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Social Impact Bonds_Izmir

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Sophie Gardiner

on 30 June 2015

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Transcript of Social Impact Bonds_Izmir

Intractable Problems
Brookings Impact Bond Landscape Study
1. Introduction
2. Impact Bond 101
Social Impact Bond (SIB)
government
is outcome funder

Development Impact Bond (DIB)
third party
is outcome funder
The Stages of the Impact Bond Development Process
Determine Feasibility
Impact Bond Funds
How does this compare to other financing mechanisms?
38 Active Social Impact Bonds (as of March 1, 2015)
10000
What were the stakeholders' motivations?
Determination of Outcome Metrics and Payments is Critical
Challenges and Facilitating Factors
Top 10 Claims about Impact Bonds
United Kingdom: 24 SIBs
13 Social Welfare
10 Employment
1 Criminal Justice
United States: 7 SIBs
3 Criminal Justice
2 Social Welfare
2 Education
Australia: 2 SIBs
2 Social Welfare
Germany: 1 SIB
1 Employment
The Netherlands: 1 SIB
1 Employment
Belgium: 1 SIB
1 Employment
Canada: 1 SIB
1 Social Welfare
Portugal: 1 SIB
1 Education
3. Landscape of Impact Bonds
4. Impact Bond Process
5. Strengths of Impact Bonds
Basic Impact Bond Mechanics
Source: Authors' research
Source: Authors' research
Source: Authors' research
Note: Prevista deal data unavailable
Source: Authors' research
Note: Nottingham Futures (2.72) and Triodos New Horizons (2.4) are approximate, data unavailable for 4 SIBs: Street Impact (Thames Reach), Prevista, Living Balance, Eleven Ausberg
3 types of capital commitment: senior, subordinate, grants/guarantees
Identify Social Challenge
Raise Capital
Determine Outcome Metrics and Payments
Procure Service Provider
Contracting
Provide Services
Manage Performance
Evaluate
Outcome Funders:
scale a promising intervention in the presence of budget constraints

Service Providers:
scale a promising intervention and achieve outcomes

Investors:
test an innovative financial model for social services and a combination of social and financial return

Intermediaries:
test an innovative financial model for social services and achieve outcomes
Ideal outcomes are...
measurable (in a reasonable time frame)
meaningful
proven outcomes of intervention
potentially monetizable to outcome funder
simple
Challenges:
developing a new form of government contracting
Who were the stakeholders and what were their roles?
"If you've seen one SIB,
you've only seen one SIB."
Facilitating Factors:
government support for the transaction
Research Methodology

literature review
interviews
online survey
fact sheets on all active deals
Advisory Panel

child development experts
economists
development policy specialists
education finance specialists
venture capitalists and impact investors
Landscape of Impact Bonds
Public Private Partnerships (PPPs)-
e.g. performance-based contracts
(largely infrastructure)
Results-based aid and results-based financing-
e.g. World Bank "Program for Results" (P4R)
(links disbursement of funds to delivery of results)
Measurable and Meaningful Outcomes
Reasonable Time Horizon to Achieve Outcomes
Intervention with Evidence of Success in Achieving Outcomes
Appropriate Legal and Political Conditions
3 Promising Trends
3. Do-good capital
Peterborough, U.K. first cohort had an 8.4% reduction in recidivism in comparison with the control group. This didn't meet threshold for the interim payment, but is on track for final payment
Newpin bond in Australia 7.5% in interest payments to investors in its first year
Main Takeaways on Deal Development
Can be a complex process

But the variation in structures and roles provides an opportunity to tailor a deal to a specific context

Over time, the process may become easier

Most importantly, the resulting system may be well worth the difficulties in development
Somewhat
Yes
-Focus on prevention leads to fiscal savings

-All but one intervention are preventive
-Few interventions in early years, where cost savings are highest
Too soon to tell
-Government only pays if outcomes achieved (for a SIB)

-Question is, how risky are the deals? Few deals have reached outcome payment
-If a deal fails, government may have to pick up pieces
Yes
-Paying for success in SIBs shifts focus to outcomes

-Observable shift in mentality among service providers and government
No and Yes
-Impact Bonds lead to expansion of services.

