Colombia, Switzerland, and the Inter-American Development Bank have joined forces to boost employment in the Andean nation through an innovative new model known as a “social impact bond.” The bank is calling it a pay-for-success initiative in which investors into the program will see returns based on its results.
Essentially, investors put their funds into a program aimed at improving urban employment, which will finance market development and capacity building with a goal towards scalability. And the better the outcomes towards increased employment, the better the investment will pay out.
Though social impact bonds have gained some traction in the United States and Europe over the past half-decade, they have yet to catch on in Latin America and other emerging markets where the may be able to help fill the gaps in social spending.
Throughout the world, many developing nations are dealing with lower growth due to the end of the commodities boom, making public resources sparse. The most vulnerable are often the worst hit by program cuts, and this financing mechanism can prove to be a win/win for both investors and the community they serve.
The IDB says it has been working since 2014 to bring more social impact bonds to Latin America and is thrilled to see this one come to pass in Colombia. The IDB will participate in this bond through its Multilateral Investment Fund (MIF), while the Swiss collaboration is coming from its State Secretariat for Economic Affairs. Colombia is hosting the project through its Department for Social Prosperity (DPS).
Many other groups will also be involved on the ground. Fundación Corona will provide technical assistance. Fundación Pro Bono will bring legal advice. Fundación Bolivar Davivienda and Fundación Mario Santo Domingo will look to drive investments. And Instiglio will serve as an advisor to the MIF and the Colombian government.
Photo Credit: Pedro Szekely