Social Impact bonds

Increasing number of public sector offices, policymakers and philanthropics have come to realise that the social sector is transforming. Increasing budget gaps and pressure on government spending is shrinking the traditional sources of government grants to the public institutions. The gap has created a new market for funding, which is filled in by private banks and other financial services institutions investing in social ventures that scale.

The way social ventures have been structured making it difficult to evaluate their impact and reach more people. This is primarily because of the way government grant programs have been structured earlier. Such inefficiencies in the model hinder their ability to successfully get a commitment from private sector for more than a year – primarily because of strict KPI’s and preferences of such donors.

In order to create transparency in the entire social funding structure, we saw the rise of social impact bonds in the market. Such bonds channel government funding to institutions that show tangible progress in the market. The funding is made after the social commitments have been achieved. Similarly this also provides the private investors to pitch in the initial funding for the social venture. Private investor makes the initial commitment and gets paid later with modest returns if the venture realizes its goals. This kind of model has been of particular interest in terms of preventive diseases where tangible social impact could have been assessed.

Realistic Innovation

                One of the themes in this week’s readings is the idea of innovation coming from BoP markets instead of starting in wealthier companies and gradually disseminating amongst BoP countries. This isn’t a new idea for the course, considering early readings touched on frugal engineering and how one needs to create a project from the ground up instead of creating it for another market and replacing aspects to cater to another market, but this week’s readings took that concept that much further. The first example of this expansion of theme came from the article ‘Reverse Innovation’, which looked at how India’s growing market has caused GE to change their strategy and focus on BoP markets with India serving as a testing ground for products that will later be disseminated throughout BoP countries. By doing this GE is being mindful of what the market actually wants and needs instead of taking an approach that ignores the needs of that market. This is much different from Google’s approach with their Loon project as illustrated in African Entrepreneurs Deflate Google’s Internet Balloon Idea, where Google attempted to bring internet services to Africa in areas where they aren’t being utilized. While nobly-intentioned, Google has ignored what has really been keeping people from accessing the internet: a lack of computers. Google demonstrates the importance of understanding an environment and its constraints so a company can invest in a way that maximizes benefit for consumers instead of trying to force an approach because it works better in a different situation and location.

                3D printing is another technology that promises to bring a flood of innovation; however it is still important for proponents to consider the capabilities as well as constraints with this new technology. 3D printing is often confounded with magic, with claims being made about printing dinners in a matter of minutes, which is more indicative of the Star Trek replicator than anything based in reality. 3D printing is really only advanced as material sciences allows it to be and an in all honesty disgusting printed dinner would have to be made from a paste-like material(think McDonalds’ pink slime from their recent scandal). With that being said there’s a tremendous potential for the manufacture of all kinds of helpful and unique products like those mentioned in The Next Frontier for 3D Printing, however the article missed one important point about 3D printed prosthetics: that by making prostheses low-cost 3D printing has allowed children to receive prostheses which using past manufacturing techniques would be considered prohibitively expensive. There are several claims that soon 3D printers will print all products people purchase but anything like that is very far off. What we’ll likely see is product design coming from tinkerers with 3D printers and Raspberry Pi-like microcontrollers to create one-offs of products that can be later mass-produced if the market needs them. 3D printing provides anyone with modeling software and an understanding of design to make an attempt at the next revolutionary product themselves.

A Democratization of Evaluation

With the larger proliferation of social ventures in recent years, the question of the effectiveness of organizations social impact has become more important to understand and work with. In any given social venture or corporation concerned with their own social impact in the world, the evaluation process must be expanded to include this social component, if said organization plans on having any measure of continued success. A firm cannot simply state what their intentions are for a social impact, implement this and leave it there without consistent monitoring. For a corporation or social venture that has established itself as beneficial to society, those stakeholders expect a social good as an output just as much as higher profit margins and stock price increases. 

