How to improve access to finance for socially driven organisations in Portugal
Socially driven organisations in Portugal lack access to capital but there are solutions to remedy this situation according to a new report published today, which was commissioned by the European Investment Bank Institute and carried out by the consortium Quaternaire Portugal (QP) and Laboratório de Investimento Social (LIS)*.
The findings of the report were presented during a roundtable held on 27 September in Amarante, where IRIS – a Regional Social Innovation Incubator fostering regional development through social innovation, recently launched by the EIB Institute and PortusPark, has its headquarters.
In Portugal, some 5 000 organisations with IPSS (Social Solidarity Private Institution) status provide the majority of social services. They are undercapitalised and have difficulties to access funding. On the other hand, banks do not see a market potential among this segment and therefore do not devise financial products that meet their needs. At the same time there is pressure on the State’s budget.
There are solutions to remedy this situation. Wholesale investors such as the EIB Group or EMPIS (Estrutura de Missão Portugal Inovação Social) should focus on financing risk so that it becomes easier to mobilise private investors while trying to avoid duplication between similar initiatives at a national level (Portugal) and at a European level.
Retail investors (banking institutions, companies, business angels and venture capital funds) should develop new products adapted to the needs of social enterprises. Two types of financial products were repeatedly mentioned as being very necessary: factoring and flexible cash-flow solutions. The development of customised products for social enterprises could lead the banking sector to look at the social economy as a specific client segment.
In order to improve their access to capital, socially driven organisations should focus on accessing capacity-building and acceleration programmes, so as to increase their autonomy and improve their understanding of the available financial mechanisms such as crowdfunding or peer-to-peer lending.
The public sector, which is the main source of funding of socially driven organisations in Portugal, should adopt a different approach towards them such as new contracting models based on outcomes, starting with pilot projects (Code Academy Jr in Lisbon).
A legal status allowing socially driven organisations to issue shares and therefore raise equity investment is also needed in Portugal. International examples (UK, Italy, France, USA) have shown that it is possible to have legal structures that are a hybrid between socially driven organisations and private commercial enterprises.
“Financing is crucial for Portuguese social organisations to develop. I believe that the conclusions of the report and the recommendations made in today’s roundtable will help to reduce the bottlenecks currently affecting them in terms of their access to credit”, said Francisco de Paula Coelho, Dean of the EIB Institute.
For QP and LIS, co-authors of the report, this is a relevant step to achieve a more successful match between socially driven organisations’ finance needs and the supply of financial instruments dedicated to the SEO market. Additional steps will be necessary to rectify the market failure, not ignoring the role of public social policies in orienting SEO towards higher levels of efficiency and organisation.
The EIB Institute was set up within the EIB Group (European Investment Bank and European Investment Fund) to promote and support social, cultural and academic initiatives with European stakeholders and the public at large. It is a key pillar of the EIB Group’s community and citizenship engagement. http://institute.eib.org/
Quaternaire Portugal is a corporate society owned predominantly by Portuguese shareholders, working in the following fields of expertise: Evaluation; Culture; Employment, Competences and Vocational Training; Spatial Planning; Strategic Planning; Urban Projects and Policies. It has twenty years’ experience of carrying out evaluation studies of programmes, policies and projects, namely those co-funded by the Structural Funds (ERDF and ESF).
O Laboratório de Investimento Social (the Social Investment Lab) is a project supported by the Calouste Gulbenkian Foundation and the IES – Social Business School, in partnership with Social Finance UK. Its aim is to be the primary reference in the area of social investment, through its focus on disseminating international best practices and innovative financial mechanisms and assessing their application to the Portuguese market.
Bruno Rossignol: +352 621 345 862, firstname.lastname@example.org
* “Social enterprises’ access to finance: an exploration into the constraints around social businesses’ access to finance in Portugal” is available to consult at http://institute.eib.org/.