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Financial instruments for start-ups and social enterprises - declaration with recommendations

10 August 2023

Social enterprises have significant potential to solve some of the most pressing problems in our society. At the same time, this potential remains undeveloped in Bulgaria, even though European policies prioritise the issue and support this claim with significant investments to promotethe social economy in Member States. Not only in the form of grants, but also through specifically designed financial instruments.

The topic of creating financial instruments for microfinance to support start-ups and social enterprises was the focus of theMicrofinance centre's annual forum for Central and Eastern Europe, held in Bulgaria on 22 June. 

2023 The Bulgarian Center for Not-for-Profit Law participated as a co-organizer of the event, together with Sis Credit, Fund of Funds, Bulgarian Chamber of Commerce and Industry and America for Bulgaria Foundation. 
Read the recommendations from the forum here 
Andriana Sukova, Deputy Director General of the European Commission's Directorate General for Employment, Social Affairs and Inclusion, pointed out that there are over 2.8 million social enterprises operating in Europe, creating over 13 million jobs. However, the development gap between EU Member States remains significant. In France, for example, social enterprises contribute 10% of the country's GDP. In Central and Eastern European countries, meanwhile, these firms account for between 1 and 3% of GDP.

A year and a half after the European Commission adopted an Action Plan to promote the social economy, on 13 June this year the Commission also issued a recommendation for the adoption of framework conditions and announced a dedicated portal that will collect information on opportunities, funding and the development of the social economy in Member States.  
In the area of financing, the recommendations are aimed at mapping financing institutions, mobilising private financial opportunities by developing public guarantee schemes, accessing specific financial instruments suitable for the different phases of social enterprise development, developing the capacity of social enterprises to access and use financing effectively. The recommendations are to be discussed in the Council in the coming months. They are an important step towards the institutional, administrative and policy development of social economy opportunities. 

It will be important for Bulgaria to implement these recommendations with the necessary adaptation to the environment here and to detail the implementation of these measures.  
Stepping up a gear - the missing elements 
Bulgaria adopted a legislative framework in this area in 2018, but at the moment it does not contribute significantly to accelerating the development of this part of the economy. This is shown by a recent impact assessment of the Social and Solidarity Economy Enterprises Act commissioned by the Bulgarian Center for Not-for-Profit Law. Bulgarian legislation restricts rather than encourages the start-up and growth of social enterprises, as exemplified by the narrow definition given by the law.  The definition also does not allow for the deployment of incentive policies to help build a real ecosystem. This was brought up as an important conclusion by participants in all panels of the forum - social entrepreneurs, supporting organisations, social intermediaries, representatives of funding institutions and organisations providing micro-credit.

The restrictive definition is also the reason why only 33 social enterprises are registered as social enterprises in a specially created register at the Ministry of Labour and Social Policy. It is the registered enterprises that will also receive support through European funds in the form of grants promoting employment in social enterprises. Yet both the definition and the grant schemes prioritise employment support for vulnerable groups and do not take into account modern developments in social entrepreneurship that go beyond these scales of activity.  
Financial instruments for the development of social entrepreneurship 
Some market-based instruments to support the social economy are still missing or little known in Bulgaria. Only 9 social enterprises have benefited from microcredit, for example, according to SIS Credit. On the one hand, it is key to reduce administrative burdens and make financial instruments more accessible to social enterprises that have limited resources - management and human resources, knowledge in the field. On the other hand, there is a need to offer a variety of instruments. A mix of project finance, microcredit, equity investments, loans and other instruments could support the growth of social enterprise according to the needs and the phase of development. In addition to capital, an important focus of financing is to provide the necessary ongoing support for capacity development.

Next steps 
Whatever steps are taken to accelerate the development of the social economy in Bulgaria, consensus is needed to identify solutions with greater efficiency for the sector. This undoubtedly requires dialogue between stakeholders.  
A step in this direction is the declaration with recommendations from the forum, which we sent to the institutions responsible for the development of financial instruments for microfinance as an opportunity to support start-ups and social enterprises. Read it here