Social Impact Bonds: A solution for South Africa’s Social Issues?

June 28, 2016

Social Impact Bonds (SIBs) are the latest financial innovation that is gaining a lot of buzz around the world, especially in developmental circles. Despite their name, SIBs function in quite a different way than a traditional bond. At their core, SIBs allow the funding of certain initiatives based on outcomes being achieved – where investors in Social Impact Bonds will only receive a return or repayment (usually from a government entity) if the desired outcomes are achieved within a specified time.

source: www.missioninvestors.org/tools/potential-action-bringing-social-impact-bonds-us

One of the main reasons SIBs were invented was to make access to funding for social projects easier, and have been described by S. Gardiner and Emily Gustafsson-Wright as a “financing mechanism for social outcomes where investors provide upfront capital for services and a government agency repays investors contingent on outcome achievement.” This serves as a way to de-risk projects for governments; save the taxpayer money by reducing wasteful over-spending; makes more funds available for different social programmes and supports a growing number of public-private collaborations which aim to maximise social impact. Due to Social Impact Bonds being outcomes-based, they also help address the longstanding challenge of a lack of data collection and impact measurement that plagues many social projects (especially in developing countries).

The Western Cape Departments of Social Development and Health have recently committed R25 million to early childhood development through an SIB. This is a ground-breaking project for a host of reasons, one being that South Africa is the first middle-income government to fund an SIB and another is that there are only nine, out of a global total of over 50 Social Impact Bonds, which focus on children under the age of 5. Elsewhere, SIBs have mainly been used for projects focusing on homelessness, public safety, health and family support.

In a country where 26,7% of the population is unemployed, and 30% rely on social grants, it might seem that implementing SIBs in South Africa is a bit of a no-brainer. But even for investors who value the social return as much, or perhaps more, than the monetary return, the risks might still be too high. Investments only get returned once the desired impact has been achieved, and social impact is not only inherently difficult to measure but may also need better systems within government.

So, in order to achieve successful SIB projects, the initial contracts, measurements tools and indexes, evaluation and management must be carefully considered and researched, which adds additional cost to getting a project off the ground. And after the project has been implemented, it will need careful and ongoing management, planning and evaluation to reach the intended targets.

It may sound quite a mountain to climb, for both developed and developing nations, but South Africa is a country that has a history of doing the impossible, and perhaps this is the reason for the Bertha Centre to choose to be part of the first of such projects.

Social Impact Bonds are still in the developing stage, and have a long way to go to prove ongoing and measurable success. And if it turns out to be a viable solution in the South African environment, countless jobs will be created and tax-payer money saved while creating much needed positive social impact.