Slađana Brajević

University of Split, University Centre for the Vocational studies, Croatia

E-mail: [email protected]

Antonija Babić
University of Split, University Centre for the Vocational studies, Croatia
E-mail: [email protected]

Ivona Jukić
University of Split, University Centre for the Vocational studies, Croatia
E-mail: [email protected]

SOCIAL ENTREPRENEURSHIP AND ECONOMIC

DEVELOPMENT

JEL classification: L31

Abstract
The time in which we currently live and will continue to live is a time of
changes, which are comprehensive, deep and quick. They occur in almost
all spheres and areas of human activity and life. Regardless of their
causes, they are all structural changes whose consequences are primarily
economic in their nature. The last three decades have been characterized
by a rather significant increase in entrepreneurial activities, which is why
they are often referred to as "the age of entrepreneurship",
"entrepreneurial revolution" and "entrepreneurial renaissance".
Enthusiasm towards the role of entrepreneurship in the economic
development has had an impact on the development of social
entrepreneurship in the last few decades. Thus, the new entrepreneurial
culture has also spread to the social sector. Increasingly higher
expectations are being set on social entrepreneurship in terms of
addressing the needs in the social sector and achieving socio-economic
security. Social entrepreneurship implies innovative and financially
sustainable activities targeted at social problems. However, its
commercial activities do not necessarily need to coincide with the social
mission; rather, their purpose is to create financial resources to
implement social objectives. Thus, social entrepreneurship can encompass
a rather broad range of organizations and businesses – ranging from
those which generate their own profit to those which obtain resources for
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other organizations that fulfill the social mission. This paper will explain
the importance of the social entrepreneurship concept, entrepreneurship
with moral and ethical integrity, criteria for its classification, as well as
criticism of this concept. In the end, an overview of development of social
entrepreneurship in the Republic of Croatia and in the world.
Key words: social entrepreneurship, social objectives, entrepreneurial
culture, ethics, morality

1. INTRODUCTION
The term „entrepreneurship” generally describes the mechanism by
which new products, services, and organizational processes are identified realized
as a sustainable part of the society. Societies depend on entrepreneurs to drive job
growth, innovate solutions to pressing problems, and pioneer technologies.
Entrepreneurship is not limited to the for-profit business world. Although profit is
fundamental for a sustainable organization, it’s not always the end goal. This is
the reason that social entrepreneurship was developed and implemented in the last
centuries. Social entrepreneurship rather aims to benefit the community by
redirecting all profit back towards a social mission.
Trends from the preceding two decades show that social entrepreneurs
have moved from their traditional philanthropic and charitable moorings to find
more effective and sustainable solutions to social problems using the tools from
the world of business.

2. CONCEPT AND HISTORY

Over the past two decades, then citizen sector has discovered what the
business sector learned long ago, there is nothing as powerful as a new idea in the
hands of a first-class entrepreneur. (Franičević, 1990; Buble, Kružić, 2006).
The term "social entrepreneurship" is relatively new, but it builds upon
centuries of transformative leadership. Social entrepreneurs are people or
organizations that use economic and technological innovation to achieve social
goals. They use entrepreneurial skills to create organizations that, instead of
seeking profit, pursue a more just and humane society. (Noya, 2009)
The results of a research conducted by the American economist David
Birch in 1979 are responsible for the nowadays almost generally accepted link
between entrepreneurship and economic development, with entrepreneurship
being its main driving force. Rather unexpectedly, this research has shown that in
the course of the observed period, the businesses with less than one hundred
employees generated more than 80% of new jobs in the USA.
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In Europe, the collective dimension is important and social

entrepreneurship is almost always launched by means of a joint initiative,
common ownership and democratic management structure. The European
Commission has therefore outlined its own definition of social entrepreneurship,
according to which it is defined as the sector located between the private and the
public sector, which operates in accordance with the social mission and requires
entrepreneurial spirit (European Commission, 2010).
Social entrepreneurs are individuals with innovative solutions to
society’s most pressing social problems. They are ambitious and persistent,
tackling major social issues and offering new ideas for wide-scale change. Social
entrepreneurs find what is not working and solve the problem by changing the
system, spreading the solution, and persuading entire societies to move in
different directions.
Social entrepreneurs create new organizations, new markets, and new
ways of thinking and behaving in solidarity with poor communities to provide
basic services, such as renewable energy, clean water, health care technologies,
education, and access to financial services. SEs devises highly affordable
products and services that can be bought by people living on a few dollars a day,
and creates businesses that can distribute these to poor communities. Many SEs
come from the communities that they serve. Some SEs work with women and
their specific socio-economic needs. (Austin, Stevenson, Wei-Skillern,2006)
Social entrepreneurs often seem to be possessed by their ideas,
committing their lives to changing the direction of their field. They are
visionaries, but also realists, and are ultimately concerned with the practical
implementation of their vision above all else.(Dees, 1998)
Social entrepreneurs present user-friendly, understandable, and ethical
ideas that engage widespread support in order to maximize the number of citizens
that will stand up, seize their idea, and implement it. Leading social entrepreneurs
are mass recruiters of local change maker’s role models proving that citizens who
channel their ideas into action can do almost anything.
Just as entrepreneurs change the face of business, social entrepreneurs
act as the change agents for society, seizing opportunities others miss to improve
systems, invent new approaches, and create solutions to change society for the
better. While a business entrepreneur might create entirely new industries, a
social entrepreneur develops innovative solutions to social problems and then
implements them on a large scale.
Increasingly business graduates are recognized as possessing important
skills that can drive social change. This new discipline is often referred to as
Social Entrepreneurship. SE-s describes the discovery and sustainable
exploitation of opportunities to create public goods. This is usually done through
the generation of disequilibria in market and non-market environments. The SE-n
process can in some cases lead to the creation of social enterprises. These social
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ventures are hybrid organizations exhibiting characteristics of both the for-profit

