Growing Social Bonds.

Testing the use of outcomes-based financing mechanisms as a public-private partnership for improved ECD service quality in South Africa.

The need

Current investment in ECD in South Africa is a fraction of the amount required to ensure access to quality ECD services for the 60% of young children who live in poverty. Greater investment and more co-ordinated financing is needed from both Government and private sectors.

Furthermore, current financing mechanisms fail to address the fundamental question of service quality, with funding focused on outputs (eg. number of children reached) rather than outcomes (eg. number of children who achieve the desired learning outcomes).

Large-scale Early Childhood Development (ECD) systems require adequate funding and in-built quality control. Innovative approaches to financing ECD are desperately needed to address the funding deficit and incentivise quality and cost effectiveness in service delivery.

The innovation

Growing Social Bonds offers a change-making way of meeting this challenge.

The project is testing the use of impact bonds to improve ECD service quality in South Africa. Impact bonds could be used in a variety of ways – including targeting health and nutrition interventions, immunization, parenting skill support, and early learning.

The bonds are outcomes-based, using private investment to scale up social interventions. If the intervention has been shown to be successful, with verifiable outcomes, the investor is repaid by funders (usually a government or donor). The rate of return to investors is determined by the degree to which pre-agreed outcomes are achieved.

This kind of outcomes-based approach attracts new funding sources, results in vastly improved programme monitoring and evaluation and has the potential to improve aid efficiency and cost effectiveness.

Growing Social Bonds explores how this innovative financing mechanism can be applied to early childhood development in South Africa. Two impact bonds are being tested in partnership with the Western Cape Departments of Health and Social Development – the first focuses on early health and nutrition outcomes and the second on early learning outcomes. The intermediaries – organisations managing the legal and technical components of the transaction – are D Capital and Mothers to Mothers.

Key insights

Donors and Government need to see the impacts of their investments – in order to encourage further investment and continuous improvement of ECD services.

Impact bonds focus investors, donors and operators on the most important thing – the impact of their work on targeted communities. By paying for impact and not outputs (eg, number of workshops held) organisations are encouraged and enabled to adopt a more iterative approach to the design and implementation of their programmes based on what they learn as they operate.

This type of financing mechanism is however expensive and complex, and requires a level of administrative capacity within service providers that excludes many potential partners. It also requires significant engagement with Government and has implications for Government budgetary cycles. It remains to be seen whether the many potential benefits outweigh these challenges and justify the additional costs.

The project team

The Bertha Centre for Social Innovation and Entrepreneurship was established in 2011 as the first academic centre in Africa dedicated to social innovation.

Mothers 2 Mothers is eliminating transmission of HIV from mothers to babies and sustaining the health of women and children with its proven Mentor Mother model.

Dalberg Capital facilitates investments that catalyse economic and social change.