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Note from Editors:

Developed countries are exploring a new mechanism called social impact bonds (SIBs) as an alternative to traditional means of solving social problems such as education, employment, women , chronic diseases. A SIB is a partnership of impact , and other non-government organizations where they jointly finance innovative and evidenced-based solutions to social problems


By David Bloomgarden and Zachary Levey


The challenges of providing education and formal employment, encouraging the empowerment of women, and stemming the rise in chronic diseases continue to be serious concerns throughout the developing countries and emerging markets of the world. Institutional roadblocks, mistrust between governments and investors, inconsistent and low-quality delivery of services, and a simple lack of funds have at times made it impossible to find solutions to these issues.

A growing number of developed countries–particularly the United States and European countries–are exploring a new financing mechanism called social impact bonds (SIBs) as an alternative to traditional ways of resolving some of their most intractable social problems. SIBs are a groundbreaking opportunity to bring private investors, philanthropic organizations, nongovernmental organizations (NGOs), and government to the same table to find innovative and evidenced-based solutions to social problems.


How do SIBs work?

A SIB is a partnership in which impact investors (investors that seek social impact as well as financial returns) and philanthropic organizations–not governments–take on the risk of financing a solution to a difficult social problem. Once NGOs and social enterprises (businesses that generate societal goods and services as well as financial profits) receive working capital from private investors or philanthropic organizations, they can work directly with their communities to implement an effective social service, for example a reintegration program for recently released prisoners. If these organizations are successful, the government pays the private investors for the positive societal outcomes. As a result, governments are able transfer the risk of testing innovative programs by paying only when there are results, NGOs can access flexible and longer-term , and taxpayers get more rigor, accountability, and value for their money. For example, two SIBs that are working to improve conditions for at-risk 14-15-year-olds in the United Kingdom have performed above expectations and delivered outcomes sufficient to return investor capital earlier than expected, according to Social Finance, the U.K.-based NGO that is managing the programs.

Social impact bonds hold substantial potential, not only for the United States and Europe, but also for many emerging markets around the world. Recent developments indicate that Latin America may become a robust new frontier market for SIBs, with a rich set of multiple-player ecosystems.

Multilateral Investment Fund

The nascence of SIBs in Latin America

In Mexico, the federal government and several states have begun exploring where SIBs could be a tool for contracting better social outcomes. For instance, the state of Jalisco has been studying the design of a program to move single mothers permanently out of poverty, working in collaboration with the Multilateral Investment Fund, the innovation laboratory for the Inter-American Development Bank Group. Jalisco has a rich history of partnerships with local entrepreneurs and impact investors. In Mexico overall, there is a vibrant ecosystem of NGOs and social enterprises that could provide the services within a SIB. Additionally, there are a growing number of major local philanthropic foundations that have expressed serious interest in using SIBs to develop a more performance-driven social sector in Mexico.

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Curated from Social Impact Bonds Are Coming to the Tropics | David Bloomgarden and Zachary Levey
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