The Effect of Giving Credit to Social Enterprises: Evidence From Italy

We study how receiving credit from a social bank (Banca Prossima), created in 2008, has affected the economic performance of social enterprises in Italy in the following years. Social enterprises are key providers of welfare services in the country, but due to their legal status as not-for-profit organizations they have difficulty raising capital. Consequently, their growth is often very slow. Credit could replace capital, but not-for-profit organizations are often subject to credit constraints. Moreover, given that they cannot choose the optimal combination of credit and capital, the effect of credit on the economic performance of social enterprises is far from clear. We use a proprietary data set and a difference-in-differences approach to compare social enterprises that received credit from the social bank and those that did not receive it. The results suggest that receivers significantly increase their production, fixed assets, properties, and employment when they have access to new credit. The results are robust to several tests and an alternative identification strategy that combines matching and difference-in-differences methods.