But how exactly does one go about measuring what we could call a social impact? With a return on investment of actual currency, this impact can be easily measured and determined to be ideal or lacking. In a non-profit, evaluation data is a key component of an organization staying afloat with funding and, ideally, understanding how to better serve their clients. But how does one measure an impact of an organization that incorporates both of these ideas, such as a B Corporation or social venture, where both aspects are of equal importance, but difficult to measure. Geoff Mulgan details some of these struggles in “Measuring Social Value”, which puts an emphasis on the difficulties of placing evaluation measures on something as subjective as positive social value. It’s such an intangible concept that can be so difficult to harness in numbers, and with so many different ideas of what a “positive social impact” or what would be ideal for such, it is nearly impossible to set up any sort of standardization measures for a venture. 

But have we as innovators taken the time to really understand for what it is that we would be creating a venture? Is the social aspect of a social venture not intended to serve a group of people who need something? Should we not go to the people themselves, those who feel the effects of these ventures, to get their evaluation? It’s understandable that a social venture should be interested in its money returns, and certain data measures that are necessary for improvement within the organization, but when did the evaluation process become so calculating and robotic in the ways that Mulgan talks about in his essay. If we want to be innovative, our evaluation must be innovated as well. 

That’s why I am suggesting a more personal approach to evaluation focused on asking the people themselves what they think and how their lives have improved or otherwise. Surely there is already a qualitative survey component to most of these processes, and this would not be a silver bullet for quantifying social impact, but a more personal touch can make all the difference. Consider a community being served by a social venture; have a member of that community serve as an employee of the organization and collect other members’ feelings about the program or venture. Better yet, have a person come and talk to the community and gauge their feelings. Don’t make it seem like data collection, make it seem like a casual visit, and base survey questions around the context of a kind of casual visit. The importance here is hearing what the people have to say about how the venture is affecting them; what is the point of this so called beneficial venture if the people it affects do not have an equal, if not the loudest, voice in the evaluation process.

We Need More Evaluators

The culprit appears to be bureaucracy. The federal government’s plethora of regulations, limited organizational classifiers, and failure to implement policies has apparently led to a social innovation ecosystem that is underperforming. This is an oversimplification. An ecosystem is much too complicated to identify a few culprits let along one. And this argument fails to consider the context of the social innovation initiative that is being discussed. Context is important.

Context is also what is overlooked in the conversations. A number of articles identify the key challenges to social entrepreneurship as scale and speed. According to the Economist article, “Let’s hear those ideas,” we have enthusiasm, good ideas, and innovative project but scale and speed are missing.[1] A caveat about focusing on scale: impact may be decreased as scale is enlarged to increase impact. There are so many subtle nuances that may critically factor into an innovation’s success. How will we recognize that a program launched in one city will translate to success nation wide? “One continuing challenge will be to figure out what types of evaluation work at which stage of the scaling-up process.”[1] The more important question is who will recognize these factors?

While we are building our ecosystem with federal organizations, for-profit and non-profit organizations and encouraging social entrepreneurs, we should be building our capacity to evaluated existing and new programs. Evaluation is an expertise and a skilled labor force that must be cultivated. Evaluation is also the linchpin between executing a program and determining success.

I like Michele Jolin’s proposal in “Innovating the White House.” Jolin proposes a White House organization that respects the different stages of social innovation (including context of the original innovation, Stage 0 of an evaluation) and the need for an investment of resources at each stage.[2] The proposal includes the creation of a White House Office of Social Innovation and Impact and tools including a Social Innovation Fund, a Grow What Works Fund, and an Impact Fund. The Impact Fund is proposed to provide federal dollars to better evalue their impact and successes.

[1] Let’s Hear Those Ideas (The Economist, August 12, 2010); www.economist.com/node/16789766

[2] Innovating the White House (Jolin, Stanford Social Innovation Review, Spring 2008, pgs. 23-24); www.ssireview.org/articles/entry/innovating_the_white_house

Helping Them Help Us

The government’s role in the development of the social innovation market is crucial. Indeed, the public sector is one of the major stakeholders in all the sectors where social innovation is needed. As a fund provider or as a regulator, it is in its very essence to be present in critical sectors like healthcare or energy to provide general welfare to its citizens. Private innovative initiatives in this area can and have emerged successfully but their impact can only be scaled and spread if there is a willingness of the public sector to work together towards delivering public service more efficiently.

