Our research question is “how do solidarity financial institutions impact the social economy and its ecosystem?”. The literature suggests a number of reasons why social economy enterprises (SEEs) should benefit from accessing capital to support their development and eventually scale up their impact (Hebb et al., 2008; Karaphilis et al., 2010). However, traditional financial tools are poorly adapted for SEEs’ that develop emerging activities, respond to democratic aspirations, and exclude financial returns on investments. Traditional financial institutions do not know how to estimate the riskiness of such enterprises (Cornée, 2017). While there is a growing interest for alternative forms of impact investing, literature points that evidence for impact is generally missing (Guézennec & Malochet, 2013). Proposed solutions mainly focus on measuring the impacts of the financed activities. However, limitations of some of the most popular methodologies are well known (Kroeger & Weber, 2016). Access to finance is still only one of the components of the global ecosystem required for the development and growth of social economy enterprises (Rodert & Zvolská, 2015; European Parliament Social Economy Intergroup, 2015). Other aspects are crucial, namely knowledge of risk assessment in the specific case of SEEs, and intermediation between investors and project promoters. Yet, very little research has studied impact investment institutions themselves or their ecosystem. This paper focuses on the effects solidarity financial institutions (SFIs) have on the SEEs and their support environment.
We studied the case of a Québec SFI that acts as a lender of development capital funds (long term uncollateralized loans) to SEEs. We analysed data from different sources (information about the financed enterprises, secondary public data and interviews), namely exploiting of a unique set of detailed financial and non financial information used by the SFI to estimate the risk associated with 435 loans to SEEs between 1997 to 2014. We studied the selection, processing and leveraging effects of this institution’s intervention on the funded enterprises and on the social economy ecosystem.
Our results show that targeted projects provide a response to unmet socioeconomic needs and aspirations (Ben Ner and Van Hoomissen, 1991). Moreover, the financed SEEs carry an emphasized social goal: delegation of quasi-public goods and services (Hansmann, 1980; Weisbrod, 1988); training or offering jobs to people generally excluded from the work market; emerging in economically fragile areas; or allowing the constitution of market countervailing powers (Vienney, 1994). Our results also show that the SFI’s original methodology for analyzing projects’ risks serves to reinforce the viability of financed enterprises, in which the resilience of the business activity is correlated with the vitality of the associative governance and community support (Desforge, 1980). While the vast majority of loans provided by banking institutions are collateralized by assets (Becchetti & Garcia, 2008), this SFI works without such guaranties thus filling a financial gap. The third main finding is that the combination of using a specific risk analysis methodology and of offering an uncollateralized loan entices the mobilization of other financial and non-financial partners. This highlights the partnership effects of the SFI on the social economy ecosystem.
This study shows the systemic effects of a SFI as an essential component of an ecosystem devoted to social economy enterprises. In addition, it provides some avenues for assessing the impacts and systemic effects of impact financing.
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5. Social impact, value creation and performance
