Public spending on social programs often involves high levels of government expenditure with little emphasis on impact and outcomes. Enter Instiglio, a Boston-based nonprofit social enterprise that hopes to bring the social impact bond (SIB) model—also known as a pay-for-success contract—to emerging economies such as India and Colombia.
The concept turns the old development model on its head. With SIBs, governments contract with third parties to finance projects that have few funding opportunities but a large social impact. Unlike normal contracts, the government commits to pay for improved social outcomes—not just for the implementation of a project.
Instiglio’s three co-founders, Michael Belinsky, 28, Michael Eddy, 27, and Avnish Gungadurdoss, 26, believed that SIBs could work as well in the developing world as they have in developed countries. “We saw a problem in international development, and created a solution,” says Belinsky, who hopes that the SIB model will “revolutionize” the way nonprofits currently operate around the world.
The three founders, all 2012 graduates of Harvard University’s Kennedy School, were able to obtain seed funding for Instiglio after winning the Public Sector Innovation Award presented by Accenture in the Harvard College Innovation Challenge. The award also scored them a residency at Harvard’s Innovation Lab during the summer of 2012, enabling the team to develop their business model.
Instiglio is establishing a pilot program in Colombia in 2012 and second program in India in 2013. In Colombia, they are working with the mayor of Medellín to design an SIB focused on a program to reduce adolescent pregnancy. Instiglio is starting with an analysis of who gets pregnant and why, to set a target percentage rate in the reduction of pregnancies. This will then guide them on how best to structure the SIB contract between the Medellín government and private investors.
The program in India is aimed at closing the gender gap in education, in partnership with a local NGO, Educate Girls. In this proposal, the NGO would receive a mix of private investment and funding from the U.K.’s Department for International Development (DFID) to track school enrollment and retention rates over a three-year period and measure educational achievement.
Instiglio’s programs rely on identifying investors willing to provide the capital to create and implement a program, and on getting agreement from a government body to repay investors only if and when the program achieves its goals. In Colombia, for example, if adolescent pregnancy is reduced by a pre-determined percentage after the implementation of the program, then it will be considered a success.
If Instiglio’s programs succeed, the government will repay investors with a financial return. If the programs do not reach their goals, the investors lose their money, sparing taxpayers the costs of the program. The benefits are multifold—public savings, the scaling up of promising programs, new avenues for impact investing, and improvements in the implementation of social services. Both programs have yet to be implemented, so it is too early to say whether they will succeed.
“At the end of the day, the investor gets excited because it’s an opportunity to invest money in a type of organization and asset that it has not traditionally invested in before, and the government is able to transfer risk that it hasn’t been able to do before,” says Belinsky.
The founders are hoping that their investment and time pay off—but as they turn down post-graduation job offers, they don’t seem too worried. “We are young,” Belinsky says. “This is the time to do innovative, risky things, and we think we’ll be able to learn quite a lot from it.”