Theoretical base
Despite the enormous discussions and the ubiquitous use of the term
social finance, there is no broadly accepted definition of what it is
and what it incorporates (Rexhepi, 2017). There are, however, many
definitions of social finance. The common theme throughout all these
definitions is that it is oriented toward investments flows through
which an organization tries to generate financial returns for
sustainability by solving the world’s most complex challenges.
Investments are generated from private investors and governments, which,
through social finance, create profit and bring social good for all.
Nicholls et al. (2015) expounded that social finance can be seen as the
discourse around investments flows that is developing in concrete terms
in the new institutions of supply, intermediation, and demand and
pointed out that the discourse is in a flux with competing perspectives
driving the debate.
The discourse that has emanated from this common understanding is about
the differences between social finance and micro-finance, social
investments, Corporate Social Responsibility, and not-for-profit charity
work. As Massetti (2012) has indicated, social finance is conceptually a
very different approach to micro-finance, Corporate Social
Responsibility, and not-for-profit charity work, which can all be
grouped under social welfare enhancement. Social finance, on the other
hand, uses some ideas of neoliberal markets to drive social change, and
it is increasing the need for social and environmental improvements,
with a vast potential to make a tremendously positive impact on the
economy (Rexhepi, 2017). Social finance secures its own sustainability
by being profitable, and it is not necessarily created by government or
through donations but also by using personal funds, bonds, borrowing,
taking microloans, etc. Unlike microfinance, which is primarily a form
of crediting, social finance is a form of investment. However, some
organizations like the International Labor Office (ILO) see microfinance
as a form of social finance (ILO, 2010). Nicholls et al. (2015)
differentiate between social finance and social investment, explaining
that social investment is a narrower alternative to social finance which
is more of the full range of instruments, hybrid funding models, and
structured deals blending various types of capital that are evident
across philanthropic donations; government grants; ‘soft’ return debt
and equity; mutual finance; as well as ‘finance first’ and ‘total
portfolio’ impact investing strategies.
In this study, I use the term ‘social finance’ as a very broad set of
investment activities that generate financial returns and consider
social and environmental impact (Hangl, 2014; High Meadows Institute,
2015; Nicholls et al., 2015; Varga & Hayday, 2016).