Over the last 30 years, the citizen sector has increasingly turned to the market to address social challenges. The breadth of the resulting innovations has been profound. Market-based innovations enable social entrepreneurs to break away from traditional funding models. Philanthropic and government funding are now complemented, and often replaced, by revenue-driven models that range from international license agreements to forward commodity contracts.
The rise of market-based solutions is focusing attention on new possibilities for investing in social change. These innovations are mobilizing new pools of capital and engaging a new set of stakeholders in social change. While market-based innovations create great opportunities, these innovations also introduce new degrees of complexity. The emergence of social finance has been characterized by real growing pains as this sector has witnessed almost as many missteps as achievements. There are many cautionary tales. For instance, there are social entrepreneurs that have become small business owners, social businesses that have abandoned their mission to pursue profit, and financial services organizations that have left their clients poorer and more indebted than when they began.
We have much to learn in order to successfully harness the power of markets to address social challenges at scale. Social entrepreneurs, investors, and other participants of social finance are adeptly recognizing historical mistakes and are building on the lessons of the past. But these are still the early days. As a sector, we need to move beyond ill-fitting comparisons with the private sector, deepen our understanding of how and when we can use the market to address social challenges, and develop the competencies to do so effectively.
Fortunately, the sector is evolving quickly, attracting new thinkers, innovations, and entrepreneurs. Social finance has grown from a few pioneers to a nascent industry at the intersection of commercial finance and social action.