Social finance can be adopted in Pakistan for solving various social issues. Its biggest challenge has always been the availability of funds, for which Islamabad has relied on the World Bank, the Asian Development Bank and various other funding agencies, with implicit costs.
Now, with the development of modern tools for raising funds under the umbrella of social finance, the government and corporate sector should pay attention to the pressing social challenges of education, health, housing, employment, energy etc.
As Björn Stigson, president, WBCSD, famously said, “Business cannot succeed in societies that fail. Likewise, where and when business is stifled, societies fail to thrive”.
As Björn Stigson, president of WBCSD, famously said, “Business cannot succeed in societies that fail. Likewise, where and when business is stifled, societies fail to thrive”
Corporate businesses work to maximise monetary returns for their shareholders. However, the researchers and practitioners at the Social Enterprise Initiative (SEI) strongly argue that business activities should be designed to both bring profit to shareholders and address social issues. Similarly, the accounting framework of double bottom-line has been adopted by many business entities to report their financial and social activities in order to add greater value for both shareholders and society.
The concept of social finance is an extension of the social enterprise idea where principles of finance and social well-being are applied to create maximum value for shareholders and the general public. There are different forms of social finance transactions being followed in various countries.
The first form of social finance transactions is the Social Impact Bond (SIB). Launched in 2010 in the UK, the SIB works with investors buying the bond (SIB) that promises to address a particular social issue in a given timeframe, with measureable outcomes. If the outcomes are achieved, the government repays the investors their amount along with a return for bearing the risk.
However, if the desired outcome (of activities performed by using the funds generated though the SIB) is not achieved, investors lose their amount. This whole exercise requires careful identification of a particular social issue for which the bonds will be issued along with specifically designed outcomes.
The Obama administration has also promoted Social Impact Bonds as a tool to achieve effective public-private partnerships.
The second form of social finance transactions is impact investment. These aim to encourage the corporate sector to invest in socially beneficial transactions.
In the US, big investment banks are offering social impact investments to high net worth individuals who want to combine social development and corporate returns.
Generally, these investments are made in clean energy projects, affordable housing schemes, skills enhancement etc. Some business entities also apply this concept while designing their business activities so as to provide maximum benefit to both, the customers, and society.
The third form of social finance is the establishment of Social Innovation Funds by different government and business entities.
The social innovation fund grants funds to social entrepreneurs who aim to solve a particular social issue by designing a suitable intervention.
Generally, these funds are invested in vulnerable communities for solving the issues of sanitation, education, skills enhancement, affordable energy, primary health care, natural disasters etc.
The responsibility of designing a workable solution rests with social entrepreneurs who identify a particular issue and convince the government and corporate entities to fund their projects.
The writer is an assistant professor at AIOU, Islamabad.
Published in Dawn, Business & Finance weekly, October 10th, 2016
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