Third Sector In Economy: Social Finance

Ahmet Çakmak, Finance and Treasury Management Director of the Turkish Red Crescent, talked about the concept of social finance, humanitarian aid and potential collaborations with the participation finance sector for Katılım Finans.

WHAT DO YOU THINK ABOUT THE CONCEPT OF SOCIAL FINANCE, WHICH COMES TO THE FORE IN MEETING THE FINANCING NEEDS OF SOCIAL ACTIVITIES?

Today, while some circles associate the concept of social finance with philanthropic financial supports such as charity, donations and aid, some circles associate it with resources transferred in different forms (financing, other income-generating models) to all kinds of social and environmental activities and initiatives, taking into account the profit. Social finance emerges as a new approach covering existing approaches. In terms of defi- nition, social finance is a new financial approach that considers people, the planet and profits together and argues that profit and social impact can coexist. It can also be expressed with concepts such as social finance/ economy, third sector, green finance/policies. Member countries of the European Union (EU) use the concept of the third sector in the expression of social finance. Member countries of the European Union (EU) use the concept of the third sector to express social finance. Requirements such as the measurability of the social impact resulting from the activities subject to social finance and the emphasis on the financial return along with the social implications differentiate social finance from approaches such as philanthropy. Financing pro- jects and activities, risk-sharing-based micro-financing, financial products such as crowdfunding and debt-based financial products such as social impact bonds.

WHAT IS THE PLACE OF VARIOUS NON-GOVERNMENTAL ORGANISATIONS SUCH AS FOUNDATIONS, ASSO- CIATIONS, UNIONS AND COOPERATIVES AIMING AT SOCIAL ASSISTANCE AND SOLIDARITY IN THE SOCIAL FINANCE ECOSYSTEM?

According to 2021 data, there are approximately 122,000 associations, 640 unions, 5480 foundations, and ap- proximately 60,000 cooperatives of 40 different types operating in different fields and established for various purposes in Turkey. By spending approximately 16.1% of the Gross Domestic Product (GDP) in 2021, these institu- tions have alleviated the financial burden of the public sector and primary sectors' financial burden by financing social activities. In 2021, the third sector's GDP ratio of the expenditures reached 26.4% in EU countries and 19.6% in developed world countries. Non-governmental organisations, which constitute the demand side of the social finance ecosystem, are of great importance in financing social activities. Today, non-governmental or- ganisations do not only identify the disadvantaged group of the society as the target group in their activities but also address the general public due to the social services such as health, education, employment, and housing. For this reason, it is accepted by the large masses of society, and it is predicted that this appeal will continue to increase in the coming period.

CAN YOU EXPLAIN THE APPROACH THAT THE TURKISH RED CRESCENT REFERS TO AS "RED FINANCE"?

We can define red finance as a financial concept that expresses innovative financial and cooperation models that will be used to finance the practices and projects 

put forward to solve social problems such as migration, disaster and poverty. The model is based on the practical evaluation of the assets and resources of institutions operating in the third sector. Social problems experi- enced on a global scale and in our country have led to an increase in the expenditures of the third sector and naturally its expenses. It is necessary to create new income sources for the third sector, whose incomes are similarly stable or declining. Red finance, designed within the scope of the social finance model, aims to develop various financial products and services such as risk-sharing and debt-based red bonds, red lease certif- icates, red investment funds, microfinance, real estate investment funds, which are to be used in the project financing aimed at solving social problems.

CAN YOU EXPLAIN THE EFFECTS OF DIGITALISATION ON THE FINANCING OF SOCIAL ASSISTANCE AND SOLIDARITY, ESPECIALLY HUMANITARIAN AID, AND YOUR PREDICTIONS?

Studies reveal that digitalisation will be more wide- spread in the coming period than ever. Although it is insufficient, non-governmental organisations try to allocate more resources to technology and digitalisa- tion processes and adapt to change processes in their 

activities with different motivations. Incorporating new generation technologies such as artificial intelligence and blockchain more heavily in business processes will provide the third sector with cost control and resource diversification and contribute to ensuring transparency and accountability. The digital transformation process is essential for the third sector to not fall behind in a digitalised society, reach a broader audience in need, and reach a wider volunteer audience through different digital channels. It is not difficult to foresee that the impact of an NGO whose target audience has embraced digitalisation but lagged in the digitalisation process itself will decrease.

WHAT WOULD YOU SAY ABOUT THE CURRENT AND POTENTIAL COLLABORATIONS BETWEEN THE PARTICIPATION FINANCE SECTOR AND NON-GOVERNMENTAL ORGANISATIONS REGARDING FINANCING SOCIAL ASSISTANCE AND SOLIDARITY ACTIVITIES?

The participation finance sector and the third sector position the concept of human and social at the centre of their activities and continue their activities within the scope of similar objectives and principles. It is possible to conclude many projects and activities with cooperation. First of all, I should point out that the third sector knows the participation finance sector at a minimal level. It is evident that awareness of products and services has not reached the desired level. I believe that it would be beneficial for our participation finance sector institutions to review this process once again. Touching on possible areas of cooperation, I believe that our non-governmental organisations need a solution partnership with financial institutions to ensure the practical evaluation of assets of different nature and that the specified solution part- nership will also contribute positively to the growth and development of the participation finance sector.

Our participation banks can support the activities of the third sector within the scope of donations, sponsorships, etc. In addition, penal revenues arising from activities that are not recorded as income may be transferred to non-governmental organisations to finance eligible projects within the scope of donation transactions. It is possible to finance the activities of non-governmental organisations with new generation financing models such as microfinance, crowdfunding, social impact funds, social sukuk (bonds), within the principles and principles of social finance programs, in cooperation with our participation banks. Finally, I would like to 

emphasise a few points about digitalisation. We are pleased to watch that our participation banks perform successfully in their digital transformation processes and try to meet the needs of new generation financial products and services. At this point, I believe that our participation banks can offer solutions based on new generation technologies, within the scope of activities based on the use of financial products and services, especially collection and transfer processes, for the civil society, whose activities today mainly consist of cash-based supports.

ANYTHING YOU WISH TO ADD?

At the point we have reached, it is evident that the prob- lems experienced by society have reached the point where they cannot be postponed. It is loudly stated that the financial system should be revised to put the social concept at the centre of its activities and prioritise hu- man and social needs. Efforts are being made to find solutions to the problems. As it is known, the UN has determined financial, social and environmental targets until 2030 to its member countries to resolve social is- sues. In addition, the leading institutions of the world economy make commitments to carry out the necessary revisions in line with the targets set in their business processes. For example, as of 2020, 14 institutions op- erating in the financial market in different countries, with total assets of approximately 50 trillion dollars, have declared to the public that they will be pioneers in this transformation. Similar studies are carried out in our country as well. In the coming period, it will become inevitable for all institutions that have direct or indirect relations with these institutions to care about the social. Aiming to protect the life, property, generation, mind and religion of human beings, I believe that the partic- ipation finance sector, which bases its activities on the realisation of maqasid al-shariah, and the third sector, which aims to protect and develop human existence, dignity, and social life, can take a more active role in carrying the society to the future with the cooperation to be established.

Finance and Treasury Management Director of the Turkish Red Crescent - Ahmet Çakmak