and not-for-profit sector. Individuals engaging in SE-s are usually referred to as
social entrepreneurs, a term that describes resourceful individuals working to
create social innovation. They do not only have to identify (or create)
opportunities for social change (that so far have been unexploited), they must also
muster the resources necessary to turn these opportunities into reality. (Mair,
Marti 2006)
A typical example is Prof. Muhammad Yunus, is a Bangladeshi social
entrepreneur, banker, economist and civil society leader who was awarded the
Nobel Peace Prize for founding the Grameen Bank and pioneering the concepts of
microcredit and microfinance. These loans are given to entrepreneurs too poor to
qualify for traditional bank loans. In 2006, Yunus and the Grameen Bank were
jointly awarded the Nobel Peace Prize "for their efforts through microcredit to
create economic and social development from below".

Figure 1 Models of social enterprises

Many people who approach us ask how social enterprises make their
money, or how a social enterprise is different from a business (or indeed how it is
different from a charity). Because there is such a range of high-impact
organizations operating in such a myriad of ways, these questions are impossible
to answer precisely except that, simply put, these businesses have impact and
financial success at their core.
Sometimes it is useful to consider some organizations as “impact first”,
like charities, and some as “purely for profit”. This spectrum of organization
types shows the range of organizations working to create change and there are
many. It’s also very limiting. Considering the landscape as “charity vs. company”
or “social enterprise vs. social business” obscures the wider movement that sees
business and finance as a force for good.
It means disregarding the idea that all businesses have an impact. Some
have overwhelmingly positive impacts, some have overwhelmingly negative
impacts, and many fall somewhere between the two.
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The critics of the social entrepreneurship concept argue that attributing

the crucial role to social entrepreneurship in the process of dealing with social
problems, and especially in the creation of employment, is arbitrary and
groundless (Cook et al, 2000). It is believed that social entrepreneurship system
does not have the strength to offer a solution for structural unemployment.
Another problem is the inability to measure social effects and social values that
social entrepreneurship creates (Dees, 1998). It is difficult to establish whether
social entrepreneurship justifies the invested resources in the economic and social
sense, and whether it contributes to social development.
Debates have been held on positioning social entrepreneurship within
one sector (non-profit sector), or in the sphere of cross-sectoral activities.
Ultimately, this paper analyzes how the social entrepreneurship concept can be
observed as the product of dominant values in a society. It also examines how
social innovation can bring about new aspects of socio-economic balance and
general well-being? If social entrepreneurs were to stimulate their employees'
entrepreneurial initiatives, a greater number of innovations would be achieved
and, consequently, competitive advantage would increase. The role and the
importance of social entrepreneurship is an increasingly interesting area of study.
Theoreticians of entrepreneurship are trying to provide answers to the
following questions: 1. Why, when and how do opportunities for creating value
occur? 2. Why, when and how certain individuals detect and capitalize on those
opportunities? These current issues are dealt with by means of social
entrepreneurship.
The public system in Croatia, which ensures at least some degree of
equality, keeps becoming more and more obsolete, which is reflected in the crisis
of the welfare state, permanent growth of unemployment, stratification of the
society into the extremely rich and the extremely poor, and the disappearance of
the middle class which was the main driving force of Croatia's economic
development. The new concept and phenomenon of social entrepreneurship offers
a solution to accumulated social problems by indicating the need to broaden the
horizons and establish a new social balance.

