We have launched an innovative new financing solution: The Social Success Note!

We have launched an innovative new financing solution: The Social Success Note!

April 12, 2018

Could the launch of the world’s first Social Success Note be the answer to the SDGs funding gap?

Today, the world’s first Social Success Note or "SSN" is launched at the Skoll World Forum by Yunus Social Business, The Rockefeller Foundation, UBS Optimus Foundation and Impact Water. Similar to Social Impact Bonds, the SSN is a new financial innovation that harnesses the power of private return-seeking capital to support businesses that achieve social outcomes.

It’s estimated that an extra $2.5 trillion of funding will be needed each year in order to achieve the 2030 Sustainable Development Agenda. In order to bridge such a gap it is vital that the development community looks to the financial industries for innovative solutions. The Social Success Note blends funds from donor organizations, governments and private debt and equity. It is intended to be sector agnostic, ultimately seeking to build a larger pool of both investment and outcome funding in order to successfully scale up solutions to the funding gap. The intervention of the Social Success Note is driven by Impact Water, a social business that sells, installs and maintains water filtration systems in Uganda. Impact Water will use investment capital from UBS Optimus Foundation and Outcome Payments from the Rockefeller Foundation to increase the scale of its impact to provide 1.4 million children with clean water over the next 5 years.

The Challenge

Lack of access to water and sanitation is a critical issue in Uganda, especially in the school environment where appropriate sanitation facilities and supplies for hand washing and safe water drinking are either non- existent or inadequate. Impact Water, a social business, targets to deploy 6000+ systems but due to their impact focus and inherently smaller margins, raising financing to reach this scale has proven to be difficult. Social enterprises and businesses focused on addressing tough and entrenched challenges often operate in situations where there are significant market failures that result in lower returns to investors. The result is that the number of enterprises addressing difficult-to-solve-problems is subscale with many falling prey to “mission drift” whereby social/environmental impact is sacrificed for financial return.

WHAT IS IT?

The Social Success Note (SSN) is a pay-for-performance financing solution to crowd-in return-seeking capital to results focused social enterprises and businesses looking to address the world’s most entrenched challenges. It looks to overcome the “mission drift” challenge through a structure that brings together commercial and philanthropic capital to provide investors with a market-rate return based upon investee companies meeting predetermined social/environmental goals.

How does it work?

The upfront funder, the UBS Optimus Foundation, will provide front-line social business, Impact Water, with a USD 500,000 working-capital loan. This will allow Impact Water to continue to sell, install and maintain affordable water filtration systems in schools in Uganda. Impact Water currently provides over 700,000 children with clean water in Uganda and, over the next 5 years, is expected to reach an additional 1.4 million children. The SSN was designed by the Rockefeller Foundation and Yunus Social Business (YSB). Rockefeller Foundation will provide an outcome payment of USD 200,000 split between the upfront funder (UBS Optimus Foundation) and the social business (Impact Water) if targets are met. YSB will manage monitoring and evaluation throughout the 5-year term.  

KEY BENEFITS OF THE SSN

  1. Sustainability: the SSN is designed to be sustainable as it is expected that Impact Water will reach breakeven quickly, repay the financing, and continue to provide access to water.
  2. Scalability: By their nature Social Businesses are easier to take to scale than traditional NGOs. For example, Impact Water currently operates across Uganda and is expanding to Nigeria and Kenya.
  3. Appropriate capital structure and alignment of incentives: The debt is priced at 5%, with the UBS Optimus Foundation’ return increasing to 10% if targets are met. By pricing the loan at a moderate 5%, but also having an upside for the upfront funder, we ensure that Impact Water stays true to their mission while allowing the UBS Optimus Foundation to achieve a reasonable return. The outcome payer, upfront funder and social business share the risk and all benefit when the social impact objective is achieved.

Leverage: The outcome funder sees their funding significantly leveraged by the upfront funder. In this pilot, the Rockefeller Foundation sees its USD 200,000 Outcome Payment leveraged by the USD 500,000 debt funding from the UBS Optimus Foundation.

THE IMPACT

With access to low-cost capital, Impact Water will be able to achieve maximum impact without sacrificing social gains to achieve market return. The vision is for social entrepreneurs to have access to low-cost capital to achieve their social impact and donors to get higher leverage with their grant money.

This video explains the concept before Impact Water were part of the Social Success Note:


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