Health care costs are mounting, while at the same time, overseas development aid is dropping. How will developing country governments pay their medical bills? Can private investors come to the rescue?

While in the long-term, developing country governments must develop ways to meet their own obligations, the short-term barriers are overwhelming: limited fiscal space, low tax collection rates, legal and political barriers, and lack of political will. These governments need new, innovative approaches that attract resources from diverse sources in order to make ends meet.

Social impact bonds present a new partnership model that aim to raise capital for social issues while focusing on outcomes. In a social impact bond, private investors provide upfront capital to finance social interventions. If the interventions achieve their desired social outcome, as determined by an independent evaluator using a comparison group similar to the target population, governments return the investment (plus interest) to private investors. If the social outcome is not achieved, private investors lose their investment and governments carry no cost at all.

How do SIBs Work    Social Finance

Image courtesy of Social Finance.


Governments therefore provide financial resources only for interventions that have proven impact. Since the launch of the first social impact bonds in the Peterborough (U.K.) in 2010 by Social Finance UK, many more of these types of bonds have been initiated—mainly in the U.K. and U.S. Recently, Washington DC announced that it will be funding a social impact bond to address teen pregnancy, further expanding the use of this new model with limited evidence of its impact to date.

So, could social impact bonds improve the availability and quality of family planning services?

The UK’s Department for International Development thinks so—and as a short-term solution, social impact bonds do have potential to help meet some immediate funding needs. Governments in middle-income countries are faced with shrinking or non-existent aid contributions, and before they are able to foot their own health bills, private investors could indeed meet an urgent need for financial resources.

However, the model’s fails to address some of the big challenges we face:

  • The model brings new partners to the table and mobilizes capital from new sources, but it does not increase the size of the resource pie available for social issues.
  • A one-off payment by a government does not guarantee a long-term, continuous investment.
  • Social impact bonds do not necessarily catalyze changes in policies or public budget allocations that will lead to sustainable responses.
  • Social impact bonds require political support to scale-up interventions.

For family planning, the application of social impact bonds could bring the danger of skewing resources toward the easy, incomplete solutions. Programs that support health services and commodities could be of interest to investors, as health outcomes are more clearly linked to a specific intervention. However, the “messier”—but no less necessary—efforts that empower and educate women and girls, support them to claim their rights, and change political, legal and social environments remain “unattractive” and potentially unfunded. Faced with a huge gap in available resources, it would be wise for us to consider the social impact bond as a band-aid that could help now—without losing sight of the larger goal of raising sustainable resources that cover the full range of interventions to empower women and girls.

Sunita Grote has ten years international experience working in advocacy, program management and capacity building for community-based organizations in developing countries focusing on HIV and sexual and reproductive health and rights. After completing her MBA from INSEAD, Sunita is now an independent consultant to civil society organizations on financial sustainability, including the use of social finance and entrepreneurship. This piece is based on a longer research paper developed with support from the INSEAD Social Entrepreneurship Programme.