To do so, governments can initiate several initiative in order to provide a more favorable environment for social innovation to thrive:

       ·         Developing an ecosystem: as it has been shown in many other areas, there are undeniable benefits to cooperation between individuals and organizations across diverse disciplines. We can take the example of Silicon Valley where hundreds of start-ups and thousands of innovations are made continuously. Indeed, building communities and fostering a sense of identity and a common culture has a very positive effect on growth. Ecosystems also facilitate meeting supply with demand which results in sustainable and fluid collaboration. Some initiatives in this direction are starting to emerge, one of them being an extensive project being undertaken in Europe aiming at growing its digital social innovation ecosystem.

      ·         Social Innovation Funds: Another way of developing the social innovation sector is by merely injecting funds in it. This straightforward initiative can quickly unlock the potential of this sector and kick-start its development and scaling. As we have seen, social entrepreneurs have unlimited brilliant ideas but very limited access to financing because of the ambiguity in measuring their impact and returns. Providing money to push these ideas forward gives a very strong signal of the governments’ strong will to engage in a productive and innovative cooperation effort with the private sector. It also enables social entrepreneurs to show that their model can be very successful and fulfilling which will inspire more people and organizations to follow the same path. Barack Obama’s Social Innovation Fund, introduced in 2009, is a great example on how the public sector can commit to growing innovative initiatives through funding.

     ·         Legislation: Providing a clear and well-defined legislative framework for social innovation is a strong steps towards normalizing this sector and easing access to it. Recognizing social companies as standalone entities with their own taxation status and regulation, in the crossroads of for-profit and nonprofit, can be a first step towards finding the right tools to help this sector grow. B Lab, an independent non-profit founded in 2006 to facilitate private enterprise for public benefit, identified legislation as one of the pillars of social innovation growth and have been successful in passing laws in 2 states in the USA. A broader adoption of this legislation would certainly help attract even more investors and innovators and make cooperation nationwide much more simple. Canada has also created a ministry of social development and social innovation which help facilitates the discussion around the topic and the adoption of new measures.

     ·         Incentives to the private sector: One thing we know for sure, in the middle of social innovation uncertainties, is that the private sector responds well to money. Tax breaks have been very successful in attracting investors and stimulating industries worldwide. Take the example of the ICT sector in Ireland. The tax scheme designed was so competitive (12.5% corporation tax rate, 25% tax credit on R&D) that it transformed the country into a global technological hub called sometimes "Europe's Silicon Valley'. This can certainly be applied to the social sector as the loss in tax money for the government will be compensated by a decrease in expenditures thanks to a higher efficiency in delivering public services. The UK is one of the pioneers in this field with its social investment tax relief scheme for social enterprise but an even broader scheme that includes all private companies that make social investments could help scale social innovation.

More than the right environment and the right incentives, the government’s most important role will be to provide a clear vision for social innovation and to nurture a culture where individuals and companies are active actors in providing general welfare and work together to transform the way public service is delivered. But is this something that has to be done on a national level first or can we directly leapfrog to a global model to scale the effort faster?

Government's role to breed Social entrepreneurs

[Disclaimer: The Goal of this blog it to empower the policy maker with an idea on which the policies can be framed. This blog does not provide a set of policies because every state has economic and cultural differences and hence, different set of needs. This blog, although can provide some case snippets to ponder upon.]

Let us start with a basic background of why a state needs entrepreneurs and why is there an alarming need to breed social entrepreneurs.

Why entrepreneurs?

With increasing population and education, while the society is creating job seekers, it is important to create job providers. If everybody becomes job seekers, a society becomes increasingly dependent on foreign investments. To encourage a self-sustenance model, the efficient solution is to breed entrepreneurs in society. When you have entrepreneurs, you have people who can contribute economically.

Why social entrepreneurs? - We need people who can contribute socially as well.

Government's job is to make sure that all social issues are addressed.

In any country, a centralized Government cannot do everything. It is important to decentralize governance. Hence, Government should recognize individuals to provide benefits and take its programs forward. Through this recognition process, the individual gets a job. Such individuals are very important as they work together and come up with innovative solutions at ground level. They create a sustainable model where they provide jobs to pull in other people. Therefore, it is important for Government to consider Social enterprises as its extended arm.

