Financing the Future: Navigating the Next Generation of Outcomes-Based Financing
Financing the Future with Impact
We are excited to announce the launch of our latest report, Financing for the Future: Exploring New Frontiers in Outcomes-based-financing Models. This comprehensive study dives deep into the journey of the Social Success Note (SSN), a pioneering initiative by Yunus Social Business (YSB) in partnership with The Rockefeller Foundation, UBS Optimus Foundation, and Impact Water Uganda. Over nearly a decade of structuring and implementing this innovative financing model, we've uncovered pivotal insights, crucial lessons, and best practices to guide future social finance initiatives.
Key Insights from Our Report
- Simplicity is Key for Scalability. The Social Success Note demonstrates that while diverse partnerships are essential for driving holistic change, overly complex structures can lead to increased costs and prolonged timelines. Streamlining roles, simplifying governance, and clearly delineating partner responsibilities can significantly enhance operational efficiency, making it easier to scale and replicate successful models.
- Early Alignment of Stakeholders is Essential. Proactive alignment around impact data, verification methodologies, and clearly defined metrics proved critical. Our experience highlights that establishing a shared vision and consensus early can prevent misalignment, reduce transactional friction, and ensure that impact metrics genuinely reflect intended outcomes.
- Enterprise Maturity Matters. One of our significant learnings is that the SSN is most effective for enterprises in growth or mature stages. Younger businesses, still refining their operational and commercial strategies, face challenges in consistently delivering measurable impact outcomes, particularly in volatile markets or during unforeseen disruptions such as the COVID-19 pandemic.
- Strategic Sequencing of Partnerships Enhances Coordination. Onboarding partners strategically and at optimal times significantly improves coordination and effectiveness. Early engagement of outcome funders sets clear expectations and facilitates smoother onboarding of investors, enterprises, and impact verifiers, leading to better-aligned incentives and smoother implementation.
- Institutionalizing Leadership and Succession Planning. Strong, sustained leadership and robust succession planning are crucial to managing complex financial instruments like SSNs. Continuity in leadership roles, supported by comprehensive documentation and robust governance frameworks, minimizes disruption during transitions, ensuring consistent implementation and sustained momentum.
Envisioning the Future of Outcomes-Based Financing
Looking forward, our report underscores the potential of Outcomes-Based Financing (OBF) to transform impact investing by incentivizing measurable social outcomes. However, for OBF models to reach their full potential, we advocate for:
- Enhanced Standardization: Developing benchmarks and standardized impact metrics to reduce transaction costs and improve comparability.
- Technical Support and Capacity Building: Strengthening technical assistance, especially around impact measurement and management, to prepare enterprises for scale. The Impact-Linked Finance (ILF) model by Roots of Impact serves as an effective example, offering tailored technical assistance to help businesses negotiate impact metrics confidently with investors.
- Catalytic Role of Philanthropy: Encouraging philanthropic organizations to adopt more ambitious roles, providing catalytic capital to de-risk investments and facilitate the scaling of innovative models. The Green Outcomes Fund in South Africa demonstrates how catalytic philanthropic capital can effectively mobilize investment into impactful green businesses
- Blended Financing: Leveraging blended finance to bridge the gap between public, private, and philanthropic sectors, accelerating the scaling of impactful solutions.
Our report is more than a summary of past experiences—it's a roadmap for the future of social finance. By sharing these lessons and insights, we aim to empower practitioners, investors, and policymakers to create stronger, more impactful financing solutions that genuinely prioritize outcomes.
Dive into our full report to learn how innovative financial approaches like the Social Success Note can redefine the landscape of impact investing, and how you can be part of shaping this promising future.
Closing the gap between business and social impact
Why do we need a social sector? Shouldn’t businesses create economic opportunities and governments ensure a just distribution of these opportunities and set incentives and boundaries such that the environment is protected?
Read Our Latest Impact Report
13 MILLION LIVES AND COUNTING 2020 has been a year like no other - which is why we've taken some time to release our Impact Report. 🌍 We've been busier than ever supporting Social Businesses across the globe and the crisis has even made us consider HOW we communicate our work. One thing is for sure: it's time to make a more inclusive capitalism a reality as soon as possible. 🌻
Indian Social Business, Waste Ventures, Support Their Waste Pickers Through The Crisis
These have been difficult times for our portfolio companies. They are working hard to protect those they employ and serve. In India, Waste Ventures recycle plastic and improve the lives of waste pickers. As they are dependent on revenues from previous months to meet their expenses, the abrupt pause to their activities has made their ability to pay their workforce much more difficult.
