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).