The Challenge
Ten years ago Portugal was under a three-year Economic Adjustment Programme, signed in 2011 with the EU, the ECB and the IMF, with no access to international financial markets. Due to strong austerity measures, social needs increased and additional pressure was put on the limited public sector budget available to address those needs. It was in this context that the government of Portugal decided to foster the impact economy, to promote social innovation to create new solutions for social problems and to develop suitable financing instruments to finance innovative projects and enterprises as part of the EU funded 2014-2020 European Social Investment Framework (ESIF), in particular under the European Social Fund (ESF).
With a conservative approach from mainstream players, bureaucratic processes and strong dependence on public funding prevailing, some of the concrete barriers to overcome at that time were the lack of: a) clear SIagenda and legal framework for social enterprises; b) scale and robusteness of SI projects; c) ambiguity of concepts; d) network of support entities (local incubators and accelerators); and e) access to investment for scaling.
The Practice
Portugal Social Innovation (PSI) is a pioneering government initiative, currently under the direct responsibility of the Portuguese Ministry of Planning. This initiative is the first of its kind in Europe, given that Portugal was the only Member State to set aside EU funds (the initial allocation amounted to around EUR 150 million) to experiment with new financing instruments specifically designed to simultaneously foster social innovation and social investment. With the active involvement of public and private investors,the goal of this initiative has been not only to support the development, scaling and financing of new solutions for social problems but rather to create an enabling eco-system for social innovation.
PSI manages four innovative instruments that fund projects designated as Social Innovation and Social Entrepreneurship Initiatives (SISEI), i.e. projects that address challenging social problems through the development of new products, services or methodologies with high potential for social impact. The four instruments are aligned with the life cycle of SI projects, addressing their specific needs and potential at different stages of maturity, and promoting development of partnerships between the entrepreneurs and the investors. The four include the following three grant based funding schemes and one financial instrument: 1) grant-based capacity-building instrument for social investment, 2) Strategic/impact philanthropy match-funding scheme co-funded in partnership with social investors, 3) Social Impact Bonds, 4) Social Innovation Fund (a public investment fund delivering: SIF debt and SIF equity).
Results
Up to this date, there were 17 open Calls for Proposals that received in total 1.244 applications, of which 587 were approved. This represents a total of EUR 124 million used, of which EUR 84 million are ESF funding and EUR 40 million are social investment mobilised in the market. Currently PSI deals directly with 419 entrepreneurial organizations and 668 social investors, including corporations, municipalities, foundations, banks, funds among others, financing projects with potential for impacting around 1.000.000 people.
More broadly speaking, the programme resulted in the following innovations: Firstly, under the Capacity Building for Social Investment instrument, the participation in capacity buildingincludes a mandatory Assessment of Training Needs carried out by an independent entity and is the output of such capacity building process that triggers the payment, also because of the involvement ofpotential social investors that confirm their upfront interest in the project. Secondly, the involvement of Social Investors (public or private entities) was essential for the success by bringing new competencies to the SI projects and promoting financial discipline. Thirdly, and finally, the focus on outcomes and the contracting of social measurable goals brought impact at the center of the financing process.
Key Insights / Advice to Peers
Six years after the first steps, the successful results achieved by PSI highlight the following key success factors and important lessons learnt for the development of a dynamic ecosystem of innovation and social entrepreneurship:
- Significance for a central public structure to have resources and a clear public policy mission to promote social innovation and impact investment, to ensure a consistent communication strategy, enabling networks, promoting partnerships, mobilising investment, creating sound relations with stakeholders and, supporting and monitoring innovative experimental projects that may become solutions addressing societal issues.
- Facilitating “non-sectorial” Governmental Coordination to address in innovative ways complex social problems and tackle emerging collective challenges, that are often cross-sectorial.
- Favoring a flexible financing model adapted to the needs and potential of the ecosystem by combining several instruments adapted to each life cycle phase of a SI project, and by co-financing with other sources of private and public financing.
- Importance of strategic partnerships with key actors in the ecosystem by involving municipalities, companies, foundations, social associations and entrepreneurs.
- Pertinent role of the Regional Representatives team by ensuring the connection to the territories and the permanent dialogue with local agents: entrepreneurs, social oraganisations, municipalities, investors, other relevant actors of the regional ecosystems.
- Value of an activation strategy specifically aimed at the creation and financing of SI incubators in partnership with the respective municipailities to promote social entrepreneurship and micro entrepreneurship.
- Opting for simplified cost methodologies and models as real costs approaches may be an obstacle for developing the ecosystem due to unrealistic formal requirements or heavy administrative obligations for small and unexperienced organisations.
Further Resources
- “Building local ecosystems for social innovation – PSI case”, OECD, 2021
- “New allies – How governments can unlock the potential of social entrepreneurs for the common good – PSI case”, Catalyst 2030 – Ashoka, McKinsey, Echoing Green, Schwab Foundation for Social Entrepreneurship, Skoll Foundation, 2021.
- “Social Impact Investment – Best Practices and Recommendations for the Next Generation – PSI case”, European Parliament’s Committee on Employment and Social Affairs, 2020.
- “Supporting the development of Social Finance Ecosystems in Member States under ESF – Lessons learned from the Portuguese Social Innovation initiative”, fi-Compass 2020.
- “The Portuguese Social Innovation Initiative – The Social Impacts Bonds Programme Using ESF to finance Social Innovation and Social Entrepreneurship”, fi-Compass 2018.
- INDIGO: International Network for Data on Impact and Government Outcomes – Impact Bond Dataset, Government Outcomes Lab, a research and policy centre based in the Blavatnik School of Government, University of Oxford, 2021.
- Portugal Social Innovation CoLab Award Submission
Contacts
Filipe Almeida, President of Portugal Social Innovation