Social Impact Bonds An Introduction - PowerPoint Presentation

1. Social Impact BondsAn IntroductionCABRI, November 2015

2. 1All Credit for slides to Social Finance. Slides presented by Social Finance for proposed SIB in Thailand

3. Illustrative social impact bond structure2INVESTORSOUTCOMES FUNDERSERVICE PROVIDERSProvide financeBENEFICIARIESOutcomes Funder repays investors based on achievement of verified outputs and outcomesPay for ImpactAdjust delivery in real-timeInvestors oversee service provider resultsVerify impactImpact Bonds are financial mechanisms in which investors pay for services upfront to improve a social outcome that is of social and/or financial interest to the Outcomes Funder. Payments back to investors are triggered if and only if outputs and outcomes are successfully verified – returns are linked to the level of success achieved.Social Impact Bonds (SIBs) – main outcomes payer is the governmentDevelopment Impact Bonds (DIBs) – main outcomes payer is a third party, e.g. a donor agency, foundation or trust funds.

4. Impact Bonds focus on improving impactDonor often focuses on financing inputs and processes to control what and how impactis achievedProgram may achieve lower than expected impact as cannot adapt to local circumstances and real-time dataDonor subject to public accountability, but program implementedby third partyUp-front capital from investors to service providers and provision of real-time performance managementImpact achieved improves as program is adaptive, client-centred and evidence-basedGovernment / Donor pays for impact achieved, rather than controlling inputs and processesImpact bonds incentivise the achievement of impact through linking funding to results and provide the corresponding implementation flexibility required to achieve impact:TRADITIONAL AID MODELIMPACT BOND MODEL

5. Impact bonds build on best practice4Social Impact Bonds for key and vulnerable populations intend to expand on existing proven approaches, while ensuring that the model upholds human rights of these populations: This can be achieved through:Clear Boundaries: A programme framework that sets clear boundaries for goals and methodsOutcome selection: Careful selection of outputs to avoid incentives for undesirable data collection methods or pressuresIntervention analysis: Explicit criteria for what interventions and data collection methods are permissible, and which are notSelected Investors: Investors restricted to those with a strong commitment to social goals and human rightsInnovative financing mechanisms such as social impact bonds go hand-in-hand with government funding for key populations, and should supplement their efforts in being more effective. The ambition is that impact bonds will pave the way for larger-scale – and more cost-effective and sustainable – Government implementation of proven interventions. 

6. Key characteristics of impact Bonds5Incentives for adaptive implementation Linking investor returns to desired outputs and outcomes creates a strong incentive for adaptive implementation of programmes to achieve better services for beneficiariesImpact Bonds aim to improve the efficiency and effectiveness of development programmes through shifting payments - and thus accountability - to outcomes instead of inputs. The focus on outcomes allows and encourages local adaptation according to the specific and changing needs of service users. Enhances transparency and accountabilityInvestors are only compensated when contract outcomes and outputs have been independently verifiedOutcomes funder only pays for successAs with other Results-Based Aid, outcomes funders (government / donors) only pay for if agreed outcomes are metUpfront funding provides working capital to service providers and risk is transferred to private investorsProvide access to upfront funding

7. Objectives and roles of key parties6

8. Principles for a successful Impact Bond7For an Impact Bond to be successful it must:Add value: Potential exists to improve outcomes through transfer of risks to investorsBe feasible: Improvement in outcomes measurable and stakeholder buy-inPRINCIPLESRationaleNeed for outcomes focusDemonstrated need for increased focus on outcomes in target geography and coordination of key stakeholders to achieve outcomesPromising interventionsFocus on expanding intervention with some evidence-base to ensure attractiveness to investors, but also uncertainties to justify risk transferService providers require working capitalService providers do not have sufficient upfront funding to pay for interventions or cannot bear the implementation risk aloneGood potential for attribution of outcomesTarget population and outcome metrics can be clearly defined and agreed uponData for outcome metrics and benchmark can be collected in a reliable and cost-effective way and used to disaggregate the impact of the interventionsPriority for donors and partner governmentsPotential donor agency and partner governments have interest in payment-by-results approaches and regard target outcomes as high priorityViable investment propositionIssue area / geography a priority for potential investorsReasonable level of evidence around effective intervention approachesAdd valueFeasibility

