Malaysian Innovation: Building a Social Impact Bond (SIB) Pipeline

Agensi Inovasi Malaysia, part of the Malaysian Government, has embarked on a journey towards Social Impact Bonds that reflects the Malaysian social and policy context. There are three innovative features of their program, ‘Social Service Delivery’, worth highlighting:

  1. Explaining SIBs as a public-private partnership for social good
  2. Creating a market of new interventions to contract via a SIB
  3. Exploring Islamic finance as a source of SIB funding

Let’s explore each of these innovations in turn.

Explaining SIBs as a public-private partnership for social good

Social Impact Bonds were first implemented by an organisation called Social Finance in the UK in 2010. The idea has since generated interest all over the world. The concept can be overwhelming for stakeholders, who seek to understand how far away this model might be from their current reality. In Malaysia, Social Impact Bonds have been framed as the logical next step after the recent introduction of other long-term partnerships and privately financed initiatives (PFIs) towards new infrastructure such as buildings and roads. The 2010 New Economic Model for Malaysia from the National Economic Advisory Council called for ‘academia, business, the civil service, and civil society’ to ‘work together in partnership for the greater good of the nation as a whole’ (Part 1, p. 68). Social Impact Bonds are one vehicle by which these recommendations will be delivered. They are an arrangement where a non-government organisation delivers an intervention that is first financed by private investors who stand to be repaid with interest from government funding if a social outcome is achieved. There are incentives for each stakeholder to be involved (see the Agensi Inovasi Malaysia diagram below).

Diagram of objectives of program

(Agensi Inovasi Malaysia)

Creating a market of new interventions to contract via a SIB

Most jurisdictions that have developed a SIB have first scanned their market for investors, intermediaries and proven or promising social delivery organisations. And then they’ve thought about how to run a procurement process that brings the best of these players together, along with an intervention to achieve a priority outcome for Government. Although procurement approaches have varied, all have rested on the ability of the market to delivery suitable interventions that can be managed by organisations with sufficient capabilities to produce the desired social outcomes. Agensi Inovasi Malaysia has enhanced their opportunity to engage with capable service providers by holding a competition for new ideas in priority areas, and then incubating and collecting evidence on these new initiatives, with the end goal of a Social Service Delivery contract. This is not only a way to provide services that are suitable for the first Social Impact Bonds in Malaysia, but creates a pipeline of evidenced programs for the future.

Social impact bonds emerged in the UK in 2010, with 23 currently in operation. Development plateaued, however, during 2013 and 2014 (see chart below).

SIBs launched white background

In the latter half of 2013, attention turned to the development of a pipeline of SIBs to bring to market. Big Lottery Fund and the UK Cabinet Office are working together on “a joint mission to support the development of more SIBs” through their social outcomes funds totalling £60 million. Social Finance, in partnership with the Local Government Association, has been commissioned to support applicants to their funds and there is also a program of grants for organisations requiring specialist technical support to apply (Big Lottery Fund).

Agensi Inovasi Malaysia will potentially avoid the problems of the UK, by seeding and supporting a pipeline of interventions up front. This pipeline has been created through the ‘Berbudi Berganda: Social Impact Innovation Challenge’ which called for social organisations to submit their ideas for interventions to tackle the priority issues of:

  • youth unemployment
  • homelessness
  • elderly care.

The top 12 organisations won funds and support to implement their ideas, the impact of which will be the subject of action research over their first four months. This research will form the basis of a framework and delivery model addressing the priority issues. The pilot program timeline is below.

Apr 2014 Feasibility study
Sep 2014 Focus group discussion
Oct – Nov 2014 Social Innovation Challenge
Jan – Apr 2015 Incubation
Jan – Apr 2015 Intervention
Jan – Apr 2015 Action research and impact study
2015 Social Finance Policy Framework
2015-16 Model for ‘Social Service Delivery’

The benefits of the competition and incubation approach include:

  • focusing NGO innovation in government priority issue areas
  • government being able to work with NGOs over a longer period of time, thus gaining a better understanding of the ability of the organisation to deliver effective programs and outcomes
  • creating an evidence base that will inform the design of ‘Social Service Delivery’
  • supporting organisations to build and test interventions suitable for a Social Impact Bond.

The Agensi Inovasi Malaysia approach might require more up-front government funding than other jurisdictions have been or will be able to provide. But for a government that has limited experience outsourcing social services, it is a collaborative and supportive way to create a market of interventions that might otherwise not exist.

Exploring Islamic Finance as a source of SIB funding

The potential for Islamic finance to become a source of funding for Social Impact Bonds is significant and has not yet been explored. The Islamic religion obliges its followers to give the zakat, a portion of their wealth to ease inequality and suffering. The total given each year is estimated at 15 times that of global humanitarian aid contributions, and in Malaysia the zakat collected by Government is over US $400 million (Irin News).

