Financial instruments and mechanisms of funds’ allocation to social economy
– practices in European Union member states and regions
FI Strand of the NBFSE
Workshop on public-private initiatives on finance
FOR SOCIAL economy
12th March 2012, Prague
Report
Financial instruments and mechanisms of funds’ allocation to social economy
– practices in European Union member states and regions FI Strand of the NBFSE
Workshop on public-private initiatives on finance FOR SOCIAL economy
12th March 2012, Prague, Venue: Ministry of Labour and Social Affairs, Kartouzská 4, Praha 5
The purpose of this informal meeting was to verify previously acquired knowledge on the functioning of selected financial mechanisms and extend previous findings on attitudes and experience of providers. An important aspect becomes also debates about the possibility of use resources proposed by the European Commission, roofed by the new Social Business Initiative and cohesion policy.
12th March 201210:00 -10:15 – Welcome and open of session – Marek Jetmar, Filip Kučera
10:15 -10:45 – Presentation of Financial instrument Strand - products of FI strand, key findings.
10:45 - 11:30 – Presentation and discussion on draft recommendations to EC and member states
11:30 - 12:30 – Lunch
12:30 - 14:15 Experience on providing financial support to SE
Finance for social economy in the Czech Republic – ESF and ERDF global grants and private initiatives (Česká spořitelna, Nadace VIA).
Trividend cvba - Bernard FORNOVILLE, general manager / - the role of private capital in the provision of preferential financial products,
- experience with combination of various financial instruments (loans, equity, working capital, guarantee),
- experience with management of Trividend CVBA in terms of balancing the goals of public and financial sector,
- risk management of products,
- the success of the system – outputs, outcomes, findings of evaluation processes,
- compensation of losses,
- future development of the system.
Hefboom - Marion Cahen / - experience with creating comprehensive solutions for small businesses,
- experience with providing working capital,
- risk management,
- experience with combination of various financial instruments (loans, guarantee),
- the success of the system – outputs, outcomes, findings of evaluation processes,
- the issue of state aid,
- ensuring the supply of capital for Hefboom.
14:15- 14:30 Debate on objectives of SBI and cohesion policy 2014, possibility to use ESF resources for strengthening the SE – support capacities of clients, networking, skills of banks, money for financial instruments, guarantees loans, interest subsidy etc.
14:30-15:00 Recommendations of FI Strand NBFSE related to the public-private initiatives
A) Hefboom
Hefboom was founded in 1985 as a cooperative society for ethical investing. It provides funding and advice to projects to work on a social and sustainable society. Hefboom offers ethical investment products for individuals, organizations, companies and public administrations. Organizations and companies with a social mission in Flanders and Brussels can lever in turn for various loans. Hefboom together with partner organizations supports employment and training initiatives for disadvantaged groups, projects in welfare, projects focused on environment and sustainability. Hefboom supports organizations in two ways: with short and long term loans and also with advice on various aspects of enterprise policy. The choice of such a complementary approach is deliberate: it guarantees a high level of expertise of the industry and enables us to keep in touch with all aspects of enterprise policy.
The capital of the Shareholders is used to leverage projects with a social benefit of support. The shareholders are through the General Assembly involved in the investment policy in the way that they actively and knowingly participate in a social and sustainable society.
Credits for companies:
- Working capital Loans (for example inventory finance); duration 1 year, any extension must be approved,
- Bridging Loans, to keep working until the grants are paid. Funding for up to 75% of the approved grants; duration is between 15 days and 12 months,
- Investment Loans for purchase of materials and equipment, renovation and construction; duration varies between 1 year and 15 years,
- Other instruments: guarantees, bonds and other tailored loans.
Marion Cahen presented Microcredits program - financing for bank-excluded people, in order to start up their own businesses.
The Solidarity Loan was provided during the years 2007 to 2011 (269 credit requests processed, 45 proposed for approval to the Board, 22 approved).
From 2012 in a new microcredit involved The ‘ImpulsKrediet’. Objectives: 40 credits in 2012, 70 in 2013, 110 in 2014, 150 in 2015. The features are higher lending possibilities, more local embedding, better partnership with Business Support Services, funding guarantee, quality guaranteed. Distributive mechanism is based on partnership between Hefboom is providing front office and back office, credit boards, coaching and Dexia Foundation – financial support, team of volunteer couches engagement.
Financing the instrument: 50% sources form Hefboom – 50% SIFO (Social Investment Fund) (Cost: 2% p.a.) Guarantee is provided by Flemish Government Guarantee Facility (Participatiemaatschappij Vlaanderen): 75% (Cost: 0,5% p.a.) Expected Default Risk is from 15 to 25%.
Hefboom own risk (= 9,38%) will be covered by an intern guarantee fund (handling costs, maybe public and private grants). Operational costs are covered by grant from Agentschap Ondernemen (Flemish Government) for the handling costs – 2 years, grant from Dexia Foundation.
