According to the latest Finansol barometer, ‘solidarity finance’ again reached new heights in 2019, a record year with outstandings exceeding fifteen billion euros. More and more savers are turning to this type of investment where the human, social, and environmental dimensions are at the heart of the process. It’s a good way to make these investments more useful and united.
What exactly is solidarity savings?
The purpose of solidarity savings is to connect savers (individuals, companies, etc.) who wish to invest their money with projects which embody the values of sharing and solidarity. Solidarity finance is generally aimed at unlisted companies and associations with strong environmental and social utility, and allows savers to give meaning to their savings.
Solidarity savings should not be confused with the Socially Responsible Investment (SRI), even if these two investment methods are based on a common desire: to bring more ethics to your savings. While the SRI saver seeks to combine ‘ethical’ products with ‘performance’, the solidarity saver accepts another philosophy, by transferring part of the income from their investment to a company or social or environmental association, for example.
Nevertheless, solidarity savings products work like ‘conventional’ savings investments: the individual entrusts their savings to an intermediary who will invest them in financial vehicles, part of the earnings of which is used to pay the investment. The difference is that with solidarity savings, the saver not only invests their money, they choose to voluntarily support projects with a social or environmental mission and can be informed of the projects that are selected. The purpose of solidarity savings is not to enrich the saver, but to find a balance between profitability and utility.
What is the money collected through solidarity savings used for?
By choosing to invest your money in solidarity investments, you allow high-impact projects to see the light of day. Solidarity savings are used to:
# Finance companies that have a different vision of money
They take a humanistic and responsible approach to the relationship between economic, social, and environmental. By choosing a solidarity savings product, you finance companies that operate in sectors of activity linked to integration through economic activity, to maintaining employment in priority rural areas, to the rehabilitation and construction of housing for disadvantaged people, to the development of environmentally friendly projects, etc.
# Support project leaders who do not have access to traditional funding
Without solidarity savings, many projects with high added value for the community would not see the light of day, due to lack of support from traditional banking channels. Indeed, most banks seek to finance the most profitable cases and abandon those that are less profitable, even if they are economically viable. They also prefer companies that have strong growth potential, which is not always the primary goal of a solidarity company. Lastly, the role of solidarity structures is not limited to financing; they support project leaders in their development.
# Offer an alternative to traditional savings
The idea that solidarity savings are not or not very profitable is false. There are solidarity savings products in different forms that can be as profitable as a traditional investment: savings accounts, life insurance vehicles, UCITS, etc. They operate similarly to traditional products and fit perfectly into a strategy of portfolio diversification.
The amount of solidarity savings continues to increase, thanks in particular to the younger generations, who wish to combine profitability and a quest for meaning. They take ownership of the subject and see a better balance and fairer finance in these more responsible products.
Solidarity, yes… but is it a profitable investment?
Solidarity savings products offer almost identical profitability, or slightly less than a traditional savings product. Choosing to invest in the sharing economy does not therefore mean donating your money, but looking for another way to make it grow.
An investment is considered ‘solidarity’ when the amount invested finances, in part or in full, projects of social and/or environmental utility or where at least 25% of the interest produced is paid in the form of donations to an association. The fact remains that these investments produce income and benefit from tax advantages: the interest transformed into donations is generally deductible from your income tax up to 66%, or even 75% depending on the association supported. For those who choose to contribute to the capital of an unlisted solidarity company, you can reduce your income tax by 25% (for payments made from 10 August 2020).
The other ‘benefit’ of this type of investment is found elsewhere, in the satisfaction generated by the usefulness of your money. Isn’t donating part of the interest to serve our planet or the human condition a great reward?
To invest part of your money in solidarity finance, there are specialised banking institutions, but you can also call on fintechs, i.e. companies that combine finance and new technologies. Birdee is a good example of this and allows you to integrate solidarity investment vehicles into your investments. With Birdee, you can invest according to your interests and values, with transparency and simplicity.