Islamic finance includes Musharakah (Joint Venture Partnership), Waqaf (charitable donations), Debt Structure, and Sukuk (Islamic Bonds). A Musharakah could be used as the structure that holds the contracts with other parties. Sukuk could be used for investment, although their flexibility in terms of repayments that are dependent on outcomes will need to be determined. Waqaf could be used to fund a specific fixed cost such as legal fees, extra staff for development of a SIB, software, premises, audit, insurance, performance management or evaluation. The way this could fit into a Social Impact Bond structure is shown below.

Malaysia 2

Conclusion

Agensi Inovasi Malaysia has created a unique pathway towards Social Impact Bonds. Their approach mitigates the risks of implementing the model in a country without a history of outsourcing social services. They have framed this new contracting model in the broader policy context of public-private partnerships, which aids wider understanding of both the model and the objectives of government. By seeding and supporting new programs that address priority issues, the Government will be able to understand and evidence the impact of these new programs, before contracting them for ‘Social Service Delivery’. Finally, the exploration of the role Islamic finance can play in a Social Impact Bond has the potential to be applied in other jurisdictions and extends the ability of Islamic finance to achieve social outcomes.

This blog was written as a result of a project Emma is working on with Agensi Inovasi Malaysia. It describes aspects of their programs that she found interesting and relevant. These are Emma’s personal views and should not be taken as representative of Agensi Inovasi Malaysia or any other organisation. 

The Peterborough Social Impact Bond (SIB) conspiracy

If you think Social Impact Bonds are the biggest thing to hit public policy EVER, then you were probably horrified at the cancellation of the final cohort of the flagship Peterborough SIB. How is it possible? What does it mean?

Since the news was broken in April this year (2014), I’ve had questions from as far afield as Japan and Israel trying to discover the UK Government’s TRUE agenda. More recently, at the SOCAP Conference in San Francisco in August, it was raised again. Eileen Neely from Living Cities, which has provided $1.5 million in loan financing for the Massachusetts Social Impact Bond was discussing “shut down risk: what happens if one of the parties decide they don’t want to play.”

She said, “In the Peterborough deal in the UK, the government decided that they weren’t going to play any more… so there’s some who say ‘Oh it’s because it wasn’t going well’ and others are saying ‘It was cos it was going too well’ so whichever it is, they decided that they weren’t going to do it, that they weren’t going to go into the next cohort, so what does that mean to the investors?” Eileen made it quite clear “I haven’t talked to any of the participants there, I’m just outside, reading the articles and the blogs …”

I thought it was about time we summarised the evidence for those who continue to ask these questions. Continue reading

Social impact investment: Why are we here?

In the last two weeks I’ve been at two major social impact investing events, both of which were conducted in the language of investors, and both of which left me actively searching for the perspective of social purpose organisations. There’s a lot of discussion about what social purpose organisations need to do to get investment ready, but where’s the conversation about what investors need to do to get impact ready? SOCAP14 On September 3rd, the second night of the SOCAP conference, I attended an event held by Echoing Green, who support young social entrepreneurs. One of the young entrepreneurs was attending SOCAP.  Four of her friends excitedly asked her what it was like. She said “I don’t know. I’m still trying to figure out if it’s for me. I go to these sessions, but I don’t understand what they’re talking about.” I asked her what the issue was. She said the language and the concepts were so foreign to her that she struggled to find meaning in the proceedings. Only that morning, Sir Ronald Cohen had said, “that’s what impact investment is about: enabling social entrepreneurs whether they’re working through not-for-profits or for-profits, to raise the capital they need in order to improve the lives of others, or the environment”. How did we fail to communicate this to our target market? Continue reading

Social Investment – supplying and demanding what?

There’s a diagram/framework that keeps being used to describe the social investment market and it drives me mad! [I’m not going to point fingers, but its use is fairly widespread, to the point where some organisations use it to label their computer files…]supply and demand

This diagram assumes that your world revolves around money. When you see it, you are supposed to see a very logical display of: the supply of money; the demand for money; and the things that help these two connect.

But social finance is about more than money. It’s about people and changes in their lives. Social purpose organisations use the words ‘supply’ and ‘demand’ to talk about housing, food, services, blood…

As social finance/social investment/impact investing become more widely discussed and practised, our use of language is central to its development. Whatever our perspective, we need to use as little jargon as possible, communicating meaning effectively. We should ask people to explain what they mean, reduce our use of acronyms and assume that the world view of others is not our own.

The diagram above can be useful if we all understand what it means, for example:

investors and investments

It’s still a little money-centric, but it involves fewer assumptions. Is it clear enough?

Update July 2014

Until now, the bulk of social/impact investment reports have been written by investors, for investors, with a few written by policy makers trying to encourage investors. We’re just starting to see the emergence of publications on social/impact investing written for social purpose organisations. Big Lottery Fund has published Social Investment Explained, beautifully written David Floyd at Social Spider and Nick Temple at Social Enterprise UK, with support from Dan Gregory. It sets the benchmark for communication – its language and structure make it accessible to the organisations that are the basis of the existing and potential market.