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Social Impact Bonds, results-based financing, price guarantees, advance market commitments

Blended finance can also be used to generate financial returns on investments that would normally only yield less tangible benefits. The most common method is the “social-impact bond”, in which “outcome funders”, such as governments and aid agencies, pay back investors who have funded projects that meet goals which, although socially desirable and delivering notional cost savings, do not yield direct profits. In one example, Children’s Investment Fund Foundation, a charity, has agreed to pay a return of 10% on a project designed to improve school attendance among Indian girls if enrollment, literacy and numeracy improve as agreed after three years. If the results exceed expectations, the return rises to as much as 15%. Social-impact bonds are promising. But they are still very new, and more discussed by wonks than used in the real world. Kois Invest, an impact-investing firm, counts 60 social-impact bonds launched since 2010, mostly in the rich world. The Indian education bond is financed by a sympathetic lender, the UBS Optimus Foundation, which hopes to prove the financial viability of the concept.
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