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The Social Impact Incentives (SIINC) model is a blended finance instrument introduced for the first time in 2016.[1] In the SIINC model, enterprises are provided with time-limited premium payments for achieving social impact,[2] thus aligning profitability with their social impact and enabling them to attract growth capital.[3] The SIINC agreement is a bilateral contract between an outcome funder (e.g. a development agency or a philanthropic organization[4]) and an enterprise; an independent verifier assesses the impact performance and clears payments for disbursement;[5] the investment between the enterprise and its investor is arranged via a separate contract.[6]

The SIINC Model

History[edit]

SIINC was co-created by Roots of Impact[7] and the Swiss Agency for Development and Cooperation in 2016[8] by exploring how to adapt pay-for-success models like impact bonds for market-based organizations.[9] The Swiss Agency for Development and Cooperation funded a pilot program in Latin America and the Caribbean which launched in 2016, led by a collaborative with Roots of Impact, the Inter-American Development Bank, New Ventures, and Ashoka (non-profit organization).[3]

Structure[edit]

SIINC is a blended finance model that seeks to align the interests of development funders, enterprises, and investors around social impact.[3] A SIINC transaction can be understood as a pre-order for the impact made by a development funder with an enterprise.[1] The enterprise uses this pre-order to secure investment,[5] using that investment to expand operations and deliver the desired impact.[3]

In the basic model, there is a time-limited payment agreement between the outcome payer and the social enterprise along with predefined social performance indicators.[1] The investment contract between the social enterprise and the investor is structured individually to meet the specific needs of both.[10] In the second step, an impact base-line is established, with payments triggered by organizational metrics directly related to the impact performance or externally generated impact metrics.[5] Finally, the ongoing payments are structured and linked to impact, while an independent verification of the impact assessment system ensures that the results are as reliable as possible.[1]

A report from the Boston Consulting Group highlighted that SIINC is a form of Impact-Linked Finance as it fulfills the criteria of focusing on outcomes as opposed to outputs, and incentives are paid only to the value creator for additional impact.[11]

Benefits and costs[edit]

SIINC has been described as an innovation due to the fact that the model is more streamlined than comparable approaches.[10] SIINC was developed for supporting market-based organizations (enterprises),[12] while comparable models such as the social impact bond (SIB) and development impact bond (DIB) were originally developed for non-profit interventions. The SIINC model can be utilized to catalyze investment into an enterprise in an impact-focused manner,[3] or it can lead to deeper levels of impact being generated.[9]

The need for independent verification of results has been singled out as a drawback, with the costs needing to be covered by potential savings in order to ensure a transaction is cost effective.[10]

Implementing organizations[edit]

To date, the SIINC model has been implemented by the German firm Roots of Impact, with funding from the Swiss Agency for Development and Cooperation, and in collaboration with the Inter-American Development Bank, New Ventures, and Ashoka.[3]

References[edit]

  1. ^ a b c d Armeni, Andrea; Ferreyra de Bone, Miguel. "Innovations in Financing Structures for Impact Enterprises: Spotlight on Latin America" (PDF). Inter-American Development Bank. IDB. Retrieved 14 December 2020.
  2. ^ Lewis, Rachel. "Mexican clinic boosts low-income patients by monetising quality". Healthcare Business International. Retrieved 14 December 2020.
  3. ^ a b c d e f Struwer, Bjoern; Moehrle, Christina. "Social Impact Incentives: A New Solution for Blended Finance". Next Billion. Retrieved 14 December 2020.
  4. ^ Schwartz, Alan; Finighan, Reuben. "Impact Investing Won't Save Capitalism". Harvard Business Review. Retrieved 14 December 2020.
  5. ^ a b c "Social Impact Incentives (SIINC) Enabling High-impact Social Enterprises to Improve Profitability and Reach Scale" (PDF). Roots of Impact. Retrieved 14 December 2020.
  6. ^ "Innovative Finance Toolkit" (PDF). B-Briddhi. Retrieved 14 December 2020.
  7. ^ Price, Dennis. "Root Capital chases 'social impact incentives' in loans to Latin America agribusinesses". Impact Alpha. Retrieved 14 December 2020.
  8. ^ Struewer, Bjoern. "Making Subsidies Smarter: How to Create More 'Bang for the Buck' in Blended Finance". Next Billion. Retrieved 14 December 2020.
  9. ^ a b Saldinger, Adva. "Social impact incentives? A new tool for supporting impact". Devex. Retrieved 14 December 2020.
  10. ^ a b c Schwartz, Rodney. "Rodney Schwartz: A German innovation I hope we don't overlook". Third Sector. Retrieved 14 December 2020.
  11. ^ Baic, Alexander; Struewer, Bjoern; Doerner, Wolfgang; Henderson, Brad; Maenning, Max; Kammerer, Leopold; Baffioni, Patrizia; Montgomery, Benedicte. "Accelerating Impact-Linked Finance" (PDF). Boston Consulting Group, Roots of Impact. Retrieved 14 December 2020.
  12. ^ "Root Capital Launches Its First Pay-For-Impact Partnership". Root Capital. Retrieved 14 December 2020.
source: https://en.wikipedia.org/wiki/Social_Impact_Incentives

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