Innovative Financing: Social Impact Bonds May Help to Catalyze Change in the ECD Sector

June 17, 2014Leigh Hunt

Leigh Hunt qualified as a pediatric physiotherapist and has over 10 years of experience in the healthcare industry and the non-profit sector in both South Africa and Ireland. During her MBA at UCT, she conducted research on SE's transformation from non-profit to for-profit business models and while at Bertha has authored a comprehensive study of ECD initiatives and carried out research on innovative financing models for ECD in South Africa.

In my previous blog, I introduced and discussed Social Impact Bonds (SIBs), and how they may provide an opportunity to use a particular form of innovative financing to address certain social issues, particularly Early Childhood Development, in South Africa.

SIB’s are only one means of providing the necessary funds for addressing the social needs in early childhood investment, but they do offer an opportunity to help catalyze the innovative financing market in South Africa.

The first SIB, or any innovative financing fund that is set up in SA, must be done right, and this means proper due diligence needs to be carried out so that they are based on solid evidence. This will help to set the trend and whet the appetite of both government and investors for future SIBs or financing options, after all, we need both of these stakeholders, in conjunction with service providers, to not only set up but ensure the success of any SIB.

An example of this type of current due diligence is the Canadian, North Winnipeg example which targets the Aboriginal community of the Manitoba region which traditionally has low early childhood outcomes, with correlating but amplified poor results over time, such as a significantly high number of high school students failing to graduate.

A significant correlation has been found between three key risk factors and early development, these are namely: teenage motherhood; involvement with social services; family dependence on income assistance, with risk increasing when multiple of these risk factors are present.

It was also found that much of current federal government spending in addressing this issue was inappropriate and wasted, with many providers competing, rather than augmenting, each other’s services. Consequently, a funding mechanism has been designed as a step towards the development of a SIB, with 50% government and 50% foundation funding. This funding will be used to design the right interventions for this particular community in order to deliver set outcomes and measure appropriate data. Based on this solid base of evidence, a SIB will then be designed and implemented in the region.

The development of a SIB should not be an entirely investor-driven process, while there will be investor related incentives based on the outcome of a successful SIB; the primary incentive for setting up a SIB is not an economic one. Rather, collective learnings from SIBs across the world indicate that SIBs are about overcoming challenges in a multifaceted, multi-stakeholder manner. And they are about shifting and facilitating learning about what does and does not work in a current system. SIBs are successfully starting to introduce new ways of thinking about service provision and are resulting in government and service providers making changes in services, making better use of existing services, commissioning new services, testing new interventions or approaches, etc. 

Due to the very nature of childhood development though, an important consideration with regard to the development of any financing mechanism for early years’ service provision is that investment in early childhood development is most likely to result in cost-savings and significant impact in the long-term, rather than in the short-term. Benefits and cost-savings therefore take time to accrue and will accumulate to various stakeholders and/or government departments. It is therefore important that a SIB has a robust cost-benefit analysis carried out before it is set up, and that due consideration is made for long-term programs and partnerships. This particular type of long-term planning for a SIB has been addressed in the UK Metropolitan Borough SIB.

This SIB provides an Early Years program for 200,000 high risk 0-5 year olds based in the Metropolitan Borough. A comprehensive mapping of current service provision was carried out to identify vulnerable or high risk children who had multiple risk factors present. These risk factors included such factors as: parents with mental health problems; mothers smoking; harmful alcohol consumption throughout pregnancy; dependence on social benefits as an indication of unemployment levels; etc.

Based on an accumulation of these risks factors, children were then identified and targeted by service providers to be included in the SIB. This has in turn been developed with a clear set of targeted interventions; assessment tools; and universal service provision to address multiple factors. The financial model of this SIB has been based on various cost and impact assumptions, and looks at operational calculations for services and outcomes. But, as we know that there is often a late benefit related to early years’ investment, the cost profile for this particular SIB is over 25 years, and has been split over a number of different agencies.

While most SIB’s across the world, particularly ECD type SIBs, are still in the development or early implementation phases, it is important that we begin to learn from these examples. In particular, we should be taking note of what these SIBs are doing to ensure sustainability with their implemented programs and funding models, as any SIB introduced in SA needs to be based not only on a clear road map of service delivery, clear outcomes and solid partnerships, but also with long-term sustainability in mind.



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