L’Echo: The neglected potential of social impact bonds as a way out of the crisis

January 26, 2021
Chronicle by Pierre Hermant, CEO of finance.brussels. Social Impact Bond mechanisms consist of calling on private investors to finance innovative projects that aim to make a measurable contribution to solving problems with a known social cost. We are therefore talking about venture capital. Could Impact Bonds be our way out of the crisis?

This is a translation from the original article on L’Echo.

 

The health crisis has not closed the door on inequality. On the contrary, it has further exacerbated the social divide (temporary unemployment, job loss, bankruptcy…).

This social divide is even more yawning if we add to it the effect of digital inequality. Thus, in the context of confinement, adults and children who do not have the necessary equipment or connection have been further marginalised.

To address these many social challenges, for the past ten years or so, Social Impact Bonds (SIBs) have offered an interesting financial mechanism that complements the actions of public institutions and the non-profit sector. A mechanism that could be described as a win, win, win, win. Yes, you have counted correctly, there can be five winners: the public authorities; the project leaders; the beneficiaries; the investors; the citizens/taxpayers.

As a reminder, this mechanism consists in calling on private investors to finance innovative projects aiming to contribute in a measurable way to the resolution of problems whose social cost is known. This mechanism, built on the basis of ambitious and predetermined social objectives, transfers the risk of failure to the private financier, rather than to the taxpayer…

 

We are talking about venture capital

Of course, if the project achieves its objectives, the investor is remunerated up to a fraction of the savings made by the public authorities for the benefit of the taxpayer and society. This is venture capital, since investors risk losing their initial investment if the objectives are not achieved.

This mechanism originated in Anglo-Saxon countries. However, among Western European countries, the first initiative was launched in Belgium. Thus, in 2014, in collaboration with Actiris, a “Social Impact Bond” enabled the “DUO for a JOB” project to spread its wings. In concrete terms, “DUO for a JOB” brings young job seekers from immigrant backgrounds into contact with experienced people over 50 years old, so that the latter can accompany them in their job search.

In 2014, the team consisted solely of its founders: Frédéric Simonart and Matthieu Le Grelle. They started in Brussels and today they are present in Antwerp, Gent, Liège, Mechelen and Paris. And they will open in Aalst, Lille, Lyon and other cities. There were two of them and now they have almost 50 people in the team, 200 volunteers and 1000 mentors. Finally, they estimate that they will be able to employ nearly 5,000 people within three years.

You can imagine the impact and the savings! It perfectly illustrates the potential of SIBs.

Since then, other projects have been funded. Thus, to address the issue of digital inequality, in June 2020, Actiris and BeCode announced the launch of a beautiful collaborative project funded by a Social Impact Bond. A funding mechanism structured to encourage more women and more people of foreign origin to participate in inclusive code training programmes for job seekers who want to become developers.

Among the people who mentored the 2014 project, in addition to Gregor Chapelle, was a certain Thomas Dermine who was familiar with this kind of mechanism from having participated in a programme at Harvard University with the Obama administration. Today, he is our Secretary of State for Recovery.

 

Belgian know-how

Similarly, one of the world leaders in the structuring of SIBs is Belgian. It is KOIS, the social and environmental investment company based in Brussels. Its teams have structured ACTIRIS’ various SIBs and helped the VDAB prepare the launch of its own. KOIS also structures SIBs in France, Kenya, Congo, Nigeria, Mali, Uzbekistan, the Middle East, India and Indonesia…

The health crisis will have major consequences on our society. The public authorities’ financial means are limited and savings have accumulated in the accounts of some citizens. This is why, following the example of Anglo-Saxon countries, we believe it is useful to shift into second gear in terms of Social Impact Bonds. We could, for example, launch SIBs to finance programmes:

  • putting back to work job seekers who have lost their jobs in the Covid crisis;
  • training for massive employment in the digital sectors and in sectors linked to the economic transition;
  • rescuing companies or relaunching entrepreneurs who have seen their company perish because of the Covid crisis;
  • catching up on school drop-outs or reducing the number of students having to repeat a year;

In 2014, Belgium was among the pioneers in continental Europe in terms of SIBs. Political decision makers, administrative leaders, entrepreneurs, investors and citizens, we have the talent and expertise, we must “just” take advantage of this mechanism to dare to undertake and propose innovative and ambitious projects to complement those already carried out by our institutions.



About the author

Pierre Hermant is a CEO of finance & invest Brussels.

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