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Recently, the Social Solidarity Economy Basic Law, which has been awaited for 13 years, passed the National Assembly. It is welcome news that it establishes a legal framework for social solidarity finance dedicated institutional investors and intermediary institutional investors by placing social enterprises, cooperatives, community enterprises, self-reliance enterprises, and social ventures under a single policy umbrella. Now, the social economy can move beyond fragmented support programs to become a target of sustained financial policy.
The government's supply plan is also substantial. Microfinance supply will increase from 6 billion won annually to 15 billion won, and credit guarantee fund guarantees will expand to 350 billion won by 2030. Banks plan to provide approximately 430 billion won over the next three years, while Saemaul Geumgo intends to supply 200 billion won over five years. For social solidarity economy organizations that have long complained about insufficient financial access, this is clearly a meaningful advancement.
However, the method of finance is as important as the amount of money. If we merely supply more loans and guarantees similar to what has been done so far, despite the new name "social solidarity finance," the changes felt on the ground will inevitably be limited.
Until now, finance for social economy organizations has remained between equity investment and long-term lending. Equity investment is made in companies expected to grow rapidly, while working capital loans are provided to other organizations. However, most social enterprises operate in regional food, care, culture and arts, resource recycling, small-scale manufacturing, and distribution businesses—models that do not capture the market quickly or see corporate valuations surge like technology startups.
This is not because their growth is slow or their value low. The unit of growth differs. Instead of capturing the national market at once, they grow by opening one more store, launching a new product, and moving services verified in one region to other regions. The company's growth model did not align with the growth model expected by investment finance.
In contrast, long-term lending looks at the overall creditworthiness of the enterprise and past financial statements. If collateral is insufficient or business history is short, it becomes difficult to cross the threshold. What enterprises need is production costs for holiday gift sets that can be recovered through sales in three months, yet financial institutional investors ask about repayment ability over several years. Even when there are confirmed delivery contracts allowing immediate revenue generation upon purchasing raw materials, funding cannot be secured due to insufficient past financial performance. The timeline of finance does not match the timeline of business.
The way to bridge this gap is project-based finance. This method provides funds for businesses where the timing of revenue generation and repayment sources are relatively clear, such as adding one more store location, operating a pop-up store for three months, producing holiday gift sets, staging a single performance, securing confirmed delivery contracts, or piloting new services.
The focus of evaluation shifts from corporate valuation or collateral to purchase orders, contracts, projected revenue, cost ratios, sales periods, and break-even points. Principal and returns are recovered through cash flows generated by the project, and once the project concludes, those funds can be reinvested into other social solidarity economy organizations' businesses. This is not PF (project finance) as discussed in large-scale real estate development projects, but rather connecting finance to small yet concrete business opportunities.
Cunesti's on-site cases have confirmed the potential of this approach. For an agricultural cooperative preparing for holiday beef sales, raw material purchase funds were provided. When a social enterprise that produced elderly birthday meals sought to expand beyond its existing operations into high-value-added areas like importing and distributing medical food, 200 million won was supplied for a pilot project to validate the new business's market viability. The company confirmed market demand through actual imports and sales before fully launching the business. This is an example of providing funds based not on the enterprise's past performance or corporate valuation, but on the feasibility of the new project and the future cash flows it would generate.
The advantage of project finance extends beyond generating a single sale. Actual data accumulates on how much profit a store of a certain scale generates in a specific commercial area, how many pop-up store customers convert to regular customers, what the appropriate production volume and margin are for gift sets, and so on. When small successes repeat, services and operational methods become standardized, and individual projects evolve into business models that can be replicated across other regions and markets.
During this process, equity investment opportunities may arise, or enterprises may grow based on stable cash flows without relinquishing equity. Project finance is not a lower-stage form of finance compared to equity investment. It is another independent growth financing option that can be chosen according to the enterprise's business model.
The problem lies in the fact that such finance cannot be created simply by having money. The government plan specifies the scale and duration of supply from institutional channels including microfinance, credit guarantee funds, banks, and Saemaul Geumgo. However, it remains unclear what role private intermediary institutional investors—who have been discovering social economy organizations on the ground and simultaneously providing financial support and nurturing—will play, and how their costs and risks will be compensated.
Banks and mutual financial institutions excel at supplying and managing large amounts of funds stably. However, it is difficult for them to search for small enterprises and determine how much raw material should be purchased for the upcoming holiday, where the break-even point for a new store lies, or what responses are needed if concert ticket sales fall short of expectations. Project finance cannot be operated solely through standardized credit assessment. There is a need for people who can examine both the enterprise and its business closely.
This role should be fulfilled by private intermediary institutional investors that have been supplying social finance on the ground. They have met social solidarity economy organizations up close, identified funding needs, and assessed the executive's capability, relationships with trading partners, seasonality of businesses, and regional demand. Even after providing funds, they have experience in jointly reviewing finances and business plans, connecting sales channels, consulting, and follow-up investments.
Private intermediary institutional investors are not simple windows for delivering financial products. They are closer to project managers who discover projects, review business viability, design cash flows and repayment structures, and manage the execution process. Without such roles, merely increasing institutional funds will likely leave social solidarity finance as general loans with public guarantees attached.
Therefore, follow-up systems under the Social Solidarity Economy Basic Law must clearly define role division. Dedicated institutional investors will raise resources, banks and mutual financial institutions will handle financial infrastructure and fund supply, while private intermediary institutional investors with on-site experience and investment/lending track records will be responsible for project discovery, evaluation, structuring, post-management, and enterprise nurturing. If the expertise of intermediary institutional investors is recognized, appropriate management fees, loss reserves, guarantees, and subordinated funding must also be designed accordingly.
What social solidarity economy organizations need is not capital aiming to turn every enterprise into a unicorn, nor merely money lent at low interest rates for long periods. It is finance that moves in sync with the timeline of business so as not to miss revenue opportunities right before their eyes.
Social solidarity finance must now look not only at enterprises' past financial statements but also at future cash flows that projects will generate. And it must bring into the financial system on-site intermediary institutional investors who can identify such possibilities and turn them into actual results. When successes of small projects accumulate, enterprises grow; when enterprises grow, more social problems can be solved. The new path for finance that the Social Solidarity Economy Basic Law should open lies precisely here.
[MoneyToday startup media platform Unicorn Factory]
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