FAQs
Outcomes Based Philanthropy
While it is entirely reasonable for a foundation to opt for investing in a SIB rather than taking the role of an outcome payer, the benefits to each are simply different. Investing in a SIB offers the potential for a profitable investment that is aligned with the organization´s values and/or mission, a foundation engaging in Outcomes Based Philanthropy does so for the following key purposes:
- To enhance the accountability of charitable gifts. The "Pay for Success" financing model enables the philanthropic organization to ensure that charitable funds are disbursed only when the desired outcomes of the social program are achieved. That being the case, should an intervention fail to achieve the intended outcomes, no Outcome Payments are made. With Outcomes Based Philanthropy, each and every dollar given speaks to a verified outcome.
- To recruit new capital towards social projects. Traditionally, philanthropic organizations have shouldered the noble cause of funding social interventions, with limited control over the achievement of the program´s goals. Outcomes Based Philanthropy is a unique approach to charitable giving, whereby a commitment to paying for desired outcomes incentivizes the investment of risk capital from new actors to fund social programs. As per the SIB model, the philanthropic organization only makes Outcome Payments when predetermined outcomes are verified. Two examples of verified outcomes are when a beneficiary has achieved employment status, or remains in good academic standing.
- To quantify the impact of each contribution. The ability for the Outcome Payer to preemptively set the value of each intended outcome allows for unprecedented transparency in the social achievements attributable to charitable contributions. Once independent evaluation of intervention outcomes has occurred, the foundation can readily see the sheer magnitude of positive social impact brought about by its gifts.
- To join world leaders in Philanthropic innovation. In 2015, the Children´s Investment Fund Foundation (CIFF), the world´s largest philanthropy that focuses specifically on improving children´s lives, became the first independent philanthropic organization to utilize Outcomes Based Philanthropy to usher in new sources of financing to achieve social outcomes in education. CIFF committed to pay for social outcomes achieved by Educate Girls, an NGO based in Rajasthan, India, while the UBS Optimus Foundation, the investor in the Impact Bond, provided 238,000 of up-front risk capital for the delivery of a three-year education program in Rajasthan, where 40% of girls drop out of school before the 5th grade. IDInsight, a non-profit evaluation firm, is tasked with measuring progress of the program against the predetermined targets for the number of out-of-school girls enrolled into primary education as well of the educational attainments of girls and boys in English, Hindi and mathematics. Analysis of results after the second year show that targets are on pace to be exceeded, in which case the initial investment will be paid back to UBS Optimus Foundation by CIFF, the Outcome Payer, with up to 15% interest, depending on how far the targets are exceeded. Educate Girls also stands to receive a portion of this payment. Dr Neil Buddy Shah, CEO of IDInsight, is quoted in saying that the Impact Bond is "the first formal financing mechanism to tie payments to demonstrable improvements in people´s lives, as measured by a rigorous, randomized evaluation. This is the gold standard of scientific evidence, giving the funders a high degree of certainty on whether the program works.” [1]
Outcome Payments are not made to a for-profit entity. The foundation of any Social Impact Bond is an outcomes contract between the Outcome Payer and the SIB delivery organization. The SIB delivery organization is legal entity created for the SIB, known as a Special Purpose Vehicle (SPV) and registered as a public benefit organizations. This SPV receives direct investment from investors in the SIB, contracts with the service provider to deliver services, and with the Outcome Payer to obtained pre-determined payments for verified outcomes. When an Outcome Payment is made, it is made to the public benefit entity that is responsible for coordinating the delivery of social outcomes.
Moreover, the very definition of Philanthropy provides insight into this question. The Oxford Dictionary defines Philanthropy as "the desire to promote the welfare of others, expressed especially by the generous donation of money to good causes.” It is our view at SFI that because each Outcome Payment is made specifically on the condition of a delivered positive social outcome, Outcome Payments are indeed Philanthropy, in its most innovative iteration.
Outcomes Based Philanthropy is advantageous in furthering all visions for Israel, particularly enhancing employment opportunities for disadvantaged populations, by ushering in new sources of capital into the social arena. By simply setting forth a price for specific social outcomes that the foundation is motivated to fund, an incentive is created for sources of capital that do not typically flow towards the provision of social services, to indeed provide risk capital in the pursuit of social outcomes. In turn, this added private sector engagement and investor presence has the potential to improve cost efficiency and lead the scaling up of effective service programs.
In the context of education, and creating opportunity for disadvantaged populations, Outcomes Based Philanthropy is an effective tool for foundations to engage in creative approaches to economic development. As of Q4 2017, unemployment in Israel has reached an all-time low, reaching 4% (OECD), further exacerbating the Israeli economy's demand for workers in a variety of industries. That said, the Central Bureau of Statistics has also reported Arab and Ultra-Orthodox male participation in the labor market to be substantially lower than secular Israeli males, with the latter standing at a lowly 44%. Arab Women see an even greater disparity, with workforce participation at 28%.
In 2013, SFI conducted a feasibility study demonstrating the various economic benefits to Israel that would be achieved by providing in-demand vocational training to Ultra-Orthodox males who currently rely on government subsidies to support themselves and their families. Committing to make Outcome Payments upon the employment of graduates of a vocational program that is specifically designed to integrate Ultra-Orthodox males in the job market is just one example of how foundations can use Outcomes Based Philanthropy to promote the long-term welfare of the State of Israel and promote equal opportunity for its people.
First and foremost, the intervention programs financed by Social Impact Bonds are those whose efficacy is supported by a wide body of evidence. Social Finance Israel (SFI) takes pride in its expertise in accurately quantifying both the social and economic benefits of addressing pervasive social issues, and emphasizes the transparency of this evidence throughout the entire development process. When developing Social Impact Bonds with traditional stakeholders, SFI provides valuations of Outcome Payments that are negotiated to a consensual proportion of actual cashable savings to those stakeholders. In a similar fashion, SFI will consult the foundation on how Outcome Payments will compare to historical spending on the social issue that is selected. This is a collaborative process, and as always, SFI will work diligently to ensure that all contracting parties understand the anticipated intervention costs, projected success rates, and ultimate impact on Israeli society.
