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Developing social impact markets in transitioning regions – the case of Turkey

In the last years Turkey has seen a rise in entrepreneurs who aim at resolving societal challenges using entrepreneurial means and innovation. These impact entrepreneurs still fall through the cracks of existing legal frameworks and support systems. They find it challenging to access suitable forms of finance as they seek to introduce their products and services into the market and scale their impact as a social and green entrepreneurship survey carried out in 2013 at Sabancı University in Istanbul shows.

Many impact entrepreneurs and social innovators around the world face similar challenges as their Turkish peers. However, these challenges are even more critical in early stage “social impact markets” such as in Turkey. Social impact markets are “wider system of institutions, procedures and social relations in which parties engage in monetary and non-monetary exchange of goods, services and information for social impact.” (Andrew Wolk, 2012)

The public sector, that could be a national department, a regional development agency or a development (finance) institution, has significant potential to shape and build social impact markets, a potential that so far has been made little use of.

“Everybody is blaming the government for not doing enough. But can anybody tell us what we should do?”

Where to start the process and what are the policy options for any public sector intervention? The international debate on the role of the public sector in social investing and impact entrepreneurship has only started recently and little guidance is yet available for a public sector reform champion in any country. In addition, the debate is being led from an Anglo-American i.e. reference is made to a more advanced eco-system, a more developed social impact market infrastructure and a different cultural and social-economic context. As one Turkish government official said at the Social Entrepreneurship Conference, at Kadir Has University in Istanbul in 2012: “Everybody is blaming the government for not doing enough. But can anybody tell us what we should do?”

The recently launched report, Developing Social Impact Markets in Turkey: a Framework for Government Interventions and Policy Options, provides a new framework for designing interventions and considering choices available for Turkish government officials and in fact, any market builder in any other country facing similar circumstances to those in Turkey. While pointing to the risk of government failure, the publication makes a strong case for government engagement in social impact markets. It refers to the demonstrated ability of social innovators around the world to address complex societal challenges in new ways as well as the positive economic benefits of an expanded social impact market. Severe market constraints inhibiting the smooth functioning of Turkish social impact markets in the areas of finance, market infrastructure, market capacity as well as information are another reason that – from a public policy perspective – justify public sector intervention.

A market perspective to impact entrepreneurship development

The core message of the report is this: Interventions at the micro level targeting individual social organizations are not sufficient if social and environmental impact is to move to from niche to mainstream. Instead public sector interventions need to take a holistic perspective directing their attention to the country specific context and systems in which social organizations operate, whether the much needed market infrastructure is in place as well as the quality of processes and interactions between key players. In line with a system based holistic perspective, the debate on impact needs to be expanded: in the long run, the impact for beneficiaries can be strengthened and increased if market builders consider the wider collective and market level impact of a particular social innovator in addition to beneficiary impact. As such, more attention needs to be paid to the intermediaries who often work in the background but provide the market infrastructure to enable the smooth flow of capital, support and information.

What is our vision for how social impact markets are supposed to function?

As for all new industries, social impact markets develop over time and in cycles starting from the initial phase of uncoordinated innovation to market building to growth to maturity. While the global impact investment community often argues that impact investing has moved beyond that first uncoordinated innovation phase of market development (see for example Rockefeller Foundation/ET Jacksons – Accelerating Impact, 2012), this does not apply to Turkey. Even many of those emerging countries that are critical destinations for impact investors from the global North, be it for example, Kenya or South Africa or many Asian countries – with the exception of India – have barely started (or received support) to build a functioning eco-system for social innovation, impact entrepreneurship and investment.

The most important question for any market builder is, however, not only about the current stage of market development, but also about the long-term vision: How do efficient and mature social impact markets look like, what are their key characteristics and how do can decision makers move the field into this direction?

Learning from international experience

“The disadvantage of being a first mover is that you are likely to be the first one to get shot. The beauty of being in Turkey is that you still have the opportunity to be a pioneer in your country but you can learn from the mistake from other sectors and other geographies for paving the way in the Turkish environment.” This is what John Duong of the WK Kellogg Foundation, one of the largest Foundation in the US told me a few weeks ago.

Indeed, in many countries around the world governments have started to engage more actively in supporting impact entrepreneurship and social investing and are thus providing useful insights into policy options for Turkey. The report highlights international examples for public sector interventions based on four areas of policy choices: policy principles, strategies, institutions and tools (investment and finance; public procurement; fiscal policies & subsidies; legal structures & standards; business development & support as well as information & awareness raising). However, given that many policy innovations have only been introduced recently it is still early for a comprehensive evaluation.

A call for action to the Turkish Government

The report concludes, however with highlighting a number of initial lessons learned of existing interventions and with suggesting immediate actions the Turkish Government could take to promote social innovation and impact entrepreneurship in Turkey.

Recognizing that the technical design of interventions, strategies or institutions are all crucial, the report also emphasizes the importance of a policy process that encourages the emergence of social innovations, the formation of alliances across traditional boundaries and the convening of a wide range of partners and stakeholders for better policy making and implementation.

This blog was originally published on the Impact Investing Policy Collaborative website, which was closed down in 2015.

The publication “Developing Social Impact Markets in Turkey: Framework for Government Engagement and Review of Policy Options” was supported by the Mercator-IPC initiative at the Istanbul Policy Centre of Sabanci University in Turkey and Impact Investing Policy Collaborative (IIPC) convened by PCV InSight and the Initiative for Responsible Investment at the Hauser Institute for Civil Society at Harvard University, with initial support from the Rockefeller Foundation (www.socialimpactmarkets.org). It also benefited from pro-bono legal support through the TrustLaw Connect Program at the Thomson Reuters Foundation. The full report can be downloaded here.