Ronika George, Qure.ai
Innovative finance has the potential to bring a positive impact for society at large by addressing need-based- emerging public health challenges. Ensuring continuity of social service delivery by the public sector is indispensable for vulnerable groups and citizens. Using — Social Impact Bonds (SIB) can lay the ground to build a collaborative progressive welfare approach that promotes sustained investments and impact. While some barriers to innovation remain, SIBs can be transformational in augmenting human capacity through innovations and improving public health system efficiency at scale.
This is an article that highlights role of innovative finance tools for public health and features news on India’s first Social Impact bond in Healthcare — launched in December 2020.
COVID-19 has placed a huge burden on the shoulders of existing public health systems globally. In India, the municipal governments are playing a critical role in health and welfare service delivery at the local level. Where conventional approaches are falling short, local administrations are finding ingenious ways to respond to the crises at hand.
Let's take the example of Brihanmumbai Municipal Corporation (BMC), Mumbai’s apex civic body which has recently been in the news for all the right reasons. Although Mumbai had the highest number of cases in the country, the city is currently showing a steady decline in the daily COVID-19 case rate. India’s Apex Court accredited this to the unique “Mumbai COVID Model” asking municipal governments across the country to replicate learnings. The model adopted a decentralized approach — setting up command posts in each of the city’s 24 wards acting as “24 Mumbai’s”, equipped with ambulances, doctors, telephone operators and basic infrastructure. A total of 25 initiatives have been set up by the civic body to strengthen medical infrastructure and systems within the municipal limits.
With a slowdown in economic activities and higher demands on social protection, containing high operation costs and maintaining fiscal discipline remains a challenge for local administrators. We know communities thrive when existing systems are enhanced and health services are democratized, but this comes at a price. While decentralization has helped, it has also highlighted challenges of financing social welfare delivery sustainably at scale. This is where Impact Bonds can leapfrog our efforts.
Impact Bonds — Development Impact Bond (DIBs) and Social Impact Bonds(SIBs)
They are Result Based Investment Instruments often resembling multi-party contracts for sharing risks between partners and paying for social outcomes.
It can help foster relationships between public and private sectors and encourage socially responsible investments (SRIs) that drive progress on attaining Sustainable Development Goals (SDGs). We briefly look at Social Impact Bonds below.
So, what exactly are Social Impact Bonds (SIBs)
SIBs are unique public-private partnerships that Funds for effective social services through performance-based contracts. It is a contract with the public sector in which the government commits to pay for improved social outcomes. Differing from Development Impact Bonds (DIBs), SIBs have the government as standalone or along with other independent third-party members as the key outcome funders of results of the development initiative.
SIBs usually have some key Partners –
a) Private/Impact Investor
b) Government — Outcome Funder /Payer
c) Implementing Partner/Service Provider (can be for profit or not for profit) and
d) An Independent Evaluator/s
Impact investors provide the working capital to scale the work of high-quality service providers. The government is the outcome funder that repays those investors with returns from savings if and only when the project achieves outcomes that generate public value. These tranche-payouts are linked to the achievement of predetermined project milestones.
Be it improving maternal and child health outcomes, learning outcomes for children, or helping farmers through livelihood and market extension initiatives, SIBs help in various ways including:
- Risk sharing/transfer between the public to the private sector and aligning project partners on the achievement of meaningful impact.
- Private sector participation, enhancing collaborative action to accelerate efforts to achieve systematic results and introduce strong governance.
- To overcome gaps and implementation challenges faced by governments acting in silos.
Qualified service providers drive the implementation of the impact bonds. Many governments are encouraging private sector to execute such partnerships and to be one of the stakeholders to drive successful outcomes of programs. Nodal co-ordination, policy changes, infrastructure leasing and tax cuts are a few of the indirect incentives enjoyed by private players.
As of 2021, 213 impact bonds have been contracted in 35 countries across six sectors. 19 of which are DIBs in developing nations and only 7 of them are SIBs that have the government as the outcome funder. The market in aggregation has seen over 46 million$ committed to outcome funding from top developed nations. However, according to the Brookings Global Impact Bonds Database, only ~US$ 48M in total has been invested across the 17 impact bonds contracted so far against an annual SDG financing gap of US$ 2.5T.
The world’s first social impact bond (SIB) was launched in the United Kingdom in 2010 and has reduced recidivism among offenders and repaid private investors in full, with a return of 3% interest per annum. Over five years, One Service embedded itself in the Peterborough, UK community and coordinated service providers to help male short-sentence offenders before and after their release with housing, employment, mental health support and financial advice. They worked with 2,000 prisoners and reduced recidivism by 9%, exceeding the target of 7.5%.
Other SIBs from developing countries
- Argentina Youth Employment SIB
- Brazil Secondary Education SIB
- Tajikistan WASH SIB
India is considered a leading emerging- economy in terms of contracted Impact Bonds — and has also invested in Development Impact Bonds (DIBS) in the past, two notable DIBs are 1)-The Educate Girls DIB- worlds first DIB in education and The Utkrisht Bond which is the first maternal and new-born health DIB. India has led the way in using Impact bonds for Social Development, however, it was only last year that an Indian governmental agency signed an SIB Indias First — Social Impact Bond in Healthcare.
Indias first- Social Impact bond- Municipal governments leading the way In a historic move, the Pimpri Chinchwad Municipal Corporation (PCMC) in Pune district signed a Memorandum of Understanding (MoU) with the United Nations Development Program (UNDP) India to co-create India’s first Social Impact Bond (SIB) in Health on December 2020.
As part of this unique investment tool, the PCMC administration will only have to bear the costs of a public welfare project associated with the bond, if the pre-defined project targets are fulfilled. PCMC is credited as the first movers in adopting Social Impact Bonds to finance deficits for Public Health delivery and drive social impact at scale.
They operate in 35+ primary, secondary and tertiary level healthcare facilities with a total of 1,500-bed capacity, the SIB will support the civic body in upgrading health services, infrastructure, building the capacity of staff, and establishing high-quality healthcare protocols, all while incurring minimal investment risks.
The Palladium Group works with governments, businesses, and investors to solve the world’s most pressing challenges and has been appointed for design and structuring expertise for the bond. UNDP will provide technical assistance for designing of the SIB through the SDG Finance Facility housed at UNDP. The facility is supported by the Swiss Agency for Development and Cooperation.
Recognizing health as a necessary pillar of urban planning PCMC has a vision of making Pimpri-Chinchwad the most live-able city in India by 2030. They aim to build a Public Health Model that can be replicated across the country.
Local governments are strengthening public health response using innovative financing instruments like — SIBs, which will attract more investors from the public and private sectors to fund public welfare projects and thus help to meet the investment deficit currently hindering India’s roadmap to SDGs. While stakeholders see interest in trying and testing these progressive instruments of social finance — models of change, adoption of the same has been slow. SIBs are subject to default and inflation- risks, investment funding decisions are often products of heuristics and bias rather than method. While most implementers get caught up managing donors, which threatens to direct more resources away from implementation itself. There is inadequate literature to assess if this financial model can close the gap, reduce intervention cost, bring higher ROI and savings on delivery in a- given investment time frame. Evidence building, dissemination and partner education is key.