The title of the Lee Jae-myung government's national policy task No. 81 is "promoting the growth of the social solidarity economy."
The national-governance plan specifies four action items for achieving this agenda: enacting a Framework Act on the Social Solidarity Economy, building a public-private cooperation support system, invigorating social solidarity finance, and supporting the growth of social solidarity organizations. As the term "social economy," aiming at a "people-centered economy," has been changed to "social solidarity economy," and the invigoration of this economic area has been registered as a national policy task, social finance — or social solidarity finance — is drawing attention.
Social finance means finance for society, finance that helps members of society. It contains the meaning and will that, because real-world finance does not serve society and covets only economic gain, a financial order beneficial to people and communities must be built. It is about creating institutions and systems that reach out a hand to those in desperate need of help, rather than banks that privatize profits and socialize losses, or finance that takes away the umbrella when it rains and offers it only after the rain has stopped.
Although finance is a public good that all citizens should enjoy, the difference in accessibility is large according to asset size and credit score, and those below a certain standard are deprived of the opportunity to use finance at all. Those excluded from the financial market are apt to borrow money at high interest or become prey to loan sharks who engage in predatory lending. Filling this "deficiency," lifting up those placed in desperate situations, and giving wings to companies that pursue value over money — that is the role of social finance.
In the Korean context, there are largely four areas where social finance is demanded: inclusive finance, which helps marginalized groups through unsecured small loans and the like; reciprocal finance, which operates based on cooperation and solidarity among participants, such as mutual aid; impact finance, which supports organizations pursuing social and environmental value, such as social ventures and social-solidarity-economy enterprises; and regional finance, to revive underdeveloped local and regional economies. In reality, the four areas sometimes overlap and sometimes move separately.
For the social-finance ecosystem to be alive and moving, there must be intermediaries connecting demanders and suppliers. The reason intermediaries are needed is that the supply and circulation of funds are difficult through existing financial channels. Banks do not lend money without collateral or guarantees, because there is no incentive to bear the risk of loss. In contrast, social-finance intermediaries do not demand collateral or guarantees; they accept risk and seek solutions. The only place that can carry out this "special" mission is a social-finance intermediary.
The cause of the failure of the Moon Jae-in government's "social-finance invigoration policy" in 2018 lies at this point. In their impatience to create results quickly, they did not foster intermediaries and instead used existing delivery systems such as commercial banks and policy financial institutions. As a result, the majority of social-solidarity-economy organizations were often excluded for reasons such as insufficient credit scores, and benefits were given only to a few. To avoid repeating the same mistake, a new delivery system that allows demand-centered supply must be built.
For social finance to be invigorated, the government's role is more important than anything. The government must take the lead in building a social-investment wholesale fund in which public and private participate together, invigorating a public-purpose investment system so that the funds of public-interest corporations can be used in socially meaningful places, allocating a portion of policy financial institutions' funds to support social-solidarity-economy organizations, and overhauling a regional-reinvestment evaluation system so that financial companies' money can flow into the regions.
Finance is a means, a tool, a creation made by humans. How to use finance depends on our choice. What we need now is social imagination that breaks free of old path dependency and dreams of a better future. Humans, the chief culprits of environmental pollution, are blinded by money and turning the land and sea into a hell where life cannot live, and social inequality is deepening by the day. Somewhere in the "background" that creates such tragedies, finance is coiled up.
The emergence of social finance, which pursues value over profit, tells us the fact that finance in a "different" way from the order we have seen so far is possible. The protagonists are those who carry out inclusion and reciprocity, impact and regional finance even in difficult circumstances. These black swans, which appeared breaking the world's conventional wisdom that all swans must be white, are heralds of hope. What the government must do is help them take flight. If we change the flow of money, we can create a world where money is used for good.
By Moon Jin-soo, Director, Korea Social Finance Institute