see also Intergroup 110412
New sources of finance for the social economy
by Toby Johnson
The European Parliament hearing on financial instruments for social economy enterprises heard from two very different types of bank as well as about a wide range of non-banking initiatives. A representative of the Internal Market DG outlined the Commission’s plans.
Under the chairmanship of Mario Maurio, proceedings were kicked off by Sven Giegold, a Green MEP and vice-chair of the Intergroup. He welcomed the Single Market Act’s mention of the social economy. But existing SME policy needs to be built on, because the social and solidarity economy has specific needs regarding both equity and loan capital. It cannot access conventional equity markets without giving up control to investors. It also has difficulty raising loans as – despite its higher stability and lower rate of failure – its corporate governance model is viewed with suspicion.
Proposals for financial services reform risk endangering instruments that encourage entrepreneurship such as Italy’s Marcora Law or Spain’s pago único. To increase transparency, Mr Giegold suggested that there should be a mutual learning programme – a sort of open method of co-ordination – and an initiative to mainstream the social business model of democratic governance.
It fell to Pamela Brumter-Coret of the Internal Market DG to set out the Commission’s plans as regards finance for the social economy – appropriately, as it is her unit that is co-ordinating the communication that will set out the Social Business Initiative this autumn. She assured participants that Commissioner Barnier is well aware of the issues regarding the social economy’s access to finance – it is one of the key issues raised during the consultation on the Single Market Act which closed on 28th February. The Commission is working on the following issues:
- better visibility of the social economy to investors – by assessing existing rating schemes and if possible improving them to create a ‘social rating’ which could improve investor confidence
- a ‘stock market’ for social economy finance – this is part of the Competitiveness and Innovation Pramework Programme 2014-20;
- a solidarity investment fund – a legal instrument to improve investor confidence;
- microfinance – the first €20m loan under the EPMF has gone to Qredits in the Netherlands, and the question of whether JEREMIE can help the social economy more is being looked at;
- an equivalent to the USA’s Community Reinvestment Act (CRA) which prevents banks from discriminating in whom they lend to.
The first bank to present was Banca Prossima, a subsidiary of Italy’s biggest bank group, Intesa San Paulo, represented by its CEO, Marco Morganti. It was set up in 2006 to deal just with non-profit organisations – not with individuals, profit-making businesses or the public sector. Aided by the vast network of 6,000 branches at its disposal, it has built up a base of 12,000 customers – about a tenth of the country’s bank-using non-profits (a lot of the smaller ones don’t have bank accounts). It has €1.2bn on deposit and €600m out in loans, which add up to €1.8 bn-worth of what he calls “trust”. It is growing at 70% a year.
Banca Prossima has attracted these non-profit clients by having 200 specialist advisers, but also by developing two special tools:
- The first is an investment fund for the development of social enterprises, into which half the bank’s profit goes each year. It funds promising but risky projects and its supervisory board comes from the non-profit world. To ensure that it retains a European outlook, one board member is appointed by the European Parliament;
- The second tool is its ‘social rating’ technique. “Traditional rating systems underrate or even penalise certain characteristics of non-profit organisations, such as working on contracts with public authorities or having volunteer members,” Mr Morganti said. “But on the contrary these can be strengths. Our scoring system recognises this, so non-profits have a 40% higher chance of being financed. It works, because our loss rate, measured over three years, is less than 0.4%.” Only compare the average loss rate in Italy of 5.5%.
Banca Prossima never realised at the start that this social rating system would be the only tool it would need to assess its borrowers, but it has turned out that way. The bank contributes to regional development, with 27% of its loans being “south of Rome”. It is listed in the seminal Open Book of Social Innovation and its latest innovation has been to launch Terzo Valore, a peer-to-peer site which enables individuals to lend direct to social enterprises.
An alternative bank grows steadily
The contrasting presentation came from Martine Grégoire of Triodos Bank, which was set up in the Netherlands 30 years ago to follow ‘three paths’: people, planet and profit. It has spread to the UK, Spain, Belgium and Germany, but has stayed independent. It has built up a very healthy operation, with assets of €3.6 billion and a loan book of €2.1 billion, of which half is invested in the social economy. It has 285,000 clients and makes a profit. Its loans are of such exceptional quality that it has suffered no defaults so far. The bank is growing at around 20% a year, and this shows, said Mrs Grégoire, that society at large has a strong demand to influence its own future by investing in the right way.
Social Economy Intergroup - presentations from the hearing: http://www.socialeconomy.eu.org/spip.php?article1470