Impact Bonds in Africa – a whole different story
By Aunnie Patton
So far, the story of Social Impact Bonds (SIBs) has been unfolding in the UK, US and, more recently, Australia. But now, as intermediaries look to bring SIB structures to Africa, Asia and Latin America, a whole new chapter of innovation is under way.
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Recognising the pivotal role that development finance institutions, corporations and other private organisations play in social interventions within developing economies, Social Finance and the Center for Global Development convened a May 2013 working group. Their aim: to investigate how Development Impact Bonds, or DIBs, could affect aid and development finance. Their conclusion: very much indeed.
The group's report, released in June 2013 highlights the fact that DIBs can "transform social problems into 'investible' opportunities and create incentives for investors to put in place the necessary feedback loops, data collection and performance-management systems required to achieve desired outcomes".
Additionally, the report acknowledges that by having "investors provide working capital – and assume risk – for interventions…. DIBs could attract funding for interventions that donor agencies and governments might not be able to fund under existing models".
Sounds promising. And as donor and finance communities begin to engage with these ideas, intermediaries are already hard at work in Africa creating public-private coalitions to fund interventions through outcome-based payments.
The Mozambique Malaria Performance Bond (MMPB)
It's an initiative led by the Mozambique Ministry of Health in partnership with Anglo American, Nando's and Dalberg Global Development Advisors.
THE AIM
By raising US$ 500-million to US$ 700-million in capital from corporates, donors, government and investors, the MMPB plans to fund 12 years of malaria interventions reaching up to 8-million people in Mozambique.
This intervention will be based on a highly successful malaria programme piloted in Ghana. But, by using the DIB structure, this raise looks very different from traditional aid programmes.
Firstly, investors will provide the capital upfront throughout the 12 years, receiving outcome-based repayments from corporates, donors and governments if the program performs according to outcome goals.
Corporates have an interest in providing outcome-based payments because they can realise real cost-savings from the programme operations through reduced incidents of malaria.
Finally, if the programme does not meet its goals, it can be terminated, with investors getting only a portion of their principal back.
The South African Reconciliation SIB (in-progress)
South African NGO Khulisa Social Solutions, in partnership with the Impact Trust and social business and advisory firm Nexii, has spent the past 18 months lobbying the local Department of Justice (DOJ) to engage in a feasibility study for a SIB to fund a reconciliatory justice intervention.
This April, a commitment from government allowed them to move forward with a pilot supported by the DOJ, the Department of Correctional Services and the National Prosecuting Authority.
What next for African Impact Bonds?
In the above cases, and those that will follow, it seems that outcome-based structures have the potential to upend the social intervention funding process – from government procurement and commissioning to donor and Development Finance Institution (DFI) grant-making and even the overall corporate CSI approach.
Successful coalitions between the above players could also catalyse large-scale social change across the continent. That said, it could bring with it some unique complexities, dangers and costs, most of which still remain to be seen.
The message is that intermediaries working on building these coalitions will have to ` draw on experiences from a variety of sectors, including development, consulting, finance, corporate strategy, data analytics, monitoring and evaluation, and more. Plus, just as data collection and sharing is a key benefit to outcome-based products, the blending of talent from these sectors will likely strengthen and benefit a range of social interventions themselves.
"Innovative financing mechanisms such as SIBs stand to improve the efficiency of development assistance in the coming years," writes Elizabeth Littlefield in the May 2012 Development Impact Bond Working Group Report. "As a vital component of the impact investing sector, outcome-based finance can be a powerful means of enhancing the effectiveness of aid and development finance."
Clearly the story of Impact Bonds in Africa is still largely unwritten. There might not be a happily ever after on the page just yet, but with the level of enthusiasm for SIBs, DIBs and Pay for Success Bonds at an all-time global high, we will soon be able to judge the outcomes of these innovative financial products for ourselves. And that is innovation in itself.
Inside | Aunnie Patton
First she was an investment banker. Then she was a social investment banker. Now she's a Dean's Fellow at the Saïd Business School, Oxford. She's consulted with the UK government, Big Society Capital, the Skoll Centre for Social Entrepreneurship and social enterprises the world over. In June 2013, she moved to Cape Town to be a Fellow at the Bertha Centre for Social Innovation and Entrepreneurship, Aunnie's social investment in Africa.
Read more about her work at: www.apsocialfinance.com
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