This is a CTP of initiative: FEBEA/Credal (Belgium)
The Critical Turning Point relates to the restrictions that the Belgian regulation establishes for cooperatives to raise money through the public offering and describes a situation happened before the creation of Crédal. Such restriction involved a challenge for Crédal’s pioneers, even before the legal constitution of the credit cooperative. Indeed, in the case of the legislation regulating the applicable "public offering" for Crédal, the law required it to be accompanied by a prospectus.
According to the law on public offering, the same person cannot hold more than €5,000 in a cooperative unless the cooperative has a prospectus validated by the financial authorities
These publication requirements are relatively unaffordable for middle-size credit cooperatives or small monetary financial institutions.
That was expensive, going through these formalities, to obtain the license to release the prospectus
According to the respondent, being able to overcome this first legal barrier meant a critical point in Crédal’s history:
That was the first turning point. The technical problem was, from the very beginning the regulations about the public offer of shares in Belgium and other countries, how to ask for money, for financial investments by opening the offering to the public on a large scale and/nor for great amounts. There are regulations around the world, in order to secure the placement, that people invest money. In their principle, these regulations are necessary to protect the savers. But they have to be well balanced and adapted for the subscriptions of shares of real cooperatives (especially those acting with specific rules of the “social economy”)
The interviewee explains in the following how Crédal pioneers managed to overcome these legal restrictions. “They managed to ask money and raise money but not in a public way (not as wide as defined in the legal concept of “public”). The way for doing it was face to face or by other quite direct relationship and limiting
They managed to ask money and raise money but not in a public way (not as wide as defined in the legal concept of “public”). The way for doing it was face to face or by other quite direct relationship and limiting the amount of shares that a person could buy in the Belgium context. So has it been decided before starting of the cooperative in 1984
The respondent highlights that this situation remained a challenge for Crédal until 2015, when the cooperative managed to overcome restrictions and elaborate the required prospectus:
Regarding the public offer of shares, from the very beginning until I think, last year, they have gone through these heavy formalities. In the last year or two years ago, Crédal managed the procedure with the Belgian FSMA to create the Crédal’s prospectus (FSMA : Financial Services and Markets Authority, which replaces since 2011 the former Bank Commission for that type of control on the financial market). Thus, quite recently Crédal was strong enough as to afford the expenses and the work to prepare this prospectus, and act wider in collecting money to sustain its activities
In terms of co-production, the respondent highlights the role of pioneers, the group of people who had the idea and persuaded other social activists to raise money and to create the first credit cooperative in Belgium.
In the beginning, I had a personal relationship with some of the people who wanted to create Crédal. I knew Crédal before it existed. In the group of people who created Crédal, there were people that I knew from other social projects, meetings and advocacy work in Belgium. The foundation of Crédal was boosted by religious groups (Catholic) who had money in banks and who disagreed with how banks used money, especially in South Africa. That was the starting point
Besides, pioneers had not financial backgrounds, so they convinced other people, financial and legal experts, either to engage in the social initiative or to help them with legal issues or banking formalities: They were people with good intentions, willing to help, some members of religious congregations, and some experts, external advisors, who accepted to devote time to help in the creation of Crédal. The respondent also remarks the creativity of those people to find solutions to this situation: “They managed to overcome these problems, I think because they had
They managed to overcome these problems, I think because they had a wide freedom of action. Crédal has done well thanks to its Board, the creativity of the managers and the workers; it’s like a nest of creativity
Belgian legislation does not appear to act as a brake on the constitution of Crédal, since it does not prohibit non-bank institutions developing lending activity. However, this CTP explains that certain legal constraints existed to fundraising, like the regulation of public offerings of shares, only permitted for companies having fulfilled the procedure of authorization (at that time given by the Bank Commission), namely the approval of a prospectus and all its conditions, without any softening or adaptation for credit cooperatives. As a consequence, to deal with external barriers, Crédal was forced to be very creative. Regulations have not been supportive for the credit cooperative:
Definitely not! Regulations have not been supportive. I can talk as a lawyer, since my profession is legal advising, and regulation is generally not supportive of creativity, generally not at least in Belgium
The first related event mentioned by the interviewee was the foundation, in 1984, of “Crédal” after almost 5 years of debate and previous work dedicated to the elaboration of the first statutes, the search of partners and savers, etc. The respondent remarks that Crédal was a real social innovation. It was the first experience in Belgium of an ethical-based credit cooperative.
35 years ago, the founders were people interested in searching for alternatives, to make a clever use of the money from institutions, charities, private people... And there wasn’t a wide range of opportunities to invest on this manner in Belgium. The founders were people aiming to do something else to spare money and to give access to it to individuals, to private organizations, was a real innovation. It was something very new
A second event closely related to this CTP happened on the 17th February 2015, when the Belgian financial authority (FSMA) approved the first prospectus presented by Crédal for the 2015-2016 period. This detailed document contained the investment offer, the conditions, the rights and a risk analysis. As a result, Crédal reached € 26,5 million in capital on the 31st December 2015; reporting an increase by 13% compared to the 2014 level.
