Giving Compass' Take:

• The first social impact bond in South Africa is successfully addressing the issue of youth unemployment throughout the country. 

• The author notes that one of the crucial learnings was understanding the full scope of the problem before implementing the social impact bond. How can U.S. aid organizations learn from this insight? `

• Read about the good, the bad, and the ugly of social impact bonds. 

In the nascent impact bonds market, employment is one of the most popular sectors, representing nearly a third of the deals contracted globally. After a year of implementation, the first social impact bond(SIB) in South Africa—the Inclusive Youth Employment Pay for Performance Platform—achieved its target outcomes early, placing 600 young people into jobs.

One of the most interesting elements of this deal is the phased approach the project has taken: After a year of testing the SIB structure with a limited number of actors, the project will scale up for the next three years, expanding to multiple service providers, and bringing new investors and an additional outcome funder on board.

This SIB combines outcome payments from government funders, as well as philanthropic donors, so while it’s called an SIB, the contract is more accurately a hybrid: It combines financing from domestic government outcome funders and third-party organizations, a format also used for the Colombia Workforce SIB—the first in a middle-income country.

For the two government outcome funders, the structure offered a variety of potential benefits, such as innovation, increased efficiency, and the alignment of interests between different stakeholders. Within the employment sector, where it can be challenging for government to identify future labor market demands, the model also offered an opportunity to engage directly with the private sector, harnessing understanding of the market, as well as sharing the risk.

The SIB offers some important lessons to the wider outcomes-based financing field. First, stakeholders need to clearly understand the problem they are trying to solve, and only then identify the most appropriate financial tool to pay for it. Second, working closely with experienced service providers can add clarity and direction throughout the process.

Read the full article about social impact bond in South Africa by Izzy Boggild-Jones and Emily Gustafsson-Wright at Brookings.