AN INTRODUCTION TO DEVELOPMENT IMPACT BONDS Martin Rich, Sales Director Social Finance is authorised and regulated by the Financial Conduct Authority FCA No: FEBRUARY 2015

©Social Finance 2015 ABOUT SOCIAL FINANCE A pioneering non-profit organisation that designed and launched the first Social Impact Bond (SIB), a results-based contract where private funding is used to scale up services and government pays only if the service is successful Launched 10 SIBs in the United Kingdom and internationally through a network of partner organisations Established a Working Group with Centre for Global Development in 2012 to explore the potential of Development Impact Bonds (DIBs) that apply the Impact Bond model in developing countries 2

©Social Finance 2015 GLOBAL ACTION ON SOCIAL IMPACT BONDS HAS SURGED US 5 SIBs, including two of the largest transactions to date – New York State ($13.5m) and Massachusetts ($18m), both in the area of prisoner rehabilitation Harvard Lab providing technical assistance to 9 state governments UK 18 SIBs in areas that range from recidivism to homelessness by UK Gov’t, Social Finance and others G8 Taskforce on Social Impact Investment Focused on develop- ing policy to scale impact solutions Australia 2 SIBs on out-of-home care by New South Wales State, Social Ventures Australia and others Israel Diabetes SIB by Clalit Health Services, Social Finance Israel and others Europe (non-UK) SIBs in: Rotterdam, Netherlands on youth unemployment; Augsburg, Germany on unemployment/NEETs; and Brussels, Belgium on workforce empowerment South Africa ECD SIB Fund developed by Bertha Centre and Social Finance Latin America Inter-American Development Bank exploring options to develop a SIB market across the region Social Impact Bonds launched Social Impact Bonds under exploration Market infrastructure established Outcomes Funds £20m UK fund White House proposal for US$300m fund Specialist intermediaries 5 organisations with a core focus on SIBs Organisations in at least 10 other countries exploring SIBs 28 SIBs launched with a total combined capital raise of over US$100 and many others under exploration. Canada At-risk single mothers SIB 3

©Social Finance 2015 Challenges exist in traditional grant-making approaches to development assistance, but at the core is aid effectiveness: BARRIERS TO IMPACT EXIST IN TRADITIONAL AID… 4 Donor often focuses on financing inputs and processes to control what and how impact is achieved Donor subject to public accountability, but program implemented by third party Program may achieve lower than expected impact as cannot adapt to local circumstances and real-time data

©Social Finance 2015 Impact bonds incentivise the achievement of impact through linking funding to results and provide the corresponding implementation flexibility required to achieve impact: …WHICH IMPACT BONDS REMOVE TO IMPROVE IMPACT 5 Up-front capital from investors to service providers and provision of real-time performance management Donor pays for impact achieved, rather than controlling inputs and processes Impact achieved improves as program is adaptive, client-centred and evidence-based

©Social Finance 2015 IMPACT BOND FOCUSED ON IMPROVING EDUCATION OUTCOMES INVESTORS Money in TARGET BENEFICIARIES with improved outcomes e.g. improved school attendance and attainment relative to baseline or comparison group OUTCOMES FUNDER(S) SERVICE PROVIDERS e.g. capacity development of teachers and managerial staff, provision of teaching and learning materials, community involvement Return on investment depends on success DEVELOPMENT IMPACT PARTNERSHIP Payment based on impact Independent verification of agreed metrics Collaborative service provision PARTNER GOVERNMENTS can perform a range of roles including as Outcomes Funder and/or Service Provider Up-front capital and performance management TYPICALLY AN INTERMEDIARY WILL BRING TOGETHER PARTIES TO FORM AN IMPACT BOND