3. SOCIAL ENTREPRENEURSHIP IN CROATIA

In recent years, social entrepreneurship initiatives are becoming very
important subject in the economies of many countries around the world. In
Croatia, the interest in social entrepreneurship has increased only in the last
several years. The number of stakeholders involved in social entrepreneurship
activities is still modest. A particularly important step in the institutional
recognition of the phenomenon is a recent initiative by the Ministry of Economy,
Labour and Entrepreneurship for the development of a social entrepreneurship
strategy. This not only recognizes the uniqueness of this type of activity, but also
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acknowledges its importance in the socio-economic development and attempts to

establish new balance in the Croatian society.
For the social entrepreneurs in Croatia to be willing to invest their
knowledge and skills, as well as their time and energy, it is necessary to establish a
working environment which stimulates employees 'creativity and the process of
innovation, while it is also necessary to highlight that this cannot be achieved without
appropriate support and understanding at all levels within the state. Therefore, support
to a social entreprise, which is reflected in the willingness to enable, support and
promote entrepreneurial activities by providing all necessary resources, is a crucial
factor in the development of social entrepreneurship.
The consequences of the ongoing financial crises have highlighted
advantages of social enterprises that have demonstrated robustness in periods of
negative economic developments and stable positive social impact on the societies in
which they are operating. European Union has included development of social
entrepreneurship and social economy very high on its list of priorities in the 2014-
2020 periods.
The concept of social entrepreneurship in Croatia has become recognizable
in the last several years mostly because of initiatives from nonprofit organizations and
couple of pilot grassroots initiatives. Due to insufficient funding these organizations
are increasingly turning to social entrepreneurship as the self-financing practice.
Although social entrepreneurship as a new paradigm in dealing with social
problems is increasingly popularized in the world, organizations and individuals that
are part of the social entrepreneurship development in Croatia are faced with various
problems, such as lack of structural support of any kind, misunderstanding of the
concept and the lack of clarity about responsibilities for its implementation by
institutions dealing with social issues.
In Croatia, almost all of the social enterprises have emerged through one of
3 models:
1. Civil society organizations trying to become independent from grants and
donations start asking fee for their services mostly in the field of environmental study,
social services, education and research or culture and community development.
Becoming social enterprises, they do generate profit, but this profit is than reinvested
into the society. Still, not all CSOs are social enterprises; moreover it is still a rare
practice.
2. Grassroots initiatives in which social entrepreneurs have detected needs
in the local community to solve specific problem or to provide a specific social
service (e.g. SLAP Osijek, ACT Čakovec).
3. Social enterprises created through the work of social incubators or
incubating programs, unfortunately still very limited in Croatia (newly founded
Impact Hub Zagreb program of Croatian Caritas and Ministry of Economy, 2006-
2010, UNDP)
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Faced with the consequences of economic crises that has struck world in the
last few years, many people have started to think about the roots of the crises and the
position of today’s financial institutions in the society.
In quest for solutions, people have started looking for alternative financial
models that would be different from the current flawed ones and could serve needs of
people and communities in the better way than the present ones.
Instead of accepting this situations, this group of young experts from
different profiles (physicists, mathematicians, econometrists, economists, IT experts
and lawyers) have begun looking for a new models that would put not profit but needs
of the community into the focus of financial institutions and would position banks as a
pure service to the productive part of the economy with improvement of the social
services and quality of lives of individuals as the main objective of their work.
Since the 1930s the banking business, which originally had social
connotations, has been losing its original ethical features. This has made necessary the
birth of a new generation of social banks, the so-called “ethical banks“. These have
the objective of achieving a positive impact in the collection and in the use of money.
They invest in new activities such as organic farming, renewable energies, the Third
sector (or not-for-profit sector) and Fair Trade.
Table 1
Social entrepreneurship in Croatia

AREA OF
NAME ACTIVITY MAIN GOALS

ACT Čakovec Development civil society

BARKAN Otočac Promote cycling in Otočac
GRUPA
KORAK Karlovac Protection of women's and children's rights
UDRUGA Improving the quality of life people with
LASTAVICE Split disabilities
UDRUGA MI Split Development local community
ZADRUGA
DOBRONAM Zagreb Personal and social development
NOA Osijek Social banking
PLAVI SVIJET Veli Lošinj Protection of the Adriatic Sea
RODA Zagreb Protection children and parents rights
SLAP Osijek Development local community
ZELENI
OSIJEK Osijek Environmental protection
Source: author research
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Development of social entrepreneurship in Croatia is still in a beginning.

There are ten forms of entrepreneurial activities in field of civil society and one
social bank . They are developed in Čakovec, Otočac, Karlovac, Split, Zagreb,
Osijek and Veli Lošinj. Main goals are mainly focused on protection of women's
and children's rights, improvement the quality of life people with disabilities,
protection of Adriatic Sea and environment as well as development of local
community.

