The Gallery: Social Impact Bonds: Harvard Public Sector Innovation Award Winner Helps Forge a New Financing Mechanism for Nonprofits and Government

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Their work has taken them from Medellin to Mumbai, from educating politicians, investors and service providers, to helping girls from remote villages stay in school. And over the past year Instiglio, a company founded by Harvard Kennedy School students in 2012, has become a major player in developing a marketplace for social impact bonds in developing nations.

“We see ourselves as an organization that plays within this space of results-based financing,” says Instiglio Founding Partner Michael Belinsky, adding that the past year has honed the organization’s ability to understand the pace and process of developing such bonds, the instruments used to monitor and evaluate programs and the politics behind launching a social impact bond (SIB).

Social impact bonds are still emerging as an innovative option for cash-strapped governments, and only a handful is under consideration in developing nations. Intermediary organizations like Instiglio connect investors, governments and service providers to set expectations on outcomes for social services programs ranging from reducing recidivism to keeping girls in school and HIV treatment/prevention. Governments only pay investors back if outcomes are reached.

Only a year ago, Instiglio launched with support from a $10,000 Harvard Public Sector Innovation Award sponsored by Accenture and the Technology and Entrepreneurship Center at Harvard (TECH). Since then, the group has established a home office in Medellin, Colombia, and has worked with governments, NGOs, and international development organizations on SIB education and implementation.

Instiglio is currently working on two major projects. In India, the pay-for results financing plan will support a Mumbai-based NGO in helping girls from villages in Rajasthan stay in school and increase their test scores. Instiglio is the intermediary, working with a UK-based development agency to fund the program. But Instiglio is more than a connector; the team is also helping the NGO improve their program monitoring.

The NGO “is paid on outcomes but their systems management is such they don’t see outcomes until they happen,” Belinsky says. Instiglio is helping the group to redesign the monitoring system to allow service providers to adjust program delivery mid-stream: “We want to give them the binoculars and the wheel to see [outcomes] before they happen and course correct,” Belinsky says.

In Colombia, Instiglio is working with the Medellin mayor to finalize a project to reduce adolescent pregnancies. Contracts are still being created, and the team is fundraising money for the program.

These projects and others have taught Instiglio members valuable lessons about creating a marketplace for social impact bonds. First, the process takes time. “The average time to put together a social impact bond is one year, and we’re getting good at that,” Belinsky says.

Equally challenging is educating governments about the process, a task Belinsky refers to as “the innovation penalty.” SIBs are “innovative and therefore harder to explain,” Belinsky says, adding that the team has taken time to figure out the best ways to do so. As a result, “A social impact bond has to be the top political priority of the outcome payer,” Belinsky says, citing the Medellin mayor as an example.

There’s also still some figuring out to do about risk sharing and a “sweet spot” for the appropriate lengths of contracts. The first generation of social impact bonds “was very categorical, where investors took on all the risk,” Belinsky says. The second generation has seen more risk-sharing, and there’s space for intermediary organizations to help investors, governments and providers figure out how to compromise: “if there’s too much risk investors won’t show up or will show up for a smaller bond,” Belinsky says. Negotiating contract length is also important: One or two year contracts may be too short a timeframe; seven or eight year contracts don’t exist yet.

Simultaneously, the Instiglio team is working on developing a “variety of ways to improve how to incentivize organizations to think creatively about results,” Belinsky says. SIBSs provide revenue from investors rather than taxpayers, which can inspire innovation in attacking social issues, especially from a prevention standpoint. “We think we can be good at this and add value,” Belinsky says.

Belinsky is equally upfront about the criticisms waged against SIBs. One is uncertainty over long-term success and a claim that implementation should slow until SIBs are proven effective. The second is a fear of combining profit and mission, which could “infect the operations of service providers with a desire to make money.”

His response is clear: “We have a lot of nonprofit organizations strapped for money. Social impact bonds offer opportunity and instruments” to get the work done, Belinsky says.

While “the range of experiences over the past year is incredible,” Belinsky says Instiglio has even bigger plans for next year.

“We want to have launched two social impact bonds and moved bigger players,” Belinsky says. “Our hope for the marketplace is that some of the larger players take a much larger role. It does take joint efforts.”

Antonio Oftelie is Executive Director, Leadership for a Networked World at Harvard University, and Fellow and Harvard’s Technology and Entrepreneurship Center

David Wilson is Managing Director of Accenture’s state and local government practice

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