The ImpulsKrediet is intended for people who would like to launch their own business but who do not have access to bank credit (social welfare, starting business, debts, no guarantee etc.) No extra social conditions are required, but some activities are excluded, mostly those who do not match Hefboom’s values or where Flanders doesn’t have any advantage (pure import/export). The microcredit is demand by these typical target group: 50% is on welfare, ; majority lives alone; 40% women; group at risk to fall below the poverty line. The main aim of microcredit is social re-integration.
Hefboom provides business support services in two stages. Prior the submission of application -coaching for the shaping a business plan if needed (Hefboom or Business Support Services) or Application form is a mini-Business Plan: first serious selection. After:24 months active support provided by Dexia Foundation. Every credit borrowers has to be coached in order to limit the default risk.
Combination with European Funding - potential - Jasmine: monitoring/coaching, EPMF (EIF): European Progress Microfinance Facility:from 100 loans a year, structural funds still no, depends on the issues new social Cohesion programma’s.
B) Trividend equity fund and subordinated loans
Trividend cvba is a cooperative that provides venture capital to organizations with social value. Trividend was set up on the initiative of social financiers (Hefboom in the 1st place) and with support of government and private partners. Trividend invests money (in the form of risk capital and subordinated loans) but also offers business support in the form of guidance (shaping business plan), support and monitoring.
Trividend name refers to the "triple bottom line": people, planet and profit. This institution supports a sustainable business which is corporate and socially responsible (human and environmentally friendly, CSR). Besides - and yet instead of - a "dividend" it offers a particularly social return, a social value - investment in health and corporate social employ.
Trividend participates as a shareholder of company’s equity. It becomes a minority shareholder with right to appoint a director in the board. Exit arrangement is usually after 6 years up to 10, but it is possibility to extend it. Trividend also provides subordinated loans to companies and associations. Loan without taking guarantees - unsecured loan; co-financing via SIFO - social investing fund for social economy). The term is usually 3 up to 10 years.
Trivident provides capital directly. Direct investment is up to EUR 150,000 per customer; the same rule for both instruments – loan, equity. Initial capital EUR 1,500,000; share capital amount EUR to 2,500,000.
What is concerning the price for equity it depends on the type of customer estimate, based on business plan - relevance for society, financial means, sector, risks, management competence, scale, degree of innovation etc.
-equity capital type 1 (financial means “smaller”) - 2% management fee, for file follow-up, per annum; expected profit of at least 4% per annum,
-equity capital type 2 (financial means are “larger”) - no management fee, expected profit of at least 9% per annum.
What is concerning charges for loans:
- subordinated loan type 1: Interest rate = prime rate (duration) + 2%; cofinancing is possible with SIFO. Trividend borrows from SIFO at 4% and lends to customer at 5%.
- subordinated loan type 2: interest rate = 9% at least, and/or convertible (compare mezzanine-credit, Cultuurinvest etc.)
These fees are able to cover roughly 50 % of costs.
Applications are continuously sent to Trividend headquarters for processing. First communication is carried out through the web application. The organisations concerned must meet 7 investment criteria. It is necessary to obtain only positive scores in several of the following seven investment criteria, and no negative:
- employment of disadvantaged;
- special attention to working conditions and relations;
- focusing on the environment in all activities and production;
- participative enterprise;
- attention to democratic decision;
- seek a proper balance between the interests of the stakeholders
- earnings in the first instance to use the social goal
Trividend invests in companies and associations with social activities or business in Flanders from all sectors of industry, commerce, services, education, health, etc.
Trividend also helps organisations to develop their ideas and to prepare them to take capital. It means it does not provide consultancy but management assistance. Other activities represents monitor of legal compliance, encouragement of reporting, training and education activities (together with Antwerp Management School), providing advise - an external board member.
Both mechanism still are not supported by ESF on other side public funds participation is crucial.
Outputs of debate:
- both financial mechanism present comprehensive solution for SE;
- both are focused on specific targets group of disadvantaged people, entrepreneurs;
- Hefboom and Trividend are connected to each other - Trividend is a subsidiary of Hefboom; Trividend is one of the entities associated with Hefboom - other specialized organizations implement additional complement, related services (education, accumulation of capital, etc.);
- professional management of both companies;
- there is a risk allocation between public and private institutions, risk management in both examples is similar to the commercial sector;
- providing of preferential capital need involvement of other public institutions and corporations - providing free capital, guarantees, payment of operating costs, etc. – implemented a sophisticated model which motivates managers of Hefboom and Trividend to respect the principles of good corporate governance;
- the mechanisms still are not co-funded by structural funds, their participation will depend on priorities of future operational programmes;
- the experience is transferable to other countries.
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