Feasible Institutions of Social Finance: A Taxonomy

Abstract

This paper unpacks the continuum of social finance institutions (SFIs), ranging from foundations offering pure grants to social banks supplying soft loans. The in-between category includes under-researched "quasi-foundations" granting loans requiring partial repayment. We develop a model under which SFIs maximize their social contribution arising from financing successful social projects, under a budget constraint dictated by their funders. Our model determines the feasibility of each SFI category and reveals that quasifoundations are efficient and adapted to environments with low market rates. Finally, we show that value-based unconditional reciprocity from SFI borrowers can elicit a so-called "hold-up" effect, whereby the SFI maximizing its social contribution charges a high interest rate to its loyal clients.

Donors talk: The signaling and imprinting effects of giving to social enterprises

“…Both our theoretical framework and our empirical design are adaptable to such an extension. Moreover, they allow measuring the efficiency of subsidization techniques by comparing their impact on social performance Cornée et al, 2022). This extension is attractive because one of the most challenging issues in social finance today is to compare the social impact of "pure" donors with that of social investors, who have a hybrid agenda of financial and social goals.…”

The Changing Role of Banks in the Financial System: Social Versus Conventional Banks

“…Like for funders, reciprocity and social identification help rationalize the lenderborrower interactions in social banking (Périlleux, 2015). In this case, reciprocity can be theorized as either unconditional or conditional (Cornée et al, 2021). In the theoretical setting proposed by Barigozzi and Tedeschi (2015;, reciprocity is unconditional and simply derives from the nature of SBs.…”

“…Ultimately, SBs appear as financial institutions bridging the gap between social funders and motivated borrowers. By matching the two sides of impact-based financial intermediation, they promote social values and serve the common good (Cornée et al, 2021). Figure 2 sketches the global picture in which SBs are funded by motivated owners and deposit holders who accept to make a financial sacrifice and provide preferential loans at low interest rates to social enterprises.…”

“…SBs are at the intersection of two sets: the large set of banking institutions on the one hand, and the value-based grassroots initiatives aimed at addressing financial operations by prioritizing non-financial outcomes on the other hand (Mersland et al, 2019). The latter category includes various entities, such as crowdfunding platforms, microfinance institutions, financial cooperatives, community development banks, and charitable foundations (Cornée et al, 2021), which are concerned with providing funding opportunities and "put the person at the center of the intervention" (Milano, 2011). In short, SBs are financial intermediaries paying attention to the consequences of their financial operations on society and nature (Benedikter, 2011;Weber and Remer, 2011;Cornée and Szafarz, 2014;Paulet et al, 2015).…”