“Money for results: the innovation of Social Impact Contracts in the world” – Folha de São Paulo 10/24/2016

In 2010, the non-profit organization Social Finance UK developed the concept of “Social Impact Bond”, in Portuguese Social Impact Contract, a new type of payment contract for social results. For example, the State would pay the social service operator for a prisoner who does not commit a crime again, instead of paying for the same prisoner's accommodation.

This difference has a major implication, because in the case of paying for activities, the operator has an incentive to follow exactly what was contracted and collect stamped invoices. By paying for results, the incentive becomes to innovate in search of greater effectiveness and efficiency.

An additional relevant feature is that, as the payment is made after the result, which can take from a few months to several years, there are figures of the financier who advances the capital during the operation and recovers it, potentially with financial gain, after the achievement of the result and the independent evaluator who indicates whether the result was achieved (or not) which implies payment (or not) of the contract.

In practice, it works like this: In the United Kingdom, more than 15 million people are affected by long-term illnesses, and these are the most frequent users of health services and with a lower quality of life. Thus, in the Newcastle region, a SIB was considered that would make use of non-medical interventions to assist residents in changing their lifestyles, improving their well-being and reducing the pressure on the primary and secondary services of the British health system. .

So, a potential population of 11,000 people under these conditions was selected as the target population and the remuneration is based on two central objectives: increasing the feeling of well-being, reducing social isolation and the need for medical consultations, and reducing the cost of medical services. secondary health services as a result of self-care capacity development.

Até hoje, cerca de 60 contratos similares, totalizando por volta de US$ 216 milhões, foramassinados por governos em vários continentes abordando temas como empregabilidade, evasão escolar, redução de reincidência, diabetes e jovens em situação de rua alcançando mais de 90 mil pessoas. No Brasil, a Sitawi Finanças do Bem é pioneira no tema e está trabalhando com o governo do Estado do Ceará na área da saúde, com apoio do BID, do Instituto Sabin e da própria Social Finance UK.

In summary, the experience so far can be considered a small-scale success: 60 projects were launched in 15 countries, 22 of them reported performance information, and of these 21 achieved positive social results. Twelve projects received payment of results and four have already been fully repaid to the investor.
The first group of lessons learned has to do with which social challenges are most aligned with this new tool. These are typically those that have identifiable target populations, with complex needs, that require tailored interventions, with experienced operators who would benefit from external capital to test evidence-based innovations to offset uncertainty as to the exact level of results that can be achieved.

In these cases, the savings associated with achieving the social outcome tend to be important enough to be worth testing a new approach. A second group of lessons learned has to do with the government side. In general, this type of initiative flourishes in governments willing to invest political capital in innovation and with secretaries from both the social areas and the financial and control portfolios who work collaboratively since it is possible that the economies are spread out in several areas.

Also in this group, it is possible to include public incentives, such as a fund of R$ 300 million currently under discussion at the US Congress or the one proposed by the Brazilian Task Force on Social Finance to encourage the adoption of the mechanism. Despite being born in England and having gained scale in the United States, Social Impact Bond is spreading around the world, with implementations in several countries in Europe, Australia, India and Peru, and there are ongoing structuring in Mexico and Brazil, in each country with minor adaptations to adjust to the local legal and social political context.

In this way, the last five years have brought a series of lessons learned to the field, which were identified and consolidated in the report “Social Impact Bonds, The Early Years”, authored by Social Finance UK, a reference and important source of consultation on the experience with social impact contracts around the world. Brazil has an “ideal” mix of social challenges in scale and sophistication of social finance actors, which represents a fertile field for contracts for social results.

There are still issues that are being resolved, such as which legal frameworks will be used and adapted for the result contracts, but the interest of both governments and potential investors is already visible. With growing interest from governments, investors, operators and evaluators, the field is gaining critical mass to face technical challenges and take advantage of intervention opportunities at the forefront of strategic public policies for the country, such as the de-hospitalization of chronic patients and school dropout.

The first successful experiences in Brazil will be decisive in the construction of best practices for structuring contracts, a complex process with a high level of customization, which will serve to build fundamental capabilities in the ecosystem for its dissemination in the most diverse contexts.

As a result, we will have a growing mobilization of public and private resources to finance effective solutions to the country's biggest social problems. Our expectation is that in the report for the next five years, Brazil will be in a prominent position. But for that, it's hands to work!

LEONARDO LETELIER, CEO da Sitawi Finanças do Bem, parceiro do Prêmio Empreendedor Social; RAFAEL RIBEIRO, coordenador da iniciativa de Social Impact Bonds na Sitawi; e BRUNO PANTOJO, analista na iniciativa de Social Impact Bonds na Sitawi.

Article originally published on the website Folha de São Pauit. 

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