The Barometer of access to financing of social economy enterprises was launched

Romanian social enterprises have low access to proper financing

January 28th 2022 – Bucharest / Iasi: More than half of the social economy enterprises in Romania use their own funds to develop, according to the latest research report on the social financing ecosystem in our country. Romania needs specialized private financiers to actively target these enterprises. This year, in April, the first non-banking alternative financial institution with Romanian capital dedicated exclusively to the social economy will be set up – AFIN IFN SA.

Businesses in the field of social economy in Romania urgently need flexible financing instruments, adapted to their specifics, as shown in the "Barometer of access to finance for social economy enterprises", recently launched during an online event.

The document includes an X-ray of the social financing ecosystem in Romania and identifies the solutions to the current problems of access to financing.

According to the report, in Romania, over 17,000 companies in this sector have difficulty accessing financing - available to other types of companies depending on their level of development (development of pilot projects, scaling - up and growth). More than half of them, regardless of the form of organization, are financed mainly from their own sources. Only two out of 100 respondents say they have accessed an investment loan in the last three years, and only one in a hundred companies included in the barometer has obtained a short-term loan.

"The problematic access to financing of social enterprises has multiple causes. Social enterprises are primarily socially active and therefore often give creditors or potential investors the impression that they are more risky and less profitable than other businesses. These entities also tend to be small, with no internal capacity to prepare a business plan and develop sound financial projections required by financial institutions. In addition, the still limited knowledge of financial institutions about the specifics of these enterprises - limited or non-profit distribution, participatory decision-making or democratic governance, measuring and reporting social impact makes it difficult for them to access traditional financing and SME support tools in general", explains Ancuța Vameșu, president of RISE and expert of ADV Romania, coordinator of the Barometer.

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

"The scoring indicates the level of development in terms of access to finance is quite low. Until several years ago, this area was less visible, with emergencies in other sectors such as the SME or microfinance sector. But I am sure that this project is a long-term one, for the future, because the market is at the beginning of the road, 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, during the launch event of the Barometer.

AFIN – alternative financing solutions addressing the social economy sector

The research carried out is part of the plan for business development of AFIN IFN SA - the first non-banking financial institution with Romanian capital dedicated exclusively to the social economy. AFIN will be a lending tool dedicated entirely to social enterprises and NGOs that develop inclusive, green and fair projects.

"AFIN was established out of a need on the market. As a social entrepreneur, I have often been confronted with the lack of solutions of financing 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. In our turn, we applied for a loan from an institution in Poland, which offered loans to social economy units, and when we saw how easy everything was, we said that such an institution must exist in our country as well. 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" Alaturi de Voi "Romania Foundation.

The operational model of AFIN IFN SA will be based on two main pillars. The financial pillar of AFIN will be complemented by the SFA (Social Finance Association), providing specialized assistance and know-how in the field of social financing.

"Given the best practices in Europe, but also our experience, we started from the idea that the best solution is to create a non-banking financial institution, which will offer medium and low value loans to economic operators with social impact. The operational model assumes that AFIN also benefits from warranty schemes, which are translated to our target customers, so that we can offer products with minimum guarantees or even without guarantees. AFIN will also work with an NGO - Social Finance Association, which will contribute to the development of entrepreneurial skills and will provide specialized assistance in the field of social finance ", explains Bogdan Merfea, social banking promoter and one of the initiators of AFIN.

AFIN IFN SA is being set up and is expected to be completed in April 2022. Participation in the establishment of AFIN IFN SA is currently being done by submitting a commitment letter. The minimum ticket to become a shareholder within AFIN IFN SA is 1,500 lei. The stage of submitting the share capital will end in March 2022. So far, over 85 people have decided to invest in the AFIN project.

The barometer of access to finance for social economy enterprises can be consulted in full here.