Social impact bonds are popping up the world over, and consulting firm Instiglio has five tips for investors and governments looking to make them work in developing economies.
Instiglio is a specialist in such "bonds," which essentially let governments put a financial bounty on a certain social outcome--reducing unemployment among ex-convicts, for example--and then step back to let private groups find ways to achieve the goal.
The Boston-based consultancy wants to export this concept to poor and middle-income countries, and has just scored a partnership with a Colombian state to test the model. The piece from Instiglio's Michael Belinsky and Sebastian Chaskel addresses differences in the legal frameworks and cost-effectiveness of social impact bonds in poorer countries. For example, here's their explanation why such bonds may not save as much as they do in rich ones:
Developing countries in general have smaller social safety nets than developed countries. As a result, the costs associated with vulnerable populations are absorbed by the population as a whole and, in particular, by vulnerable populations, rather than by the state. SIBs may therefore play a particularly important role in developing countries by improving welfare, but the service they provide is less likely to lead to future cost savings for the government.
Among other things, Belinsky and Chaskel also explain why social impact bonds represent a "significant opportunity for development agencies."
Social impact bonds are proving to be a useful tool for richer governments in combating social ills. Perhaps Instiglio’s insights will encourage their use in more difficult markets.