Challenges

According to Bloomberg, 8 out of 10 entrepreneurs who start businesses fail within the first 18 months. Decisions to fund social enterprises are difficult, as profits need to be measured based on social impact and sustainability rather than capital returns. Hence, Governments face a huge challenge to efficiently spend taxpayers' money here.

Let us take an example: An entrepreneur starts a university for under-privileged children and aims to create 200 quality students and another entrepreneur introduces a clinic that aims to provide healthcare solutions to treat 1000 patients every year. Can you judge who creates a better impact to society?

Government cannot measure social impact using a single set of parameters. A  Triple Bottom Line model can be a recommended solution:

[Image: Adopted from the 2002 University of Michigan Sustainability assessment]

The Government should filter out ideas that are in line with its agenda. For example, In a country like India, a social venture that comes up with a solution that addresses water sanitation problems will have a much bigger impact than a venture that aims to revolutionize car parking through  automated car parking detection system, because water sanitation is on the top of the list of agendas by the Government.

When the Government creates a hard coded policy from a monetary and social impact standpoint, it may create a room for people to misuse the fund (by concentrating more on numbers to present than to fruitfully utilize towards society).  The Government should come up with an algorithm to derive a score based on the following economic-social correlation:

1. The sector of society (education, healthcare, transport etc.)

2. Initial investment required(seed money)

3. Other supplements (like land, resources)

4. Number of employment opportunities that the venture can create.

and so on.

The final score should be used as a basis for budget allocation.

Additionally, Government should also allocate a loss margin of 5-10% so that the venture can cover up for short term losses.

The Government should have an unbiased panel that must be responsible to overlook all the activities to fund social ventures.

The panel should have the following features:

1. Should have a credible representative from each social sector.

2. The panel should perform frequent audits to ensure the funds are used efficiently.

3. The rating decisions for a venture of a particular state should not be done by a panel member belonging to the same state (to ensure that the rating is not biased).

4. The panel must be updated with the latest trends and Government's roles and priorities (through frequent workshops).

5. Any infringement of integrity should lead to immediate removal of the representative from the panel.

Role of Government in Social Innovation Ecosystem?

There is general consensus that Government has a critical role to play in development of effective social enterprise ecosystem. However, there is less agreement on what that role should be. In my opinion, government should limit itself to coordinating activities for social enterprise ecosystem; it should be responsible for activities such as designing policies for sector, channeling funds and providing networking platform for supply and demand side players. Government should not be involved in managing actual operations of social enterprises which should be outsourced to 3^rd party intermediaries who have expertise to produce best possible results in a cost effective manner.

Given the fragile social enterprise ecosystem in developing countries, there is a tendency for government entities to become involved in directly managing operations of social enterprises. This inevitably leads to suboptimal output for variety of reasons. Firstly governments do not have the required expertise to design, develop and deliver innovative social solutions to community in a manner that a professional social innovation focused organization would be able to do. Moreover, often taking over running of social enterprises means that government has to develop infrastructure and hire manpower to manage operations. Given the bureaucratic nature of governments, governments often end up spending well above the actually needed budget to achieve this. Lastly, government involvement inevitably leads to outcome of the project compromised by political influences that come to the fore due to government’s involvement in the project.

[1]Benazir Income Support program (BISP) in Pakistan is a cash transfer program on the same lines as [2] Bolsa Familia or Oportunidades in Brazil and Mexico respectively. Launched in July 2008, the program has expanded to cover 4.7 million beneficiaries across Pakistan with annual disbursements of around $650 million by 2014. Run directly by federal government, substantial investment has been made by the government to develop infrastructure and manpower for various units involved in running operations of the project. Under the program, selected households who are deemed to be making less than $60 per month are given around $15 each month in cash transfers to support their monthly budgets. The motivation behind launch of the program is the belief that cash transfers will allow the families to spend more on availing fundamental services such as health and education. However, today BISP is widely regarded as an inefficient program marred by government bureaucracy and corruption. There is no clarity on selection criteria used to select households as well any research on effectiveness of the program in reducing poverty. Critics of the program, and there are many inside Pakistan, claim that only 60% of BISP funds are going to deserving households. Rest of the funds are being diverted towards non-genuine households due to widespread corruption in government ranks.  

