Using SIB structures to pay for education and development. Two interesting stories today, happy reading:
Invest Early, Invest For Impact: Social And Development Impact Bonds For Early Childhood Development In Developing Countries
Emily Gustafsson-Wright, Vidya Putcha & Tamar Manuelyan Atinc – Brookings
With the United Nations General Assembly underway, the streets of upper Manhattan were cordoned off and black town cars and Suburbans with tinted windows ferried around world leaders to discuss education, climate change, and burgeoning global health crises. The words “post-2015” rolled off of the multilingual tongues of heads of state and global policymakers as they discussed a future development agenda that may affect citizens across the globe.
Nearby, a different kind of conversation was happening. Those in the room were not your usual policymakers and bureaucrats, but included business leaders and entrepreneurs with innovative ideas about how to try tackling some of the world’s most intractable social issues. And the fact that the discussion centered on a tool to bring bureaucrats and business people to the same table to take action was nothing short of trailblazing.
Together with the Global Business Coalition for Education (GBC-Education), the Center for Universal Education co-hosted a panel discussion about the potential to use a relatively recent innovative financing mechanism—social and development impact bonds—to solve some of the problems that occur at the very beginning of an individual’s life. Policies that aim at the period from conception to transition to primary school, or early childhood, are well known to be a good investment and a significantly less costly one than the remedial interventions that are necessary in the absence of proper early childhood care and stimulation. Nevertheless, such policies, particularly in developing countries, are often piecemeal and result in shortfalls both in terms of access and quality.
How Pay-for-Success Funding Might Help Low-Income Students
Megan Golden – Chronicle
Policy makers, college administrators, and parents are all searching for ways to help needy students graduate. They have offered a variety of solutions to accomplish this: freezing tuition, reducing student-loan interest, allowing graduates to refinance, increasing community-college enrollment, improving freshman advising, ranking colleges on the basis of graduation rates. But one option is missing from the debate: pay-for-success financing.
Under pay-for-success financing, which started in Britain in 2010, the government pays for outcomes that programs achieve rather than for the services themselves. Here is how it works:
1. Private investors—individuals, corporations, or foundations—provide money to develop cost-effective programs on a large scale.
2. The government agency responsible for the outcomes signs contracts to pay back the investors, with a premium, if the programs achieve agreed-upon results.
3. An impartial evaluator determines whether outcomes are achieved. If so, the investor is repaid with interest.
4. An intermediary manages the project, contracting with the investors, the government, and the service providers.
This type of philanthropic financing is emerging as an important way for investors to make a difference. According to J.P. Morgan and the Rockefeller Foundation, which are involved in such financing, the estimated size of the impact-investing market is $400-million to $1-trillion over 10 years.
Impact Investing Needs Millennials
Vilas Dhar and Julia Fetherston – HBR
As impact investing tries to make the move from philanthropic thought experiment to powerful instrument for global change, a vital demographic and financial reality is emerging — it’s going to be millennial investors (particularly those inheriting or building significant private wealth) who make or break it.
Since the term was coined in 2007, impact investing — the idea that private capital can be deployed to alleviate pressing social needs like access to clean water, affordable housing or preventative healthcare while returning a financial profit — has attracted significant public and media attention. However, impact investing’s legitimacy as an alternative asset class remains elusive.
Impact investment continues to suffer from limited transaction flow and anemic dollar commitments. Most relevant to stunted growth, however, is cultural resistance — the inertial apathy of traditional financial players who are wary of novel, risky investment structures and skeptical about trading some amount of profitability for social return. Without the commitment of commercial financiers to include impact investments in their core portfolios, or pressure from mainstream investors to insist that they do, impact investment’s route to scale is uncertain.
Enter the millennials (the roughly 80 million Americans born between 1980 and 2000, and their peers around the world), who conceive of financial return differently, and more expansively, than their elders. For millennials, pressing social problems are not just the preserve of philanthropists or governments. Millennials consistently cite social impact as one of the most important roles of business. Of all the generations alive today, millennials are the most willing to trade financial return for greater social impact, according to “Millennials and Money,” a 2014 study from Merrill Lynch’s Private Banking and Investment Group.