Existing organisations already have the necessary characteristics that are typical of social enterprises, a report commissioned by the Ministry of Finance, the Economy and Investment has found.
A new policy framework would determine a social enterprise’s legal personality and ensure it could operate on the market with the necessary capital
The report, titled simply Social Enterprise Sector, was launched yesterday at a business breakfast organised by the Enterprise Policy Directorate within the Ministry for Fair Competition, Small Business and Consumers.
The event aimed to instigate a debate on a fairly recent concept in European legislation, and kick start consultation on the design of formalised legal and regulatory framework to accommodate social businesses .
Research shows there are around 750 organisations which potentially fulfil the function of a social enterprise: 394 voluntary organisations, 236 sports clubs, 63 band clubs, and 57 cooperatives.
But despite embracing social enterprise characteristics, gaps in legislation and regulation mean they are registered as business structures like cooperatives, for instance.
The report, compiled by APS Consult Ltd, an arm of APS Bank, and a legal team headed by Anthony Galea of DF Advocates, proved that Malta has a vibrant voluntary sector that today employs more than 4,300 people and generates around €68 million a year. More than half of those engaged in the management of the sector are women and the sector enjoys the contribution of a volunteer base of more than 24,000 people.
Addressing the participants, who included prominent figures in the sector including Inspire CEO Nathan Farrugia and Commissioner for Voluntary Organisations Kenneth Wain, APS Bank chairman Lino Delia insisted that good intentions alone were not conducive to a social enterprise’s success. It was imperative that the appropriate legal and regulatory framework was in place to allow social businesses to be suitably governed and pursue clear objectives.
The formalisation of social enterprise was a step in the right direction away from a culture of hand-outs to one which married efficiency and productivity to solidarity.
Social enterprises, by their nature, had to operate under the principles of social justice and fairness. Job creation had to be inclusive and be open to vulnerable people and those traditionally shunned by the wider working world. A social enterprise also had to be environment-friendly under the principle that the environment belonged to all society and every generation.
“We must first create good and then distribute wealth,” Prof. Delia pointed out.
“As a society we have an added challenge: identify ways to organise ourselves in an aging community.”
APS Consult’s Simon Micallef emphasised that social enterprises were not charities. They were often off-shoots of charities, which sought to engage their clients in the world of work with a service offering from which to derive income. They had to compete in the mainstream market but they would be not-for-profit organisations which would plough back profits into the venture to expand infrastructure or their workforce.
Under current Maltese law, they would necessarily be registered as civil partnerships, foundations and trusts, associations, or co-operatives. To qualify as social enterprises, they had to have a statute that enshrined principles of commerce and democracy besides social objectives.
As things stood in the voluntary sector, 86 per cent were micro-organisations, just under nine per cent were small organisations, and five per cent medium-sized. Around 95 per cent had formal statutes and a proper administrative set-up. Importantly, they employed 2.85 per cent of the labour supply. Under a brand new policy framework for social enterprise which would also determine its legal ‘personality’, an activity had to ensure it could operate on the market with the necessary capital. The nature of the business had to be sustainable, with a foreseeable future and specified market orientation.
A new policy had to define social equity clearly and could also promote the concept of social venture capital and the development of social corporate venturing, allowign for shares, for instance, to be acquired in a social enterprise. Not-for-profit principles, a social motive, and democratic control would qualify a social enterprise for EU funding.
Going forward, Malta had at least two policy options.
With a “social enterprise label”, entities like associations, voluntary organisations, foundations and trusts would be recognised as ‘social economy’ compliant.
They would have to meet operational benchmarks for management, human resources, services-derived income, liquidation and reporting mechanisms, in that they would also be subject to a social audit to monitor the quality of the dynamics with which they achieved their social aims.
Alternatively, a “social purpose company”, a new legal form, would see activities recognised as social enterprises. Mr Micallef stressed that neither of the two options eliminated the other at this stage.
He added that a formal social enterprise policy would require an entity among the voluntary sector or the authorities to take the initiative to promote social enterprise.
Jason Azzopardi, the newly named minister, closed the debate in the Hotel Phoenicia’s ballroom, saying he hoped the thought-provoking contributions would spur stakeholders and key players to participate in the feedback process so that a White Paper could be drawn up in the near future.
“Social enterprises have economic importance in this era of the paradigm shift,” Dr Azzopardi said. “Our mindset on social justice has to change.”
Dr Azzopardi pledged to carefully examine all proposals and suggestions on a policy for social enterprise. Feedback may submitted at enterprisepolicy.mfei@gov.mt.