According to the European Commission, “social businesses” or “social economy enterprises” can be defined as “targeting social, ethical or environmental goals as their primary corporate objective. Social businesses place their achievement of social impacts above the delivery of financial returns. For this reason they can be seen as hybrid businesses, which lie between traditional for-profit firms and purely philanthropic endeavours with no economic element.”
The following characteristics of social economy enterprises can be identified:
- They contribute to a more efficient market competition and encourage cohesion;
- Their primary purpose is not to make profit;
- They are run generally with the principle of solidarity and mutuality;
- They are flexible and innovative;
- They are based on active membership and commitment and very frequently on voluntary participation.
Social economy enterprises account for 10% of all European businesses and the social economy directly creates more than 11 million jobs.
Social businesses are often facing problems in accessing either conventional or philanthropic capital because it does not really match the objectives of either one. In order to promote social entrepreneurship, the European Commission has launched the Social Business Initiative in the framework of the Single Market Act.
In the “Communication on the Single Market Act” released in April 2011, the European Commission underlines the importance of social entrepreneurship as one of the 12 levers for new growth and proposes a “Social Business Initiative”. The European Commission embarks on the project of creating a more favourable environment for social business.
As part of the Social Business Initiative, the European Commission is working on different issues to foster the development of the social economy:
- It aims at improving the visibility of social economy to investors, for example through the creation of a new social rating that would help social businesses gain investors’ trust;
- It intends to create a “stock market” for social economy finance in the frame of the Competitiveness and Innovation Framework Programme 2014-2020;
- It supports the creation of a solidarity investment fund;
- It supports the European microfinance sector;
- It intends to implement an equivalent of the USA’s “Community Reinvestment Act” which prevents banks from discriminating in whom they lend to.
A consultation is implemented in summer/autumn 2011 with the aim to obtain feedback on possible options to help social businesses by means of investments from private individuals through investment funds. This consultation will be completed by a Communication from the European Commission.
Moreover, social business economy also benefits from different programmes aimed at helping SMEs such as the Competitiveness and Innovation Programme since most social businesses are SMEs.
Microfinance and Social business are closely linked. First of all, many microfinance institutions are social businesses themselves. They offer financial products and services to people excluded from the traditional financial system. Profits are reinvested for the benefit of customers.
Moreover, some microfinance institutions are committed to lending to social businesses. Finally, microfinance institutions may also take part in the creation of social businesses. The most striking example can be found outside European frontiers. It is the one of the Grameen Bank that has created in collaboration with Danone the Grameen Danone Foods in 2006. This joint venture aims at creating new jobs, improving children’s health as well as protecting the environment. Those realizations are considered as more important than profit-making, although the company has to be profitable in order to finance the construction of new plants. Such kind of joint ventures can also be envisaged in Europe.
- Single Market Act
- http://ec.europa.eu/internal_market/smn/smn61/docs/smn61web_en.pdf (page 19)