APPROACH
Instiglio commits to launch two Social Impact Bonds in Latin America over the next three years. Social Impact Bonds (SIBs) can provide the up-front capital to scale early interventions, in areas as diverse as ECD and diabetes management, with governments or international donors paying based on the achievement of measurable results.
A SIB is centered on a pay-for-success contract where government contracts with an operator to fill a gap in service provision. Unlike traditional contracts (which generally contract based on rigid activities), the government pays service providers based on the achievement of desired outcomes. For example, instead of paying a nonprofit that works with unemployed youth based on how many youth go through its job-training program, the contract would pay based on how many of those youth have jobs one year after the program. Service providers borrow working capital from private sector investors to execute their programs. Government or donors pay the investors and service providers back based on the outcomes as determined by independent evaluations.
Social Impact Bonds generate value for all parties: Governments spend their money in a more accountable, transparent way, paying based on the success of rigorously evaluated programs; investors get both a financial and a social return; and service providers scale up their cost-effective poverty-fighting programs.
Instiglio will achieve this commitment by originating, structuring and supporting the implementation of SIBs. The successful implementation of this commitment would not only be the first Social Impact Bond in Latin America, but potentially the launch of the first Social Impact Bond in a low or middle-income country.
ACTION PLAN
From idea to implementation, a SIB must pass through the following stages:
1) Idea generation and engagement: Businesses might be interested in supporting progress on a social issue in a more effective way; Governments might be interested in spending their scarce budgets more efficiently; Nonprofits might be interested in how they can finance the scaling of their services. Instiglio engages these different parties to support them in determining whether a SIB is right for them.
2) Feasibility study: Instiglio will assess the feasibility of the given topic by developing the outcome metrics, assessing the evidence on program interventions, and building multi-stakeholder partnerships to ultimately facilitate the implementation of the SIB.
3) Design study: Instiglio structures the payment metrics, evaluation methodology, builds a financial model, and estimates social returns on investment.
4) Capital raising & procurement: Instiglio works with its partners to raise the working capital to be able to finance implementation as well as finalizing and signing agreements between government, investors, service providers, intermediary and evaluators.
5) Implementation: Instiglio helps to mitigate investor risk and amplify the impact of the programs by implementing a suite of performance-based management tools alongside program implementation; enabling the investment committee to understand the evolution of the program and engage in in-course corrections as needed.
Throughout this process Instiglio works with strong partners in country to convene relevant parties and share expertise. For example, in Brazil, SITAWI will support Instiglio's efforts to educate the market and support the sourcing of ideas.
By December 2014, Instiglio plans to have at least one design study completed.
By December 2015, Instiglio plans to have at least two design studies completed.
By December 2016, Instiglio plans to have participated in at least two SIBs; with contracts signed and implementation underway.
Common wisdom states that prevention is better than cure. Yet often governments find themselves treating the consequences of problems rather than more cheaply and easily preventing them.
For example, in Mexico, diabetes is the second cause of death, yet only 25% of Mexico's 11 million diabetics have their disease under control, leading to complications such as liver disease and ultimately death. Beyond the human toll, diabetes costs more than $1 billion dollars each year to Mexico's health system. Yet early diagnosis and treatment, including better diet and exercise, can not only save lives, but save money too.
Another example is the significant evidence showing that investing in high-quality early childhood development (ECD) is one of the highest-impact investments a government can make-returning up to $17 for each $1 invested, improving health, education and income, while reducing inequality. Governments from Mexico to Colombia and Chile have committed to scaling-up ECD yet gaps in coverage and quality persist.
There are multiple reasons why governments have trouble financing and scaling-up high-impact evidence-based programs. First, governments are caught in a spending trap with skyrocketing budgets treating the consequences of problems, leaving little money left over for prevention. Second, insufficient incentives exist for high-quality social services. Governments finance tightly prescribed activities leaving little incentive to adapt programs to the real needs of the population. Poor-performing programs persist for years, while, more cost-effective, evidence-based programs struggle for cash to expand.
One response has been for governments to work with the private sector through innovative public-private partnerships. These partnerships have helped increase investment, but the capacity of the private sector to fill public sector needs is limited and limited incentives exist for real results.
Instiglio seeks to partner with like-minded organizations to build market awareness in Latin American countries for Social Impact Bonds & to explore potential new applications of Social Impact Bonds in the region and in the world.
Instiglio seeks to partner with like minded organizations to build market awareness in Latin American countries for Social Impact Bonds and to explore potential new applications of Social Impact Bonds in the region and in the world.