9. A rapidly growing market8US8 Impact Bonds, including highest value bond of $27m. Issues range from high risk youth to recidivism Harvard Lab providing assistance to 9 statesUK30 Impact Bonds for issues ranging from recidivism, to child services, employing a range of commissioning modelsAustralia2 Impact Bonds on out-of-home care Northern EuropeImpact bonds in the Netherlands (2), Germany, Belgium and Switzerland, for migrant and youth unemployment.CanadaOne Impact Bond for at-risk single mothersPortugalOne Impact Bond for education of primary school childrenOver 50 Impact Bonds raising $150m have been launched, with at least as many in development.Latin AmericaSocial Finance and IDB exploring project in Mexico, Brazil and ChileImpact Bonds also in development in Colombia (education) and Peru (agriculture)N Africa and the Middle EastImpact Bonds for youth training and employment and diabetes prevention in development in the West Bank Sub-Saharan AfricaImpact Bonds in development for Sleeping Sickness in Uganda, HIV prevention and ECD in South Africa, and maternal and child health in CameroonImpact Bonds launchedImpact Bonds in developmentAsia and SE AsiaThree pilots being developed in JapanIsraelOne impact bond for prevention of university drop outs in IsraelIndiaImpact Bond being piloted in Rajasthan, India, for Girls’ Education

10. Case study I: East African sleeping sickness in Uganda A Development Impact Bond targeting East African sleeping sickness would deliver significant animal and human health benefits at scale across poor, rural parts of Uganda. overviewObjectiveReduce incidence of East African sleeping sickness by treating cattle – the main parasite reservoir – to improve human health and animal health and productivitySizeAn 8 year, c. $50m DIB covering 44 at-risk districts in Uganda – intervention area includes central, northern and south-eastern districtsMinimum 4m cattle to be treated across the affected area>1m cattle keeping households across the affected areaSocioeconomic benefitsImpact of African Animal Trypanosomiasis (AAT) on cattle include reduced tractive power, loss in milk production and lower calving rates - estimated benefits of $15 per cattle per year free of tryps and $7.50 per cattle protected by insecticide per year Human health benefits include reduction in number of sleeping sickness cases per year and associated healthcare costs – estimated benefits of 18.8 DALYs / case and $200 healthcare costs per case$150m animal health benefits and $90m human health benefits estimated over 8 years InterventionMass cattle injection programme - delivery of 5.5 million cattle treatments1 over 3 years Establishment of prevalence and vector control strategy over 8 years to increase and improve regular farmer spraying of cattle with insecticide so animal and human health gains are sustainedOutcomesSuccessful mass treatment of cattle in years 1-3Reduction in the parasite prevalence from baseline in years 4, 6 and 8Data systemsUses tailored app and database to track cattle treatment progress in real timeSustainabilityPromotion of ongoing insecticide spraying by farmers to maintain parasite prevalence reduction achieved by the mass treatment programme and sustained socioeconomic benefitsImpact Bond value-addImproves the effectiveness of delivery through real-time data collection and analysisInvestment structure encourages strong management and programme adaptationProvides greater accountability and transparency around impact of donor funding 1. Proposed one round of treatment in southern endemic districts, two rounds in northern epidemic districts, resulting in c. 5.5m cattle treatments to be delivered over 3 years9

11. CASE STUDY II: youth training and jobs IN the west bankHIGH-LEVEL DIB DESIGNObjectiveIncreased training and better matching of young people with employment opportunities in the West BankTarget geographyWest BankInterventionFlexible skills training at both technical and university levels linked to new investments and upcoming employer demandSoft skills training tailored to specific skill requirements identified by employersOutputs and outcomesTraining and skills development outputs linked to employer needsImproved employment opportunities for young peopleImproved work retention for young people MeasurementDIB will collect real-time data on job placements and retention, with independent verification to trigger output and outcome paymentsImpact Bond value-addStrong link between private sector employers and design and roll-out of training programmesTraining and skills better aligned to upcoming employer demandImproved tracking of training, work placement and retention Key learnings mainstreamed into government programmesWhile a large amount of donor funding has been invested in the skills development sector in the West Bank, there are significant mismatches between the training programmes provided and needs of the private sector. The real-time data collection and adaptive management inherent in a DIB model could help bridge these gaps.10

12. Impact development involves three main phases11Phase I: High level scoping and stakeholder engagement (typically: 6-8 weeks)Stakeholder engagement e.g. impact bond approach tested with service beneficiaries and providers, government and other key stakeholders for suitability to the issue area and country contextFeasibility analysis e.g. early exploration of the ability of government / donors to fund outcomes, contracting environment, capacity of potential partners to implement services via an impact bond and potential to measure and track outcomesPhase II: Detailed design and securing of funding for outcomes (typically: 6 months)Detailed impact bond design work conducted in partnership with key stakeholders – focused around: Outputs and outcomes metrics, measurement and verificationIntervention model i.e. service designOutcomes funding, contracting and governanceData collection and performance managementBudget, operational and financial modellingInvestor soft marketingPhase III: Formal investor marketing, capital raise and service mobilisation (typically: 3-6 months)Once commitment to fund outcomes has been agreed with government / donors, funding is raised from socially motivated private sector investors to fund interventions under an impact bond structure – if and only if outcomes are successfully verified, outcomes payments from government / donors are triggered to repay investors their capital plus a return linked to the level of success and the level of risk takenPHASE 1High level scopingPHASE IIDetailed design PHASE IIICapital Raise SIB IMPLEMENTATION

13. 12Thanks for listening!!