Interview with Angela Achiței, co-founder and board member of AFIN IFN S.A., about the story of the first non-bank financing institution with Romanian majority private capital. What is the profile of the social entrepreneur to receive a credit from AFIN, what are their challenges, and what are the future plans of these institutions, find out in the following interview.
Angela, you are one of the three co-founders of AFIN IFN SA and a board member of this organisation. How did the story of this institution begin, and why did you choose to get involved in its creation?
Every new project starts from a need. As representative of ADV Romania Foundation, one of the largest social enterprises in Romania, I was in the need of a bank loan for scaling up our activities. In 2010, we were not able to get the loan in Romania, because the banks did not have credit packages for social enterprises nor did they fully understand what we do and how we finance ourselves. Even though we had economic activity, due to our social mission they considered us to be risky and refused us credit.
However, through the recommendation of NESsT Romania, we managed to get a loan from a Polish bank specialising in social financing. Everything was very easy; with a few accounting statements sent by email, we signed a 3-year loan contract for 100.000 euros shortly after.
Later, in 2012, we decided to take another investment loan for the construction of our archive and document storage facility. Luckily for us, BCR was back then in the process of designing a social finance model and they accepted our business plan and agreed to give us a €150,000 interest-free ten-year loan. The evaluation procedure was very complex and lengthy, and the amount approved was partial on the condition that we first spend €100,000 of our own funds.
These two experiences have shown us once again how necessary it is to have social financing instruments in Romania adapted to the specific needs of social enterprises. The Polish bank visited us in 2016 and offered to work with them in Romania, but we declined the offer, considering that we did not have enough expertise in this field. Later, in 2019, I was contacted by Bogdan Merfea, a social finance promoter and expert in financial instruments, who proposed to set up AFIN together with Ancuta Vamesu, an expert in social economy, with whom we had already been collaborating for many years. From the start, the idea was to bring together experts from the social entrepreneurship and business sectors and to build a product tailored specifically to social needs. We took up the challenge because we saw a lot of expertise, and we trusted both the idea and the people with whom we started on this journey.
In 2021, we won a small grant from the European Commission and we started working on the product and the initial equity raising. As a result, 170 individuals and legal entities joined hands and built AFIN IFN S.A., the first non-bank financial institution with majority Romanian capital. In May 2022, AFIN was registered at the Trade Register in Iasi, then authorised as a social enterprise, and on 9 December 2022, AFIN was registered as an NFBI at the National Bank. Hopefully, we will start lending from the first quarter of 2023.
What challenges do social entrepreneurs in Romania face in obtaining funding for the development of social and environmental projects?
In Romania, we do not have a mature social economy sector. Therefore, the national authorities and financial-banking institutions have not given the sector much importance. Our luck as a country has been the access to European funds for the sector; but even here we have failed to manage them because we provided funding only for start-up grants, without investing in other social financing instruments, and introducing real and enforceable tax and non-tax incentives for social enterprises in the law.
The main challenge for these entities is therefore related to competitiveness and sustainability. Competitiveness needs to be "nurtured" with investments in human resources, equipment/machinery, digitalisation and innovation. Unfortunately, this is not available to social enterprises, which are not included in the support measures for SMEs; only if you have the legal status of an SRL you can apply for funding where you are in direct competition with other SMEs, which may be more mature and profitable and have a much better score in the evaluation.
So AFIN IFN S.A. comes to the grassroots with social financing tailored to the specifics of social economy organisations, with small vouchers of up to 40,000 euros and development consultancy, so that they can scale up easily and access larger loans directly from banks or other financial institutions in the future.
"We want to finance genuine social entrepreneurs who meet economic and social criteria on a daily basis"
What is the profile of the social entrepreneur you want to finance through AFIN? Can you give us some examples of social impact criteria that you will use in the analysis of the loan files?
First of all, we will look at social entrepreneurs who are genuine and who respect the economic and social criteria in their daily operations, as part of their raison d'être. We are interested to see that their business plan is well documented and anchored to the market, and that the impact generated by the funding received is social, environmental and of course economic.
We will also look at the economic indicators in the balance sheet: turnover, profit, number of employees, assets, etc.; but more than that, we will evaluate the human quality and innovation and growth perspective of the social entrepreneur. We want to talk to these people, beyond assessing the documents, to discover the potential of the business, to see how digitisation and the transition to a green economy is integrated into the business model and especially, how our funding contributes to these aspects.
Another point of interest to us is the creation of jobs, including for people from vulnerable groups, and increasing the social impact assumed in the statutory documents. We want to see if there is potential for scaling up and innovation, and whether the projected growth is sustainable and market-anchored.
What will be the role of the Social Finance Association (SFA) in this project?
It is another complementary instrument that we have developed alongside AFIN IFN S.A. and with which we have big plans to support social economy organisations. This entity will provide expertise and free advice to entrepreneurs to be financed by AFIN and beyond to make them competitive and sustainable. And on the other hand, we aim to attract private money in the form of donations and sponsorships to match the loan they will take from AFIN. A social entrepreneur, for example, needs €50,000 - but the analysis shows that although the business idea is very good and generates a significant social impact, there is still a high risk of repaying such a large loan. The evaluation committee can then propose that part of the amount be granted as a non-reimbursable grant through the SFA and the rest as a bank loan through the AFIN.
Why should social entrepreneurs be part of this ecosystem of social finance that you are building through ADV Romania? Entrepreneurs can now become members of the first social enterprise cluster in Romania, invest in AFIN IFN SA and benefit from SFA services.
The best growth you can have as a person and as a business is when you are connected to the system and the people from whom you can learn. The Accelerator of Social Enterprises Cluster, developed by ADV Romania and registered on the European Cluster Platform, is a useful tool to connect with other social enterprises in Romania and even the European Union. Here people can get to know the activity of other similar entities, participate in national and European events, have access to news in the fields of activity ticked in the accession process, develop partnerships on projects or even business relationships. This opens up a whole universe of learning and innovation at European level. Recently, ADV Romania has accessed European funding together with other clusters from 6 countries and will provide non-reimbursable funding to member companies for training, product/service prototyping and investments for marketing. Around 100 social enterprises from 6 countries, including Romania, will benefit from approximately €1.3 million grant funding.
AFIN IFN S.A. also represents a community of people connected with the social economy sector. More than 80% of the shareholders are social entrepreneurs. So, by becoming a shareholder, you automatically become part of this space of learning, support and accelerated growth.
ADV Romania has also developed an interactive map of social enterprises where you can list social enterprises across the European Union and the Eastern Partnership for free.
All these tools are free of charge and represent added value elements to connect and support the development of the social economy sector.
"Businesses developed through AFIN put people, environment and community first"
Where do you see AFIN IFN SA in 5 years?
AFIN will be a community with more than 1,000 shareholders, mostly social entrepreneurs, with a share capital of at least 5 million euros; it will be an important player in the social financing of social economy organisations in Romania.
I also see this experience replicated and scaled up in Moldova, where ADV Romania has been working for more than 5 years, and why not, even in other Eastern Partnership countries.
But beyond these figures, I believe that AFIN will be an important vehicle for building a sector of the future, where no one is left behind, and where the businesses developed through this instrument are focused on people, the environment and the community.