The Essentials of Social Finance

Andreas Andrikopoulos, Annie Triantafillou

• Publisher: Routledge
• Year: 2021
• Print ISBN: 9781032136622
• eBook ISBN: 9781000483185
• Edition: 1
• Topic: Business
• Subtopic: Business Ethics
• Index: Business

The Essentials of Social Finance provides an interesting, accessible overview of this fascinating ecosystem, blending insights from finance and social entrepreneurship. It highlights the key challenges facing social finance, while also showcasing its vast opportunities.

Topics covered include microfinance, venture philanthropy, social impact bonds, crowdfunding, and impact measurement. Case studies are peppered throughout, and a balance of US, European, Asian, and Islamic perspectives are included. Each chapter contains learning objectives, discussion questions, and a list of key terms. There is also an appendix explaining key financial concepts for readers without a background in the subject, as well as downloadable PowerPoint slides to accompany each chapter.

This will be a valuable text for students of finance, investment, social entrepreneurship, social innovation, and related areas. It will also be useful to researchers, professionals, and policy-makers interested in social finance.

Part I

Social entrepreneurship and social finance

1

Social entrepreneurship

DOI: 10.4324/9781003230366-2

After reading this chapter, you will be able to:

1. Identify the role of the social entrepreneur in the social enterprise
2. Distinguish between the different types of social enterprises
3. Recognize the various components of the business plan of a social enterprise
4. Evaluate the contribution of social economy and social entrepreneurship to welfare and economic growth
5. Explain the importance of impact measurement for social entrepreneurship

INTRODUCTION

Entrepreneurship denotes the undertaking of risk for the purposes of identifying, creating, and deploying opportunities to design innovative products and services. Innovation in the context of entrepreneurship signifies the attainment of sustainable competitive advantage that secures profitability by way of managing change and satisfying customer needs in a manner that is superior to that of other enterprises. The basic pillar of entrepreneurship is the enterprise, the primary unit of production of goods and services, with the entrepreneur in the role of a catalyst, bringing together and organizing capital and labor, planning the production process, and establishing the strategic orientation of the production unit.

An enterprise does not stand in an economic, social, or political void. It constitutes a node in the nexus of production relationships and a distinct point in the historical trajectory of the society in which it operates. The significance of an enterprise for the economy stems from its interrelation with other nodes of the production nexus, such as the entrepreneur, the employees of the enterprise, the investors who provide it with capital, its suppliers, customers, and rivals, as well as the state.¹

Social entrepreneurship is part of the broader field of entrepreneurship. As such, it retains some of its basic traits, although it is different in terms of organization, operation and purpose.² Social entrepreneurship denotes risk-taking, as well as creation and deployment of opportunities for the purposes of generating social value. Social value denotes the promotion of social welfare through innovative production of public goods (Box 1.1 defines and explains the notion of public goods).³ While profitability and social impact are complementary objectives of the social enterprise, social impact has priority (reversal of this priority is often called mission drift for social enterprises).⁴

Social entrepreneurship denotes risk-taking, as well as creation and deployment of opportunities for the purposes of generating social value.

Box 1.1Public goods

Public goods are defined in economics as goods that are characterized by non-rivalry and non-excludability. Specifically:

Non-rivalrous are those goods that can be consumed by many consumers simultaneously, as their consumption does not affect availability of supply.⁵ Public libraries, motorways, orphanages, policing of public places, and the like constitute examples of non-rivalrous goods. The use of a motorway by a driver would not exclude other drivers from using the motorway at the same time. Similarly, local police safeguard civilians who reside in a certain area, as well as anyone who moves to that area.

Non-excludable goods are those goods that are available to all, meaning that no one can be excluded from their consumption. Public schools, hospitals, parks, athletic grounds, and the like constitute examples of non-excludable goods. For example, primary schooling is compulsory for all children above the age of 6; playgrounds are open to all civilians (nobody is excluded based on their income for example).

In accordance with the definition of public goods, it is worth making the following observations:

