In 2017, Zachary Levey, working with partners in government and the Inter-American Development Bank, launched the first Social Impact Bond (SIB) in a developing country market. Zach is a Senior Associate at the Multilateral Investment Fund, and knows the power of reshaping finance for the common good. After seeing SIBs succeed in places like the UK and US, he called upon his passion for innovation and collaboration to bring SIBs to Latin America.
Social Impact Bonds are relatively new innovations. They are also sometimes referred to as Pay for Success, which gives a better idea of what SIBs actually do. In short, Social Impact Bonds are a financial partnership between a government and other parties such as nonprofits, philanthropies, and private investors, focused on reaching specific social goals. The arrangement between the parties is that if the SIB-funded initiative reaches its goal, the government will pay back investors with a small profit.
What this means for developing countries or countries recovering from conflict is that the government, already faced with issues that strain existing resources, won’t have to pay for under-performing programs. The investors are the ones taking on the financial risk of seeking solutions to a social problem, and third-party evaluators are the ones who determine whether an initiative was successful or not. This incredible social impact investment tool could change the way social problems are targeted and ultimately solved.
Another important aspect of SIBs is that they act as an anchor investment, giving public and private investors the confidence they need to join an initiative. By providing the initial funding, the SIB itself gives the overall initiative a huge boost toward success.
Zach, working with his partners at the Multilateral Investment Fund, chose Colombia to be the target of their first attempt at using SIBs in a developing country market. They were able to partner with the Swiss government as well as the Colombian government in order to address the issue of stable employment in a post-conflict setting.
One hurdle Zach and other SIB-supporters are facing is a lack of understanding about what SIBs are, especially in developing countries where the need is so great. It’s no shock to learn that, without an understanding of what SIBs are and how they could truly revolutionize the approach to funding social programs, foreign governments are leery of outsiders coming in and offering to give large sums of money that will someday need to be repaid. Language barriers further compound the issue and cause missed opportunities for both the investors and the countries they are trying to help.
The impact that SIBs could have on the future of the developing world are significant. They represent an opportunity for countries to receive necessary funding to target any social issue — from employment to preventative health to domestic violence — without the government shouldering the financial risk. This allows governments to stop looking at important issues from a “can we do it?” standpoint, and instead tackle issues on an as-needed or even emergent basis.
You can hear all about how Zach and the Multilateral Investment Fund implemented an SIB in Colombia, as well as how this deviation from normal governmental protocol gives the country a better chance of solving their post-conflict social issues. Watch the full interview when you gain access to the Civic Hacker Summit archive.
Social Impact Bonds: What You Need to Know
Social Impact Bonds (SIBs), have the potential to revolutionize how social issues are addressed in first-world and developing countries alike. Listen to Zachary Levey from the Multilateral Investment Fund discuss how SIBs change the game for social impact investing, from funding to data and performance management requirements.