Thematic page on the cooperative, social and solidarity economy
SSE: Sustainable finance
23 April 2024
SSE-related social finance institutions worldwide contribute indirectly to job creation by providing the capital required to establish an enterprise or acquire essential means of production. These include rotating savings and credit associations, which exist in many parts of the world, credit unions, village banks and cooperative banks. In 2021, credit unions employed more than 315,000 people in the United States of America, with a 2.5 per cent increase on average between 2016 and 2021. The Teachers Savings and Loan Society Limited is a financial cooperative that provides savings and loans services to 47,000 teachers and employees of the Department of Education in Papua New Guinea, with 16 branches covering all provinces of the country. Furthermore, SSE units in the financial sector have embraced digital technologies to reach and serve their members more effectively. An example is the KAYA payment platform adopted by financial cooperatives in the Philippines.
Access to finance is a crucial challenge for developing the SSE. Certain features of SSE units facilitate access to various forms of finance. These include, for instance, donations, grants, affordable loans from the government, complementary currency schemes, collection of capital from their members and other stakeholders and the reinvestment of surplus. Access to the traditional banking system, however, is often highly constrained. This is due not only to the types of constraints commonly encountered by small and medium-sized enterprises (SMEs) but also to the competitive disadvantage that SSE units may be at vis-à-vis other institutional units. For example, small-scale SSE units may lack credit history, conventional forms of collateral and the administrative know-how to navigate complicated application procedures. SSE governance structures, which are designed to meet the needs of their stakeholders (in other words, workers, clients and volunteers) rather than to remunerate investors, often put them at a competitive disadvantage vis-à-vis profit-maximizing enterprises in their ability to access credit or capital via the traditional banking system. The principle of the prohibition or limitation of profit distribution can make it harder for them to access financing from conventional lenders. Cooperatives, for instance, report that their ownership structure makes it more difficult to benefit from equity investments. There are also concerns that access to conventional mechanisms might undermine SSE values and practices related, for example, to democratic governance and the profit distribution constraint. In a context where SSE units in various sectors are expanding and diversifying their activities, and their capital requirements look set to increase, access to a broader range of financial instruments will likely be necessary.
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