2 Social Investment Landscape
There has been an increased effort in recent years by social entrepreneurs to overcome the challenges of the traditional donation-based philanthropy model through social investment opportunities. To facilitate this, institutions comparable to traditional capital market institutions have been set up in the social sector to reduce the transaction costs and to help allocate capital more efficiently. The institutions in the social sector and their equivalent in the traditional capital markets are shown in the following figure.
Figure 1 Social Capital Markets
Illustration based on Achleitner & Spiess-Knafl (in press)
Each institution focuses on a specific segment of the social sector. The institutions are described below.
Value banks have the same role as commercial banks in traditional capital markets. They take deposits from savers and give loans to individuals and companies. Since Value Banks focus on the social sector, they have a better understanding of the business models and the specific needs and requirements of social enterprises. In addition, the savers sometimes accept a lower interest rate, which can be passed on to the social enterprise. An overview of those specialized loan providers can be found in chapter 6.5 “Value Banks” on page 48.
The traditional role of investment banks is the financial advisory of corporate clients and the matching of supply and demand. Social investment advisers take over the same role in the social sector. They support the social enterprise in setting up an appropriate financing structure and finding the right investors. A list of social investment advisers can be found in chapter 4.7 “Social Investment Advisory” on page 52.