-Small in absolute terms, most deals reach less than 1,000 beneficiaries
-High relative to target population
-Impact Bond
Funds
show promise for reaching scale
No and Yes
-Impact Bonds can be used to test innovative interventions

-No intervention completely untested
-Many new combinations of interventions and some new populations
Yes
-Impact Bonds bring private sector performance driven mentality leading to course-adjustment

-All of the deals have an entity responsible for performance management
-Few programs that allow significant

course adjustment during the program
-Stimulate collaboration across stakeholders (public and private), government agencies, political divides

-Good examples of all three types of collaboration across the deals
Too soon to tell
-The need to measure outcomes in Impact Bonds can lead to development of M&E

-Some examples...early days, so systemic change remains to be seen
Too soon to tell
-Promote multi-year contracting
-Lead to systemic change, e.g. M&E
-Serve as catalyst for gov't to continue funding

-Yes on multi-year contracts
-Some evidence of increased gov't support for services
-Little evidence of outcome achievement yet
Similar to...
-Tracy Palandjian,
Social Finance US
Individual Transaction
group decision
Impact Bond Fund
rate card
coordination among stakeholders
availability of measurable, monetizable, evidence-backed outcomes
preventive nature of interventions
investor interest in social return
available measurable and monetizable outcomes
Some other SIBs nearing contract completion, but we don't know yet the degree of outcome achievement
-More money, traditional funders
-New money, new funders
-Yes private $ upfront, liquidity constraint solved, some new $
-Would have funded otherwise??
-Outcome achieved, gov't pays
6. Conclusions
Thank you!
Source: Authors' research
*Program works with parents, but the intended beneficiaries are the children
**ThinkForward in the Innovation Fund Round 2 works with 14- to 18-year-olds, rather than 14- to 16-year-olds
Innovation Fund Round 1 Rate Card, U.K.
Yes
Repayment
Source: Authors' research
Note: Evaluation method is not publicly available for two deals, four deals use two methods and one deal uses three methods
Barriers to Solving the Intractable Programs
Health: Malaria incidence in LDCs is 192 out of every 1,000 individuals. Direct costs of Malaria estimated to be $12 billion per year

Education: estimated 58 million primary school age children out of school worldwide

Water: 11% of the world population has no access to an improved water source

Energy: 17% of the world population has no access to electricity

Youth unemployment: 14% unemployment rate among those ages 15-24 worldwide
Not enough money:
the ratio of government revenue-to-GDP is 42% in high income OECD countries, but only 18% in low income countries

Money not well spent:
while studies of cost-effectiveness indicate that child death could be avoided for as little as $10, a developing country at average income levels spends $50-$100,000 per child death averted
2. State and Non-State Partnerships
-Impact Evaluations
-Results-based funding
1. Value for money
Demand-side
Supply-side
-PPPs
-Contracting non-profits
-Impact Investing
-CSR
Authors: Dr. Emily Gustafsson-Wright, Sophie Gardiner and Vidya Putcha
-Niche sectors with complex inputs and simple outputs
-Time and expertise intensive
-Flexibility in deal structure and player roles
-Keys to deal development:
1. Measurable outcomes
2. Evidence of intervention impact
3. Dedication of all stakeholders
-Shift focus on outcomes
-Drive performance management
-Foster collaboration
-Lead to development of M&E systems
-Invest in prevention
-Not currently achieving large scale, but the possibility for greater scale exists
Strengths of Impact Bonds
Area for potential improvement:
Impact Bonds in Developing Countries
-The challenges are likely to be even greater in developing country contexts

-To tackle these challenges, we will need the following:
-philanthropy to leverage government funds or establish evidence of intervention
-legislation
-focus on beneficiaries
-expertise on deal development
Health: "Millennium Development Goals Report 2014 Statistical Annex," United Nations: 2014.; CDC. "Impact of Malaria." Centers for Disease Control and Prevention. March 26, 2014.
Education: UNESCO. At Least 250 Million Children of Primary School Age are Failing to Learn the Basics. Technical Report prepared for the Education for All Global Monitoring Report 2012. Paris: UNESCO, 2012.
Water, Energy, and Youth Unemployment: World Bank Indicators.
1. Mascargni, G., M. Moore, and R. McCluskey. "Tax Revenue Mobilisation in Developing Countries: Issues and Challenges." Directorate-General for External Policies of the Union, European Parliament, 2014.
2. Filmer, D., L. Pritchett, "The Impact of Public Spending on Health: Does Money matter?" Social Science and Medicine 49 (10), 1999: 1309-1323
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