The IBIF, a first for the global South, has been set up to drive Early Childhood Development (ECD) targets in the Cape. It is the culmination of three years of research and discussion between the Western Cape Department of Social Development (DSD) and the Bertha Centre for Social Innovation and Entrepreneurship at the UCT Graduate School of Business - along with several other NGOs and stakeholders.

“Our focus has been on working with government and private stakeholders to align intent and attract additional funding through a mechanism built for increased accountability to strengthen services in the sector for the good of key beneficiaries,” says Dr Susan de Witt, Innovative Finance Lead at the Bertha Centre.

“In initial talks with provincial government it was immediately clear that ECD was an important area which was underserviced and fragmented, making it a good target for this pilot project,” she adds.

“An investment in ECD – the first five years of a child’s life – has been shown to yield higher returns in terms of human development than the equivalent investment in primary, secondary or even university education.”

Social impact bonds, also sometimes called pay-for-success instruments , were pioneered in the northern hemisphere, but are also suited to emerging markets and public private partnerships, says de Witt, whose Bertha Centre team has pioneered the use of such funds south of the Equator.

A social impact bond typically involves an agreement between a government and service providers, such as social enterprises or non-profit organisations, and investors, to pay for the delivery of predefined social outcomes. Socially-motivated investors shoulder the risk knowing that repayment is dependent upon the meeting of agreed targets.

“It is a model that measures, in this case, the impact on the child of ECD interventions,” explains de Witt. “This focuses everyone’s attention on what we ultimately want to achieve – for example, has the child hit development milestones and are they ready to learn by the time they get to school – rather than focusing on pragmatic issues such as funding for staff, teaching time or building materials with a hope of reaching targets.”

She adds that the IBIF entails a systematic, methodical collection of data that enables decision makers to improve the programme in real time and gives service providers the flexibility to respond contextually to issues on the ground.

Led by the Western Cape Department of Social Development (DSD), in a matched funding arrangement with ApexHi Charitable Trust, and supported by a coalition of investors: The Standard Bank Tutuwa Community Foundation, Futuregrowth Asset Management, and LGT Venture Philanthropy, the IBIF is projected to reach 3 000 children over a three-year period through home visits.

The fund will be implemented by the Western Cape Foundation for Community Work (FCW) in collaboration with Volta Capital, which will manage the investment side, and Mothers2Mothers (m2m), which will help develop the capacity of service providers in their community work.

The roll out of the project will be carefully monitored. “The hope is that we can measure how this works as a learning mechanism and come up with data that government can scrutinise with the hope that it can be applied to the rest of the ECD portfolio and ultimately to other critical social services,” says Barry Panulo, Senior Analyst at the Bertha Centre.

Panulo says the team set out in 2014 to look at innovative financing languages to see how existing structures could be used for social benefit with very practical applications in emerging markets.

“We have learned that it is possible to take social impact bonds and implement them in the South African context in conjunction with government and through the public procurement framework,” says Panulo.

In pioneering IBIF, the Bertha Centre also partnered with Social Finance, and has been supported by the LEGO Foundation and The Innovation Edge to develop this project and others.

The work at the Bertha Centre has not been confined to this project. They are also currently working with the National Treasury in assessing whether these contracting tools do in fact provide better value for money, by piloting a couple of projects over the next year. There are also other independent initiatives in the marketplace that have taken off or are under design including the Bonds4Jobs launched by Yellowwoods Investments with Harambee and another with the Medical Research Council tackling HIV in adolescent girls and young women.

“There are lessons to be learned through these projects which help us draw on the strengths of the public and private sectors to solve intractable social and environmental problems,” says de Witt, speaking from New Delhi, India, where she was attending the Global Summit 2018 of the Global Steering Group for Impact Investment. 

“The global dialogue on social impact bonds has moved towards the setting up of outcomes funds. This would enable one to contract multiple service providers simultaneously while reducing transaction costs which have been high to date. There was a lot of talk about outcome funds at the summit, where a billion dollar education fund for Africa and the Middle East was announced,” de Witt concluded.