Social Impact Investment and Inclusive Finance
Small businesses are a powerful force for social good. Starting a microenterprise can be the first step out of poverty for many of Europe’s most vulnerable social groups. Meanwhile, social enterprises place social impact at the heart of their business. Both types of entrepreneurs need sustainable access to financing, and the EIF deploys programmes to micro lenders, social banks and social impact funds that support this.
In 2018, we saw our individual transactions grow larger – a sign that social impact is finally entering the mainstream investment proposition. The EIF has also involved an important resource – EFSI Equity – in new areas, such as supporting accelerators and investing in payment-by-results (PBR) schemes. Now, one of our goals is to build this ecosystem by specifically investing in the providers of inclusive finance and social finance themselves. Take a look at our Helenos deal to see how we managed this in 2018.
Investment in micro borrowers and social entrepreneurs can be perceived as ‘risky’. Thankfully, investor confidence in this area is growing and the numbers champion themselves. Extra financing from EFSI for the EaSI programme has allowed us to carry out larger investments in social entrepreneurship.
...in more countries...
In 2018, we signed a pilot under the EaSI Social Entrepreneurship Guarantee with Erste Bank, which is expected to leverage EUR 50m for around 500 social enterprises in Austria, Croatia, the Czech Republic, Hungary, Romania, Slovakia and Serbia. For these countries, the concept of social enterprises is fairly nascent, but thanks to the risk enhancement of the EaSI Guarantee, there will be an increase in attractive loans in their own currency.
“I realised there was an opportunity to make an impact on people’s lives. We are a social enterprise, and while revenue is important, it’s not the most important thing for us. We are pursuing a social and environmental cause.”
Helioz, social enterprise financed
through the EIF, Austria
…with an even broader outreach
More microenterprises in French Polynesia, Guadeloupe and Guyana will now be able to benefit from microloans guaranteed under EaSI thanks to a guarantee increase for financial intermediary Association pour le Droit a l’Initiative Economique (ADIE). Thanks to increased financing under EFSI, we have been able to increase the guarantee amount under ADIE 2 from EUR 28m to EUR 80m, with the target of benefitting more than 8,256 micro borrowers in France and the outer regions.
Having more impact…
Microfinance guarantees have helped 44,780 people get financing for their businesses. This cumulative figure runs from the start of the EaSI Guarantee instrument in 2015 and includes 9,170 women, 4,063 unemployed people, 803 with no formal education, 18,259 with a migrant background and 1,983 under the age of 25. The businesses helped by the EaSI-backed microloans now employ 76,674 people, as at the end of September 2018.
We want to build up the capacity of banks and funds in the social impact space to help them do what they do, better. In 2018, we invested EUR 5m in Helenos, which invests in early stage microfinance institutions across the EU. In fact, it is one of the first dedicated equity providers in the European microfinance landscape to do this.
In a range of areas…
The businesses supported under the social entrepreneurship window of the EaSI Guarantee include those dedicated to producing and distributing healthy and affordable food (26%), helping disadvantaged workers enter the labour market (14.1%), improving the environment (13.5%) and integrating migrants and asylum seekers (12.9%). These percentages are cumulative from the start of the programme in 2015.
In 2018, we signed a record volume of guarantee transactions (EUR 77m) under the EaSI programme, up from EUR 46m in 2017. This also meant that not only will we have fully spent the EUR 100m EFSI top-up for EaSI signed only last year – but it means that we have significantly boosted the number of micro borrowers and social entrepreneurs in Europe benefitting from improved access to financing.
Social impact investing is a highly innovative area. Social problems are complex; interventions require robust evidence, deep analysis and a view of the bigger picture. Then, we must make sure that the structure of the investment supports the maximum impact.
“Anyone who needs it can get a chance with us.”
The Colour Kitchen
Utrecht, Netherlands. Getting the chance you need.
Financing purpose: scaling-up, opening new restaurants; hiring staff. EIF financing: EaSI Social Entrepreneurship, EFSI.
Grants, guarantees and refugees
Entrepreneurship is a route out of social exclusion and poverty. Providing micro borrowers who are also refugees or migrants with business support is a way of encouraging inclusion. Under a new EIF pilot, refugee or migrant recipients of the EaSI Guarantee will be offered grant-based business development services (BDS) support of EUR 400 each. The BDS pilot is the first time grants have been combined with guarantees in this way, and will be embedded as a new feature in the existing EaSI Guarantee for Microfinance.
Forging the ‘firsts’ in Spain
We agreed to invest EUR 10m into Spain’s first institutional social impact fund, Creas Impacto. Aiming to raise between EUR 20-25m in total, Creas Impacto will be Spain’s largest social impact fund and an important signal to other would-be fund managers of Spain’s welcoming fundraising environment. The investment was made through EIF’s SIA instrument. We are also supporting Spanish social enterprises through a EUR 3m investment into Equity4Good, managed by Ship2B, to support seed, early and late stage social enterprises in Spain. This second investment is the first under EFSI Equity to back a social impact accelerator.
…And in Portugal
Mustard Seed Maze Social Entrepreneurship Fund I will be the first impact investment fund focused on Portuguese SMEs. The social impact fund, which is targeting EUR 35m in size, benefits from a EUR 12.5m investment from SIA and a EUR 5m investment under InnovFin.
Leading the field for impact…
How do you really measure impact? The EIF has developed impact metrics that ensure social enterprises can report and measure their impact just as they report their financial performance. At the outset of an investment, fund managers supported by the EIF agree impact measurements with the social entrepreneurs in which they invest, and they take their financial reward based on the attainment of these impact targets. Impact metrics help to develop an industry-wide ‘benchmark’ that boosts impact as a whole.
“We are a bakery, we offer fast food services. We also aim to re-integrate people through active work placements.”
Drôle de Pain
Montpellier, France. Responsible bakery.
Financing purpose: renovation. EU financing: EaSI Guarantee Facility Instrument (social entrepreneurship).
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