Role of Finance in Promoting Social Entrepreneurship

Abstract

In recent years, social entrepreneurship has gained growing recognition as an innovative approach to tackling societal challenges while advancing sustainable development. A critical success factor for social enterprises lies in their ability to access and strategically utilize finance. This study explores the role of finance in promoting social entrepreneurship, with particular attention to crowdfunding as a key form of social finance. It investigates the essential factors shaping social entrepreneurship, examines the relationship between crowdfunding and the success of social ventures, and tests the mediating role of firm age in this relationship. Social entrepreneurship differs fundamentally from traditional business models by combining social impact with economic sustainability, necessitating creative financing mechanisms. Crowdfunding, which involves collecting small financial contributions from a large number of individuals, has emerged as a viable and democratic funding alternative for mission-driven enterprises. This research analyses how crowdfunding supports the growth and impact of social ventures, and how firm age mediates this relationship by influencing credibility, access to networks, and resource availability. A mixed-method approach is employed, integrating quantitative data analysis with qualitative insights from social entrepreneurs to better understand the financial dynamics at play. The findings suggest that firm age significantly mediates the impact of crowdfunding on social venture outcomes, as younger firms may face more constraints compared to their more established counterparts. This research contributes to the broader understanding of how financial tools and strategies can be customized to empower social enterprises. It also offers practical recommendations for policymakers, investors, and social entrepreneurs to strengthen financial ecosystems and enhance the sustainability of social innovation

Introduction

Social entrepreneurship aims to address societal and environmental challenges through financially sustainable ventures. However, traditional financial institutions often overlook the dual-purpose nature of these enterprises, making alternative funding sources crucial. Crowdfunding has emerged as a valuable solution, offering capital, visibility, and community support—especially for younger ventures that often lack credibility or reputation.

Key Objectives:

1. Identify the drivers of social entrepreneurship.

2. Analyze the relationship between social finance and social entrepreneurship via crowdfunding.

3. Examine the mediating role of firm age in these relationships.

Literature Insights:

• Social finance mechanisms like crowdfunding, impact investing, and grants are vital for early-stage social ventures.

• Crowdfunding success hinges on trust, storytelling, and digital tools.

• Firm age influences financing access: younger firms rely on crowdfunding/grants; mature firms attract institutional or equity investments.

• Structural issues (gender, caste, regional disparities) also affect access to finance.

Methodology:

• A mixed-methods approach using a structured questionnaire distributed via Google Forms.

• 140 valid responses from social enterprises, nonprofits, SMEs, financial institutions.

• Data analyzed using SPSS, employing reliability tests, factor analysis, correlations, and mediation analysis.

Findings:

Demographics:

• Majority from social enterprises (45.7%) and nonprofits.

• Crowdfunding was the most used financing source (31.4%).

• 73% of firms were less than 7 years old, indicating a young ecosystem.

• Sectors: financial services, education, agriculture, health, and technology.

Reliability:

• Cronbach’s Alpha = 0.837, indicating strong internal consistency in the scale.

Key Relationships (Correlations):

• Social Finance → Social Entrepreneurship: r = 0.628***

• Social Finance → Crowdfunding: r = 0.442***

• Crowdfunding → Social Entrepreneurship: r = 0.437***

Mediation Analysis:

• Crowdfunding partially mediates the impact of social finance on social entrepreneurship:

  • Indirect Effect: 0.0789, p = 0.012

  • Direct Effect: 0.4854, p < 0.001

  • Total Effect: 0.5643, p < 0.001

Path Coefficients:

• Social Finance → Crowdfunding: 0.522***

• Crowdfunding → Social Entrepreneurship: 0.151**

• Social Finance → Social Entrepreneurship: 0.485***

Discussion:

The findings confirm that access to social finance, especially via crowdfunding, is crucial for social venture growth. Crowdfunding provides more than funding—it validates the enterprise, builds community engagement, and allows bypassing traditional financial barriers. Blended finance models (mixing grants, crowdfunding, microfinance) are common and necessary, especially for younger ventures.

Firm age significantly influences funding strategy:

• Younger firms benefit more from crowdfunding and flexible financing.

• Older firms leverage experience and reputation to access institutional capital.

Implications:

• Social entrepreneurs should adapt their financing strategies to their organizational maturity.

• Policymakers and investors must create stage-specific financial programs, supporting both early-stage and mature social enterprises.

• There is a need for inclusive and adaptive financing ecosystems, considering age, region, and social dynamics like gender and caste.

• Crowdfunding should be institutionalized as a key part of social finance policy to expand access and resilience.

Conclusion

This study has explored the critical intersection between finance and social entrepreneurship, emphasizing how social finance instruments, particularly crowdfunding, facilitate the growth and sustainability of socially-driven enterprises. By examining the various dimensions of social entrepreneurship and the mechanisms through which financial support is mobilized, the research has highlighted that access to alternative finance not only enhances operational capacity but also enables innovation and impact among social enterprises. Furthermore, the moderating role of firm age was shown to influence the effectiveness of financial inputs, suggesting that younger and more agile firms may derive greater benefit from crowdfunding than their older counterparts. This insight underlines the need for tailored financial strategies based on organizational maturity. The findings contribute to both academic literature and practical policy design, encouraging stakeholders to craft inclusive financial ecosystems that empower social entrepreneurs across different stages of growth.

References

This study has explored the critical intersection between finance and social entrepreneurship, emphasizing how social finance instruments, particularly crowdfunding, facilitate the growth and sustainability of socially-driven enterprises. By examining the various dimensions of social entrepreneurship and the mechanisms through which financial support is mobilized, the research has highlighted that access to alternative finance not only enhances operational capacity but also enables innovation and impact among social enterprises. Furthermore, the moderating role of firm age was shown to influence the effectiveness of financial inputs, suggesting that younger and more agile firms may derive greater benefit from crowdfunding than their older counterparts. This insight underlines the need for tailored financial strategies based on organizational maturity. The findings contribute to both academic literature and practical policy design, encouraging stakeholders to craft inclusive financial ecosystems that empower social entrepreneurs across different stages of growth.

Copyright

Copyright © 2025 R. Mrunalini, Dr. T. Venkata Ramana. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.