This is just one of many examples where government’s intervention in managing operations of social enterprises has severely compromised the effectiveness of the program.  Government’s core competency lies in coordinating resources for the economy and it should stick to that leaving specialized social focused entities to manage the operations of the social enterprises. What are your thoughts on this? 

 [1] http://opinionator.blogs.nytimes.com/2011/01/03/to-beat-back-poverty-pay-the-poor/

 

[2] http://www.bisp.gov.pk/

Policy Change vs. Organizational Change as a Driving Force for Impact

Undoubtedly policy changes in governments around the world could maximize the potential for impact for many technologies and innovations. Michele Jolin in the article "Investing in Social Entrepreneurship and Fostering Social Innovation,” says that the way to scale innovations and technologies that drive impact is through changes in our policies. While I agree with him that many laws and policies prevent impact maximization especially for for-profit, socially-minded organizations, I wonder if there is another route to changing the amount of impact a socially-minded organization has on the world. Governmental bureaucracy prevents policies from being enacted in a timely manner. By the time policies are validated and applied to society, many things may have changed that render the policy ineffective and out-of-date.

Just as developing a solution to no particular problem can be detrimental to an organization, a solution that is developed without the proper analysis of various associated policies can be just as detrimental. Maybe instead of trying to change existing policies, organizations could develop solutions that work best with the policies already in place. So instead of trying to re-work the system, so to speak, organizations could rather try to fit into the system.

Now this is not to say that policy change should come to a stop by any means. This is merely a potential solution to addressing the slow change experienced in government and policy implementation. There are existing policies that are out dated and that must be changed to fully foster innovation and growth, but in the meantime it may be best for organizations to develop solutions around policies to ensure they have the most impact on society. It is in essence turning the problem on its head and approaching it from a different direction. In a sense, organizations could "beat ‘em or join ‘em". 

FREE CASH*

**Terms and conditions apply. Please see your local government officials for details. Limitations include but limited to education requirements for households with young children, nutritional workshops, and employment conditions. Results may vary.**

The Bolsa Familia (Family Grant) in Brazil is a program has been successful in lowering poverty number and shortening the economic divide between the wealthy and poor population segments. How you may ask? Well, the government funded program basically gives an allowance to poor families via cash or direct deposit their bank accounts with conditions that need to be met.  Families with school attending children under the 17 years of age get $19 a month, $13 a month for children under 15 years of age. An unrestricted $40 a month is given to families in extreme poverty. 

It pays a monthly stipend of about $13 to poor families for each child 15 or younger who is attending school, up to three children.  Families can get additional payments of $19 a month for each child of 16 or 17 still in school, up to two children.  Families that live in extreme poverty get a basic benefit of about $40, with no conditions.A similar program was launched in Mexico giving families $123 a month and seems to be doing just as well.  Conditions placed on Mexican families include: keeping children in school/ regular medical checkups/ nutrition and disease prevention workshops. 

The theory behind the program is that if you address immediate financial needs and enhance the educational and health gaps created from being in extreme poverty, you can effectively break the cycle of poverty in those families. The World Bank and the Inter-American Development Bank are supporters of the concept as well. If this program expands to other developing nations, this will create concentrated populations for potential social ventures to target. 

However, I am not sure I am convinced by this program. It seems, to me, that the success if alleviating class difference is fabricated. The second the paychecks stop, you are back to square one. It could be a direct test bed for aid money that is making a quantifiable impact. Will this system be success when so many non-profit organization have done similar program with only marginal impact? What do you think makes this program different? How sustainable is this model? At what point do you stop financially supporting families without educating and training the adults to obtain higher paying jobs to leverage themselves into a more stable condition?

