Social enterprises in Romania have little access to adequate funding

The Barometer on Access to Finance for Social Economy Enterprises has been launched

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31 January 2022 - Bucharest / Iasi

More than half of the social economy enterprises in Romania use their own funds to grow, shows the latest research report on the social finance ecosystem in our country. Romania needs specialised private funders actively targeting these enterprises. This year, in April, the first non-bank alternative financing institution with Romanian capital dedicated exclusively to the social economy - AFIN IFN SA - will be established.

&Important social economy enterprises in Romania urgently need flexible financing instruments, adapted to their specific needs, according to the „BAccess to finance metric for social economy enterprises”, recently launched during an online event

The paper provides an x-ray of the social finance ecosystem in Romania and identifies solutions to the current problems of access to finance.

According to the report, the more than 17,000 enterprises in the sector in Romania have difficulties in accessing funding - available to other types of enterprises depending on their level of development (pilot project development, scaling up and growth). More than half of them, regardless of their organisational form, are mainly self-funded. Only two out of a hundred respondents say they have taken out an investment loan in the last 3 years and only one out of a hundred surveyed has taken out a short-term loan.

The problematic access to finance by social enterprises has multiple causes. Social enterprises have mainly a social mission and therefore often give the impression to lenders or potential investors that they are more risky and less profitable than other enterprises. They also tend to be small, without the internal capacity to prepare a business plan and produce the sound financial projections required by financial institutions. In addition, financial institutions' knowledge of the specificities of these enterprises - limited or non-distribution of profits, participatory decision-making or democratic governance, measurement and reporting of social impacts - is still limited;hinder their access to traditional financing and to instruments supporting SMEs in general, explains Ancuța Vameșu, president of RISE and ADV Romania expert, coordinator of the Barometer.

The report also includes the first assessment of the social enterprise ecosystem in Romania on the access to finance dimension, carried out with the OECD's Better policy for social entrepreneurship tool. The conclusions are clear: there is an urgent need in Romania to develop an adequate financial ecosystem capable of providing effective support to social economy organisations.

„Ascore indicating the level of development on access to finance is quite low. Until a few years ago, this area was less visible, with urgencies in other sectors such as SMEs or microfinance. However, I am sure that this project is a long term project, for the future, because the market is at the beginning of its path, which makes this institution an opportunity for those who want to invest," said Raluca Ștefania Andreica, general manager of Patria Credit IFN, one of the co-authors of the study, at the Barometer launch event.

AFIN - alternative financing solutions for the social economy sector

The research conducted is part of the development business plan of AFIN IFN SA - the first non-bank alternative financing institution with Romanian capital dedicated exclusively to the social economy. AFIN will be a lending instrument dedicated to social enterprises and NGOs developing inclusive, green and equitable projects.

AFIN was born out of a market need. &I have often encountered, as a social entrepreneur, the lack of funding solutions for the 3 social enterprises in the ADV group and, from my own experience, I know how important these funds are for development and for achieving the social mission. We at our network took a loan from an institution in Poland, which offered loans to social economy units, and when we saw how easy it all worked, we said that such an institution should also exist in our country. Entrepreneurs with social DNA understand very well the challenges of this sector, and now is the time to invest together and see how our money can multiply the good in the community," says Angela Achiței, president of the Foundation "Alături de Voi" Romania.

The operational model of AFIN IFN SA will be based on two main pillars. AFIN's financial pillar will be complemented by the SFA (Social Finance Association), which will provide specialised assistance and know-how in the field of social finance.

In view of best practice models in Europe and our own experience, we started from the idea that the best solution is to create a non-bank financial institution, which will provide medium and small loans to economic operators with social impact. The operational model implies that AFIN will also benefit from guarantee schemes, which will be translated to our target customers, thus offering products with minimal or even no collateral. Integrated, AFIN will also work with an NGO - Social Finance Association, which will contribute to the development of entrepreneurial skills and provide specialised assistance in the field of social finance, explains Bogdan Merfea, social banking promoter and one of the initiators of AFIN.

AFIN IFN SA is în being set up and is intended to be completed în April 2022. Participation in the înfiestation of AFIN IFN SA is now by submitting a letter of commitment. The minimum fee to become a shareholder in AFIN IFN SA is 1,500 lei. The share capital deposit phase will end in March 2022. So far, more than 85 people have decided to invest in the AFIN project.

The Barometer on access to finance for social economy enterprises can be consulted in full here.