In a new report, Forum for Social Innovation Sweden an overview of how to finance the development of social innovations. Although it can be difficult to secure funding for long-term social change, there is a wide variety of funding options available.
In the report *Financing Social Innovation*, Malin Lindberg, visiting professor of social innovation at Malmö University, examines the need for funding and describes various forms of financing, as well as the opportunities and challenges involved.
“There is a surprisingly wide variety of ways to finance social innovations, ranging from social investments to crowdfunding, reserved procurement, project funding, and internal resources,” says Malin Lindberg.
Need for funding
In the initiation of social innovations, funding is needed to mobilize relevant societal actors and resources to address a specific societal challenge, jointly generate ideas, and test possible solutions. In the establishment of social innovations, funding is needed to create and operate a sustainable model for the solution that has been developed and tested. In the integration of social innovations into society, funding is needed to spread the established solution to more locations and contexts, as well as to ensure and highlight its societal benefits.
Easier to find funding for the initial phase
“Overall, it is often easier to find funding for the initiation of social innovations than for their establishment and integration,” says Malin Lindberg.
Among other things, there is a need for seed capital to establish and operate sustainable businesses, similar to what is offered to for-profit companies by the state-owned group Almi. Here, alternative investors such as Mikrofonden and Ekobanken are working to pave the way for similar seed capital for nonprofit and cooperative enterprises.
A Range of Funding Models
The funding of social innovations includes both external resources, such as project grants, reserved procurement contracts, ide-driven public partnerships (IOP), social impact contracts, microloans, and the sale of goods and services. It also includes internal resources in the form of staff, surplus revenue, and social investment funds.
“The type of funding that is best suited for a particular initiative can be influenced by factors such as its area of activity, organizational structure, sector, or geographic location,” says Malin Lindberg.
Long-term and patient financing is needed
Since it can take a long time for social innovations to take root and have an impact, long-term and patient forms of financing are often needed. In some cases, this has been made possible through so-called “string-of-pearls projects,” where initiatives are gradually scaled up through external funding to multiple subsequent projects. In other cases, outcome-focused investments such as microloans, flexible loans, and social impact contracts can be helpful.
External factors influence financing opportunities
There are a number of external factors that influence the financingof social innovations. In Sweden, there is a call for greater government responsibility in shaping a financial market for socially sustainable financing instruments such as social bonds, social investment funds, and social impact bonds.
For example, there are strong norms stipulating that funding for innovation should primarily contribute to commercialization and economic growth, which suits certain types of innovation but not others.
“The focus on financing technical and commercial innovations in fast-growing companies does not reflect the diversity of solutions and driving forces inherent in social innovation,” says Malin Lindberg.
This means that only a small portion of all funding for innovation in Sweden goes toward social innovation. However, a different approach is beginning to emerge among certain investors.
“Impact investing can be seen as part of a potential paradigm shift in the financing of social innovation, as it can pave the way for a ‘social finance market’ where private capital complements public and nonprofit resources in a way that has rarely been the case in Sweden’s tax-funded welfare model,” says Malin Lindberg.
Fact:
The report was produced within the framework of Sweden’s National Competence Centre for Social Innovation the European Social Fund (ESF), which is run by Forum for Social Innovation Sweden behalf of the ESF Council, in collaboration with the National Network for Coordination Associations and the Partnership for Social Innovation in Örebro County.
On April 22, Forum for Social Innovation Sweden hosted Forum for Social Innovation Sweden webinar on financing social innovation, during which the report was launched and the Swedish ESF Council provided information about the call for proposals titled “Feasibility Study: Innovative Forms of Financing to Address Societal Challenges.”
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