The University of Cape Town (UCT) Bertha Centre for Social Innovation and Entrepreneurship has joined forces with the Western Cape Department of Social Development (DSD) to launch a social impact bond fund that will benefit local Early Childhood Development (ECD) targets.
The centre, at the UCT Graduate School of Business (GSB), has hailed the successful launch of the Impact Bond Innovation Fund (IBIF) in the Western Cape as paving the way for the use of innovative financial mechanisms and public-private partnerships to boost public service outcomes.
Social bonds, say experts at the centre, are ideally suited to emerging markets, and have the potential to reduce costs and improve service delivery.
The IBIF, a first for the global south, is the culmination of three years of research and discussion between the provincial authorities and the centre. From the outset, the provincial government highlighted ECD as an important but underserved and fragmented area that would benefit from the pilot project.
“Our focus has been on working with government and private stakeholders to align intent and attract additional funding through a mechanism built for increased accountability, to strengthen services in the sector for the good of key beneficiaries,” explained Dr Susan de Witt, Innovative Finance lead at the Bertha Centre.
She stressed that an investment in ECD, or the first five years of a child’s life, has been shown to yield higher returns in respect of human development than the equivalent investment in primary, secondary or even university education.
Social impact bonds, also sometimes known as pay-for-success instruments, were pioneered in the northern hemisphere, but De Witt said they are also well-suited to emerging markets and public-private partnerships.
Predefined social outcomes
Effectively, they typically involve an agreement between a government and service providers, such as social enterprises or non-profit organisations, and investors, to pay for the delivery of predefined social outcomes. Socially-motivated investors shoulder the risk, knowing that repayment is dependent on the meeting of agreed targets.
The IBIF, said De Witt, entails a systematic, methodical collection of data that enables decision makers to improve the programme in real time, while giving service providers the flexibility to respond contextually to issues on the ground.
“This focuses everyone’s attention on what we ultimately want to achieve, for example, has the child hit development milestones, and are they ready to learn by the time they get to school.”
“It is a model that measures, in this case, the impact on the child of ECD interventions. This focuses everyone’s attention on what we ultimately want to achieve, for example, has the child hit development milestones, and are they ready to learn by the time they get to school.
“This is rather than focusing on pragmatic issues such as funding for staff, teaching time or building materials with the hope of reaching targets,” she explained.
Led by the DSD, in a matched funding arrangement with ApexHi Charitable Trust and supported by a coalition of investors that include the Standard Bank Tutuwa Community Foundation, Futuregrowth Asset Management and LGT Venture Philanthropy, the IBIF is projected to reach 3 000 children over three years via home visits.
The fund will be implemented by the Western Cape Foundation for Community Work (FCW) in collaboration with Volta Capital, which will manage the investment side, and Mothers2Mothers (m2m), which will help develop the capacity of service providers in their community work.
Barry Panulo, senior analyst at the Bertha Centre, said the roll-out would be carefully monitored, and added that they hoped to measure how the project works as a learning mechanism. The data they come up with can be scrutinised by the government in the hope that the strategy will be applied to the rest of the ECD portfolio, and ultimately to other critical services.
He said the team set out in 2014 to look at innovative financing languages to see how existing structures could be used for social benefit with very practical applications in emerging markets.
“We have learned that it is possible to take social impact bonds and implement them in the South African context in conjunction with government and through the public procurement framework.”
The Bertha Centre is also working with the National Treasury to assess whether these contracting tools do in fact provide better value for money, via pilot projects that will run over the next year.
Other independent initiatives in the marketplace that are under design or already proving successful include Bonds4Jobs, launched by Yellowwoods Investments with Harambee Youth Employment Accelerator, and another with the SA Medical Research Council to address HIV in adolescent girls and young women.
De Witt said the lessons learnt through these projects “will help us draw on the strengths of the public and private sectors to solve intractable social and environmental problems”.
“The global dialogue on social impact bonds has moved towards the setting up of an outcomes fund which would enable one to contract multiple service providers simultaneously, while reducing costs which have been high to date.”
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