1. Public goods are not free of charge, in the sense that even if they do not involve a direct charge to the user, they use up society’s resources. Residents of a certain area, for example, may not be charged for using the playground, but construction of the playground involves costs (e.g., use of land, construction materials, the services of an engineer, a subcontractor, and the members of the local city council). Maintenance costs also need to be taken into account.
2. No good is fully public (i.e., non-rivalrous and non-excludable). For example, the capacity of a local police station to provide protection to the residents of a certain area is constrained by the increase in the local population above a certain level. Similarly, it is possible that the public nursery school in a certain area does not have the capacity to serve all the children who reside in that area, excluding some children from the service based on their parents’ income. Other examples include exclusion of drivers who do not pay tolls from using parts of the national motorway network or restriction of access to the city center based on the last digit of car number plates.
3. Most goods and services have some public goods characteristics, in the sense that they may incur benefits and costs to parties that are not directly involved in their production and/or consumption. For example, the screening of a film in an open-air cinema makes it occasionally possible to somebody living in a close-by block of flats to watch the film from their balcony without paying a price. By contrast, a film screening may disturb a neighbor who is not involved in the transaction between the party that screens the film and the party that pays a ticket to watch it. Similarly, in an agricultural area, the cleaning of a backyard of dry weeds does not only affect those involved in the transaction, namely the owner of the backyard and the worker who cleans it up; it also affects other neighbors who, incidentally and without contributing to the costs, happen to be protected from the danger of fire or snakes. In the same line of reasoning, a book transaction does not just involve the publisher, the author, and the reader. It affects the residents of the area where the paper factory is located and could also affect society at large by influencing the lives of people who neither produce nor read the book (for example, the book of the New Testament does not only affect those who produce, sell, or read it; it has a broader impact upon society).

For example, Thistle Farms is a social enterprise established by Becca Stevens in 1997.⁶ Its mission is protection and empowerment of women who have been victims of sexual abuse, trafficking, or have escaped drug addiction. Thistle Farms provides these women with accommodation, training, employment, as well as remuneration for their work, which is mainly in the production of deodorants, cosmetics, and jewelry. The enterprise maintains its social mandate, even though it makes its products available in the market at prices that make the business financially sustainable. Auticon is another case of social enterprise. It was founded by Dirk Müller-Remus in 2011 in Berlin, inspired by an Asperger’s syndrome diagnosis for his son. It provides software development, quality assurance, and data analytics services to a wide range of companies. All its information technology consultants are on the autism spectrum. It expanded to UK in 2016 and now is also active in France, Switzerland, USA, Italy, Canada, and Australia. Its investors include Ananda Social Venture Fund, Virgin Group, and Esmée Fairbairn Foundation.⁷ While Auticon pursues profit and growth, the social inclusion of people on the autism spectrum is a fundamental component of its identity. Box 1.2 presents the case of LivelyHoods, a social enterprise that is active in Kenya.

Box 1.2LivelyHoods

LivelyHoods addresses social and environmental problems in Kenyan urban slums.⁸ It was founded in 2011 by Tania Laden and Maria Springer as a US-based nonprofit organization and a Kenyan social enterprise. In Kenyan slums approximately 70% of youth is unemployed, with employment being more difficult for women. Moreover, most households burn biomass for cooking which is emitting toxic fumes that are responsible for the death of many Kenyans. Environmental problems are aggravated by deforestation, as 83% of forests in Kenya have been depleted over the past 50 years. LivelyHoods’ response is to employ and train young Kenyans who sell environment-friendly products in the slums. Thus, on the one hand young Kenyans find employment and training sales and business and, on the other hand, living conditions are improved with the use of solar products (lamps, mainly), clean-energy cookstoves, and household appliances that save energy (hence costs), protect the environment and health in Kenyan slums. Sixty-one percent of LivelyHoods staff are female and since 2011 LivelyHoods has created almost 2,000 jobs, trained more than 4,000 Kenyan youth, has generated savings in fuel worth more than 22 million US dollars and has saved more than 700,000 trees. Perhaps the most important achievement, in terms of fighting poverty and sustaining social cohesion, is that 50% of the salesforce goes on to start their own businesses, and the likelihood of poverty for the trained salesforce drops by almost 90% for the first year after training. LivelyHoods has received many awards and its funding partners include organizations such as USAID, EEP Africa, the Rockefeller Foundation, the Global Alliance for Clean Cookstoves, and the Osprey Foundation.

Social entrepreneurship focuses on addressing economic and social inequalities by providing food, accommodation, medical care, and education to those in need, as well as by protecting the environment and providing international aid in cases of natural disasters, epidemics, or wars.⁹ Given that such provisions also constitute public policy areas, it can be argued that social entrepreneurship has a complementary – or substitute – role in relation to analogous efforts on the part of the state. For example, a social enterprise whose mission is rehabilitation of people addicted to narcotic substances operates in a field of action that is partly complementary and partly substitutive to the respective public rehabilitation center. The unique positioning of the social enterprise amid the private and the public sectors – in the same terrain where the civil society¹⁰ is positioned – brings out the role of the social entrepreneur, a role between the conventional entrepreneur, wh...

Table of contents

• Cover
• Half Title Page
• Title Page
• Copyright Page
• Contents
• Part I Social entrepreneurship and social finance
• Part II Institutions of social finance
• Appendix Financial economics: eight introductory points
• Index