The problem is solved. I think about 2 years ago, Crédal fulfilled the formalities to obtain the full license to collect savings from the public, also allowing them to collect large amounts of money from the same person. So, they have made the effort to be able to receive the full license. There are no restrictions any more, since, I think, the last year
The interviewee also mentions that in its 33 years of history, Crédal had to deal with several legal changes, but none of them acquired the relevance of this critical turning point, because they did not involve a real problem: “I think the one I mentioned was the most important, the investment offer for shareholders. At some point there were some difficulties derived from changes in the laws, but not important. For instance, 9 years ago, there was a legal change regarding the “caution”, the personal guarantee that one person gives for
I think the one I mentioned was the most important, the investment offer for shareholders. At some point there were some difficulties derived from changes in the laws, but not important. For instance, 9 years ago, there was a legal change regarding the “caution”, the personal guarantee that one person gives for another one. Such changes in civil law forced Crédal to adapt a little bit to the new regulation in its credit activities
The respondent did not report any contestation regarding this critical turning point. Of course, Crédal pioneers struggled with the legal restrictions and discussed the different options and existing alternatives to raise money according to the law but they finally succeeded in starting the cooperative and limiting the level of shares members could purchase.
According to the respondent, since Crédal was mainly an idea of a small group of people, in the early 80s, the first leaders of the initiative struggled with the need of raising funds without being able to approach the Belgian society through a public offer of shares. That is the reason that made him point out this situation as a critical turning point. Giving an ethical use of the money coming from religious congregations, private persons and other organizations was the ground motivating to create Crédal.
Finding the appropriate way to collect additional funds of that type was a fundamental step in the viability of the cooperative. If pioneers hadn’t managed to do that, the initiative wouldn't exist or wouldn't serve for the mission and purposes settled by the founders. Second, the interviewee remarks that Crédal had to deal with this legal restriction from the 80s to 2015, when the cooperative was able to present the prospectus required by the authorities, as he explained in the previous section.
For years we kept going back to these discussions. This situation lasted until two years ago, when Crédal was strong enough as to face the expenses, going a step further and presenting this prospectus to the Belgian FSMA ( Financial Services and Markets Authority)
The main lesson the interviewee highlights as derived from this critical turning point is the key role that public institutions, concretely, financial regulators, have played in the development of Crédal and, which can play for any social innovation. Public authorities often approve laws addressing large-scale companies, but which have negative-side effects on medium-size or small initiatives. Regulations have not been supportive of social innovation or any kind of creative social entrepreneurship and limit the emergence of new entities that, like Crédal, have a social orientation.
On the other hand, the attitude of any social initiative like Crédal -or other cooperatives which need to raise broad amounts of money to start- should be, according to the interviewee, more proactive, more open to discuss about legal issues with public authorities. As policy recommendations, regulations should take into account the different dimension of companies involved, for instance, norms should be different for non-profit and for-profit organizations:
In my opinion, my advice, I think that is better to discuss about these legal restrictions with authorities and find not too much regulation but some regulation and maybe, and I come back to Crédal’s experience, the regulation for those middle-size cooperatives with a clearly defined social target, middle-size social enterprises wouldn't be the same that the regulations settled for the big companies or big funds. That is the starting point for any strategy to discuss this with authorities
The respondent remarks that this learning should also inform Crédal’s current practice as well as the practice of other social innovations. Indeed, he is able to anticipate that social entrepreneurs will face similar challenges in the following years, in especial concerning innovative crowdfunding solutions:
You will probably know that, around the world, regulations on crowdfunding will come. I think that in every country there has been a feeling, during the last 5 years, that things are changing a lot due to the new techniques to raise funds, like crowdfunding, by which any cooperative or initiative, has the opportunity to raise money and to start ambitious projects. I think that European regulations regarding crowdfunding will certainly be developed fast
He claims for a different or a new way of defining the rules, with a co-production between policy.-makers and social initiatives, from the very beginning.
I think it is important that the social innovation sector takes a position about that. I think the first or instinctive choice by social entrepreneurs will be “no regulation”, to be free and that they are fully convinced that this is good, and that it serves to the common good and social welfare, and that they are going to do well with the money they collect. Nevertheless, I think that this is important to suggest some rules preventing from excess or speculative operations under cover of social activity. It would be very important for the social credit sector in the next years
As a lawyer, he is concerned about the risks and the need of security that individuals and small entities require regarding their investments, even if those are small amounts of money. In terms of security and reliability, crowdfunding and any other forms of raising money that may appear in the future should be regulated, and to a certain extent controlled by public authorities:
Anyone could do mistakes. So the social finance sector has to pay attention also to secure money that good people give to them. Freedom of action, no regulation, on the one side may be good but if we think on the other side, in those people investing the money, we have to admit that authorities could control and create some new regulations
Besides, he remarks the big difference between a bank and a credit cooperative relates to the risk that shareholders take when they join the initiative:
Crédal is a credit cooperative. Buying shares in it is quite different than doing a deposit on a bank account. In a bank, the basic operation is to do deposits. But in a cooperative, you buy a share with full risk for the share, which is totally different. People sometimes forget it but it is totally different. Hopefully, until now, the careful management of Crédal has meant that Crédal has not had any liquidity problem. When shareholders ask for the reimbursement of their share, Crédal has always had the capacity to reimburse due to the good management, careful, clever, according to the laws
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