“Social economy” as provider of financial services

A dossier on Finance and Social Economy

Accessing credit and elementary financial services is increasingly difficult for some parts of the population, in developed as well as poor countries. This financial exclusion aggravates poor peoples’ precariousness and reduces the development potential of our economies. There is thus an growing need for the “social economy” sector – which comprises not only non-profit actors as NGO’s, foundations and charities, but also community funds and the cooperative movement – to overcome the market failures of traditional banks and financial institutions. To fully appreciate this dossier, one shall begin with Pierre Calame’s text « Monnaie et Finance » (only in French for the time being), which deals with finance in the context of economic and environmental challenges that we have to face collectively. The following articles focus more closely on “social economy” actors and their role in the financial sector. The task is urgentas the evidence grows that traditional financial actors do no longer meet the needs of our societies.

In the European context, this fact is particularly relevant in the UK, as shown by numerous studies conducted by the New Economics Foundation (Nef). Even before the financial crisis of 2007/2008, its experts had pointed out the failure of the British financial system that has left bit by bit the poorest regions and neighborhoods. In the 2007 report, « Banking failure and how to build a fit financial sector », the Nef urges public authorities to support “Community Banking” initiatives and suggests the neef of a regulation framework for these actors (on the same issue, see also « The regulation of community developpement »).

But how can cooperatives and non-profit organizations play this role efficiently? This is obviously a difficult task. A concrete example is discussed in Christian Tytgat’s article (in French) about a “Caisse solidaire” – a community fund created in 1997 in the Nord-Pas-de-Calais region in northern France. Published in 2002, this report shows the difficulties of keeping a financial equilibrium while remaining faithful to its vocation. Equally, in « Microfinance et liens sociaux » (in French), Renée Chao Béroff discusses the two classical functions of microcredit: stimulating enterprise and reinforcing social bounds within a community. Drawing on examples from developing countries, the author shows that these two objectives are often contradictory, since microfinance institutions are not mere charities: they need to be profitable if they want to exist in the long run. Renée Chao Béroff thus proposes to create a quality label that could allow distinguishing between classical finance institutions and institutions that integrate social links in their investment priorities.

Another aspect of this debate deals with how funds which are actually allocated and used by the “social economy” actors themselves. Focused on private foundations, the article « Mission Possible » offers a range of examples from US and UK foundations, and introduces the concept of “Mission Connected Investment”.