Welfare Innovation: A Proposal

Government support and infrastructure for social innovation has become, and will continue to be, an increasing priority and point of interest at any level of government structure, this much is clear to anyone paying attention. With the White House Office of Social Innovation and Civic Participation and the Social Innovation Fund established under the Obama administration, federal support for social innovation efforts is more available to those who may need it than ever before. These support systems send a message to innovators and entrepreneurs that their work is valuable and even necessary to our modern society. But still some enterprises still have trouble with funding, for a variety of reasons. But also with any sort of question of money, the issue of equity and inequality arises, where there is often a certain amount of privilege associated with being able to work towards establishing a social venture. So what can government structures do to improve an equity of access to social innovation creation? A proposal I have would require some innovation of the government itself.



Consider our current structure for welfare, and how it often becomes a contentious issue; what if the government were to turn this structure on its ear and instead of offer a simple sum of money to recipients, they were to give a money for a solid investment in a social venture for the recipient to build and run. This would theoretically doubly enhance the personal wealth of the recipient and the social wealth of the world around them. This is similar to the idea of a conditional cash transfer, which gives money to families who fulfill certain requirements, such as their children attending and staying in school, and builds their wealth based on this positive actions by recipients. In this sense, recipients would have a choice if they would like the conventional welfare check, or investment money for this person to possibly change the world.



Were this to be successfully implemented, the positive effects would be immense. This would theoretically provide a sense of financial empowerment to the person involved in the program that they would have no inkling of if they simply received a welfare subsidy and then began a job. They would be creating their own job, own wealth and own personal sense of sustainability. And this empowerment would not only reach an individual level, but also at a regional economic development level, where these ventures could help spread wealth and empowerment across their community. This program would also expand the reach of possibilities of innovation to corners yet untapped, which could propel the innovation of the future in ways we can only imagine. This whole idea would test the words of Muhammad Yunus, “All people are entrepreneurs, but many don’t have the opportunity to find that out.”



There would be some nuances to this idea, however; and possibly some negative outcomes that one must consider before seriously implementing such as solution. This would first be a choice, as an alternative to welfare. It might be encouraged but not required. There would have to be somewhat of a vetting process for which recipients would be funded, and consistent monitoring and evaluation of how the money is being used, which could cost tax dollars. There would have to be limits to funds and times funded; many ventures inevitably fail, but repeat failures may have to be capped at some point. And there is that shadow of possible failure in these ventures, there would have to be support for those that do fail. Considering those who would use this program, a failed venture could devastate a family, and there would have to be support in case of this.

Skeptic of Conditional Cash Transfer Program

The concept of conditional cash transfer program is great and the impact it is having in Brazil and Mexico is undeniable however I cannot help but be a skeptic of the long-term effect of this  program.  This program rising many questions for me such as : Will having programs like these create a country that is depend on the government, so what happens when the funds for this program dwindle or get depleted? And how will the government continue to fund this program.   This program is aiding children to complete high school; however, I wonder what job opportunities there will be upon completion to prevent them from returning to poverty.  Does this not eventually create a system where people are living check to check and one step away from slipping back into poverty?

Conditional cash transfer program is doing great job at meeting the basis needs of people which is necessary since how can a person focus on getting an education or a job when they have no place to sleep or anything to eat. However, there needs to be in place steps to increases social mobility and self-sufficient.   Not only does this program need to provide a hand out but a hand up.   This concept of hand up reminds me of the saying “If you give a man a fish, he’ll eat for a day. But teach a man to fish, and he’ll eat for a lifetime. If the government continues give their citizens’ handouts for what seems to be simple requirement will they not establish a vicious cycle of dependency.   What opportunities exist within the program for seeking and maintaining employment which would  provide them a hand up.   What system is in place to faze people out of the system so they can become self-sufficient. Additional there are several possible factors that have contribute to a large proportion of the country’s citizens being in poverty; I wonder if these factors  are being addressed as well. For example more people are acquiring their high school diploma therefore more people will be seeking better employment. Will the country’s economic be able to provide these individuals with employment opportunities?      Or will they return back into poverty by not being able to provide themselves with their basic needs.  

 Additional I wonder how this program is being evaluated. What is the program considering a positive outcome? If families live above the property line but are still struggling to provide for their family or are one check to going back to poverty is this consider positive?   How it is defining the rate of positive outcomes?

I do believe that this program can be successful; however, there needs to be  a long-term, in-depth, research conducted to see the long-term effects it has on the family unit, the country’s culture and government.