financing to social enterprises created that meet the criteria of stage 3 and have evidence not only of achieving social impact but of achieving a greater impact than from public support offers (support programmes for social enterprises). The idea of social impact bonds is to introduce new, innovative and improved approaches to meet the needs of specific target groups, which could receive assistance from state institutions. Social impact bonds influence private financing so that new proposals can be introduced so that they can be financed with public money in the future. Thus, if the impact objectives are achieved, the social enterprise is relieved of the financial risk borne by the private investors and the public institutions guaranteeing the coverage of the investment. However, the social enterprise has a strong incentive to demonstrate performance in order for the State to continue to pay for their product/service.

In general, all these steps and funding instruments allow stakeholders to learn more about social impacts and processes that lead to improved and sustained social impacts. As a result, the ecosystem becomes smarter by providing pathways for social enterprises to develop, disseminate, grow and institutionalise social innovations.

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