Building the market for Payment by Results approaches in Latin America

National governments and international development institutions have long been experimenting with rewarding success, whilst private investors are actively seeking the holy grail of profitable enterprises which can also save the planet, its people, or both.

The impact bond model, however, is a novel attempt at trying to bring those two concepts together in pursuit of a clear social outcome, by aligning the interests of government, funders, investors and social providers and enterprises in a very explicit and unequivocal way.

When Social Finance was contacted by the Inter-American Development Bank (IDB) in 2013 to discuss opportunities to promote the use of this model across Latin America, we were intrigued. The IDB’s idea was simple, but powerful: identify big opportunities and critical barriers to the adoption of the model, to guide market building efforts, and create a handful of reference transactions to accelerate learning and encourage market players to mobilise.

Over the last few years of collaboration, we learned several lessons:

• Impact bonds had a lot of potential in countries that, despite recent social gains, were still marred by huge access inequality and a generalised lack of quality and effectiveness across basic social services. Innovation, transparency, efficiency and an ability to target specific populations were part of their appeal.
• There are a lot of talented local players who have both the motivation and the skill to drive the building of their respective markets, if only they were given the right support.
• It wasn’t going to be as easy as ​“importing” a model that had been built elsewhere on the planet, to a completely different context. 

We at Social Finance already knew that starting was the hard part. One must spread the word widely; kiss many frogs before finding the right prince; align actors with different, and sometimes opposing, agendas; learn lots, fast, and be prepared to bear the cost; be generous with your time and insights; listen carefully; and, above all, persevere even when it all seems lost. And yet, what we didn’t envisage were the political, structural, regulatory and cultural peculiarities of these sophisticated markets, which required a greater level of creativity and adaptation of the model than we had experienced before.

The first attempts at launching impact bonds in Mexico, Colombia, Chile and Brazil all stalled or died before reaching maturity. Not in vain, however. They each opened new conversations; created skills, insights and practical tools that could be reused; and, above all, connected a set of committed people and institutions who have carried on the mantle of developing their own IB ecosystems.

In November 2019, parallel to the GSG Impact Summit in Argentina, the Latin American Payment by Results Network (or Red PxR, by its name in Spanish) launched at an official event attended by an audience of investors, social providers, government, philanthropy and other market actors. The network, which brings together 10 practitioner organisations that have been deeply involved in the first steps of the impact bond market in six Latin American countries, has an ambitious agenda of learning, sharing experience, and supporting policy and practice. Social Finance is proud to be part of it.