Market Gaps on Access to Finance - Bank of Valletta

Table 8: Mapping of financial instruments with local social enterprises
Economic sectors Current financing needs Current financing options Scope for financial instruments
Social enterprises
The main current issues that are impacting local
social enterprises are the protection of capital
resources, lack of economies of scale, and the need
for specialist human resources.
The new policy framework for social enterprises
would determine the legal ‘personality’ of the
enterprise, and this recognition would in return
ensure it could operate on the market with the
necessary capital.
However, the implementation of the new framework
will not only bring about greater protection/ rights,
but also increased obligations. These relate to
meeting operational benchmarks for management,
human resources, services-driven income,
liquidation and reporting mechanisms. They will also
be subject to a social audit to monitor the quality of
their service provision.
Lack of legal recognition, hindering funding
possibilities
Need to invest in capital and human resources
Government policy to provide a new legal/
regulatory framework
Greater regulation means more (costly)
obligations
A number of local social enterprises are off-shoots
of charities, seeking to engage their clients in the
world of work with a service offering from which to
derive income. This income would then be
ploughed back into the enterprise to expand its
infrastructure or workforce. The limit is thus
imposed by the enterprises’ internal means.
Current financing options relate to donations,
sponsorships and other fund-raising initiatives.
Bank financing is very often limited due to the
collateral requirement. In the case of EU funding,
restrictions relate to the legal status of the social
enterprise, the eligibility rules and the limited
number of calls earmarked for such enterprises.
Significant number of potential “social
enterprises”
Limit to growth imposed by internal sources
Few national/ EU earmarked schemes, and
various competing enterprises
Lower access to bank financing
Page | 67
The new framework aims to create the necessary
legal provisions to recognise these social
enterprises separately from other business
structures. This will facilitate the operations of
these enterprises on the market, with the
necessary capital. For instance, not-for-profit
principles, a social objective and democratic
control would qualify a social enterprise for EU
funding. Such recognition could also facilitate
access to bank financing. Potentially, considering
the collateral restrictions, EU schemes combining
loan guarantee instruments and grants would be
best suited for such enterprises.
In addition, concepts of social venture capital and
the development of social corporate venturing,
allowing for shares to be acquired in a social
enterprise, are also often mentioned within this
context. However, these options are potential
sources of finance at a later stage of the social
enterprise lifecycle. In Malta, the options
mentioned in the previous paragraph are likely to
be more attractive to local social enterprises. Box
3.5.4.3 and 3.5.4.7 are examples of MFF financial
instruments being proposed for this sector.
A proposal for crowd funding has also been put
forward by the Creative Economy Working Group to
finance community arts and heritage projects with
potential inclusion of civil society causes and
community sports projects.
Increased potential for bank financing
Greater scope for schemes aimed at social
enterprises
Other innovative concepts could relate to
social venture capital, social corporate
venturing and crowd funding