Social finance
[12][13] New research in the field calls for increasing the role of government in social finance to help overcome the challenges the industry currently faces, including the struggle to produce desirable returns for investors, high start-up and regulatory costs, neglect from mainstream banks, and a lack of access to retail investors.
[12] The history of social finance has its origins in 20th-century neoliberal economics and the ideas that it proposed, such as an emphasis on the role of the free market in society.
Social theorist Bill Maurer explains it as the result of shifts in investor sentiment in the aftermath of the 2007–2008 financial crisis.
Social finance, through its innovative approach to solving social problems while creating economic value, has met the need of disaffected retail investors who seek ethical investment alternatives following revelations in the aftermath of the 2007–2008 financial crisis of widespread unethical business practices by mainstream corporations in pursuit of profit.
As a result, Maurer suggests, mainstream corporations looking to rebuild their reputations are now entering the market, bringing with them significant inflows of capital and investment.
[21] One study, which provides a statistical analysis of participation, satisfaction, and retention rates in the European social finance market, suggests that the 2007–2008 financial crisis occurred at a time when social finance organizations were beginning to develop track records that demonstrated their market feasibility.
[20] Geobey and Harji, in their anecdotal study of social finance in the post-crisis United States, document similar findings in the North American case.
Investors provide up-front capital to fund these programs and receive a prearranged amount of money (including the principal plus some financial return) if performance results are achieved.
[11] Unlike conventional bonds, however, SIBs operate on a pay-for-performance basis, in which bondholders are repaid only if the program’s outcome targets are achieved.
Through a competitive process, it awards grants of up to $10 million per year to organisations with strong track records of effective social service.
[24] Separate studies reaffirm these claims and argue that improved efficiencies are needed before social finance is marketized.
Consensus of experts in the field maintains that the role of government in social finance will be central to addressing the challenges that the sector currently faces.
