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Hot Take: Social Finance is Broken




Social finance has been hailed as the future of philanthropy, with the potential to revolutionize the way we fund social causes and tackle pressing issues such as inequality, climate change, and healthcare. At its core, social finance seeks to align financial return with social impact, by investing in businesses and organizations that generate both economic and social value.


However, despite its promise, social finance has so far struggled to break free from the pattern of traditional capital investment. Rather than taking a long-term, strategic approach to creating social safety nets and supporting innovative business models that directly benefit communities, many social finance funders continue to focus on short-term, profit-driven investments.


This is a missed opportunity, as social finance has the potential to play a crucial role in addressing some of the most pressing challenges of our time. Instead of simply replicating the same approaches as traditional capital investors, social finance funders should be looking to fund upstream, innovative business models that provide both a social and economic return directly connected to the community.


To achieve this, social finance funders must take a more strategic approach to investing. This means moving beyond simply funding individual projects or organizations, and instead focusing on creating comprehensive social safety nets that address the root causes of social problems. This requires a long-term vision and a willingness to take on risk, as well as a willingness to collaborate with other funders and stakeholders.


Another challenge facing social finance is the fact that it is often run by individuals and organizations that are disconnected from the communities they seek to serve. Many social financiers are located in major cities or come from privileged backgrounds, and may not have firsthand experience with the problems facing marginalized communities. As a result, they may lack the necessary understanding and empathy to effectively address these issues.


Furthermore, social financiers who are not directly impacted by the issues they seek to address may be less motivated to create real and lasting change. Without "skin in the game," they may be more focused on maximizing financial return rather than creating meaningful and sustainable social impact.


To address this challenge, it is important for social finance funders to actively seek out and involve individuals and organizations from the communities they seek to serve. This can help ensure that the needs and perspectives of these communities are taken into account, and that investments are made in ways that truly benefit and empower these communities. By building relationships and fostering collaboration with local stakeholders, social finance funders can help create a more inclusive and effective approach to addressing social challenges.


In addition, social finance funders must be willing to invest in upstream, innovative business models that provide both a social and economic return. This means supporting businesses and organizations that are not only financially viable, but also have a clear and measurable social impact. Such investments have the potential to create both financial and social value, and can serve as a powerful catalyst for positive change.


Ultimately, social finance has the potential to play a transformative role in addressing some of the most pressing challenges of our time. By taking a more strategic approach to investing, and focusing on upstream, innovative business models that provide both a social and economic return, social finance funders can help create a more equitable and sustainable future for all.

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