4. ETHICAL BANKS
Characteristics of ethical banks
Banks need to satisfy the whole range of criteria in order to be called
ethical by the definition of FEBEA. These criteria could be divided through
several topics.
Role of an ethical bank
The role of an ethical bank is to work for the common good and ensure
the right to receive credit through a bank activity consisting in raising funds and
reallocating them in the form of credits for cultural, social and environmental
projects. Through their activity, ethical banks promote social inclusion,
sustainable development, development of social economy and social
entrepreneurship. Ethical banks also have a role to raise public a wariness on the
role of money and the failure of the economy based on short-term and profit as
the only objective.(Davies, H. 2001.)
Origin of money
The money on which an ethical bank bases its collection and its capital
comes from savings of its customers, which are created through activities in real
economy. An ethical bank does not accept "dirty" money, that is money that
comes from illegal activities, from criminal groups or mafia, armament industry,
highly polluting industries, or non-declared money.
Destination of money
The purpose of an ethical bank’s credit activity is to have at the same
time a positive impact at a social, environmental and economic level. For this
reason an ethical bank addresses its collection/saving of money to socio-
economic activities aimed at social, environmental and cultural profit. This
objective is achieved through the support in particular through not for profit
organizations to activities for human, social and economic promotion, also
dedicated to the weaker sections of the population and to the most deprived areas,
favoring social integration and employment. In an ethical bank the relationship
with customers is often under the form of partnership.
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In an ethical bank at least 90% of financing distributed to companies,

institutions, organizations, meets both economic and socio-environmental criteria.
The thorough assessment of multiple aspects of each funded project enables ethical
banks to have a very low risk level. An ethical bank pays special attention to the
support of initiatives for self-employment and women and youth, often through
microcredit and microfinance. (Cowton, C. 2002).
Criteria and values for the use of money
The investments of an ethical bank are managed transparently. The amount
of funding distributed by an ethical bank can be max. 15% of the regulatory capital.
In order to grant a loan an ethical bank does not consider only collaterals/
real guarantees, but it also values personal or social guarantees provided by the local
networks in which the funding is allocated. An ethical bank does not speculate (for
clients nor for itself) in short term operations, but it favors the “long term” and the real
economy.
Conditions for bank management
An ethical bank puts credit at the service of people and the exclusive
research for profit is not its objective. A fair profit is necessary to ensure the economic
viability and sustainability of the bank. An ethical bank is deeply rooted in the
territory in which it operates, and in its socio-economic networks. An ethical bank
assures this core value of participation through well-codified procedures and statutory
instruments that enable members and employees (or their delegates) to influence
directly on the management strategies of the bank. Beyond the value of participation,
transparency is a fundamental value for an ethical bank: transparency in the origin and
in the use of money, in credit and business management.
Need for ethical banking in Croatia
After the breakup of Yugoslavia and fall of the socialist system and after the
war in 1990s, Croatia has privatized its banking sector almost completely. Through a
series of privatization actions, most of Croatian banks have ended up in the hands of
large foreign banking groups from Italy, Austria, France and Hungary.
This has put Croatian economy in quite difficult position. Fueled by massive
privatizations in the country, banks have mainly invested in the consumption part of
the economy, especially property sector. Loans for SME’s and industry have become
very expensive making those parts of economy uncompetitive on the domestic and
international markets. Financial support for social enterprises, cooperatives and non-
profit sector is almost non-existing because commercial banks see this sector as non-
bankable.
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5. CONCLUSION
Social entrepreneurship implies innovative and financially sustainable
activities targeted at social problems. However, its commercial activities do not
necessarily need to coincide with the social mission; rather, their purpose is to create
financial resources to implement social objectives. Social entrepreneurs act as the
change agents for society, seizing opportunities others miss to improve systems,
invent new approaches, and create solutions to change society for the better.
In Croatia, the interest in social entrepreneurship has increased only in the
last several years. Support to a social enterprise, which is reflected in the willingness
to enable, support and promote entrepreneurial activities by providing all necessary
resources, is a crucial factor in the development of social entrepreneurship.
Social entrepreneurship has quickly established itself as a dynamic field of
practice and academic enquiry. Located at the interstices of the non profit, for profit
and government sectors . A strong interplay between theory and practice is
characteristic, also contributing to the rapid growth and sustained interest in the
research.
For social banks, the responsibility for the whole of society is the most
important measure for a good lending practice and is more important than profit
alone. This is why social banking is often called “banking for social cohesion”, or
“cooperative banking”, instead of the competitive banking approach, that has
dominated the banking world in past decades. We have integrated ourselves with the
world economy by adopting the respective concepts. In this scenario, it is right time to
focus on the social and ethical issues in banking
Further research in Social entrepreneurship can be to explain and precise
define the value of social effects that social entrepreneurship added to the entire
society and it can also be one of research to demonstrates how commercial enterprise
and established business models can be integrated with social value creation.

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