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Cape Town - Social Impact Bonds (SIBs) hold potential for government to increase effective support for struggling entrepreneurs in South Africa, according to a new report presented to the National Treasury, the Jobs Fund, and the dti.
The report, a policy paper entitled Exploration of Social Impact Bonds for SME Development, was put together by the Bertha Centre for Social Innovation and Entrepreneurship.
The centre is located at the University of Cape Town Graduate School of Business.
Other partners include Genesis Analytics and Social Finance (the UK organisation that developed the SIB model).
“SIBs are innovative financing instruments that are designed to help governments explore and expand effective social programmes among a pre-defined target group”, said Jane Newman, international director at Social Finance.
“They bring rigour, innovation and flexibility to social programmes by focusing on agreed outcomes, testing new innovations and building responsive programmes that are managed to deliver the best results.”
In South Africa, a study conducted in 2010 by Abor and Quartey estimated that 91% of formal business entities in the country are SMEs and that these enterprises account for approximately 55% of GDP and 61% of employment.
Yet, the 2012 Global Entrepreneurship Monitor (GEM) report estimates that only 2% of South Africans own businesses that have been established for over three and a half years.
This indicates a high failure rate among SA start-ups.
One aim of BDS is to address the obstacles faced by businesses so as to decrease the chances of business failure.
As such, the facilitation of BDS focused specifically on catalysing economic and employment growth is a high priority area.
“Although there is no shortage of BDS providers in South Africa, there is limited evidence on what interventions are effective," said
Ryan Short, a partner at Genesis Analytics.
"SIBs could play a significant role in addressing this limited understanding of what works and what doesn’t, driving future funding to the most effective players.”
A SIB focuses on specific, pre-agreed, social outcome(s) and clear metrics for measuring success.
Investors provide the upfront funding of a programme, which is designed to achieve the target outcomes. An outcomes funder – usually government – repays investors if (and only if) independently verified evidence shows that the programme has been successful.
The report recommended that the interested outcome funders (including the National Treasury, corporations and foundations) consider creating an Innovation Fund that would commission simplified, tariff based Social Impact Bonds for business development services.
It also recommended that Outcomes Funders explore SIBs in other social areas such as early childhood development, education and health.
Finally the report asks that National Treasury explores tax relief for social investors interested in putting capital into social investment vehicles such as SIBs.
In the 2014 UK budget, a 30% tax relief for social investment was announced.
This tax relief is expected to generate £480 million in social investment over the next five years. Similar legislation could be catalytic in its effect around social investment in South Africa.
The report, a policy paper entitled Exploration of Social Impact Bonds for SME Development, was put together by the Bertha Centre for Social Innovation and Entrepreneurship.
The centre is located at the University of Cape Town Graduate School of Business.
Other partners include Genesis Analytics and Social Finance (the UK organisation that developed the SIB model).
“SIBs are innovative financing instruments that are designed to help governments explore and expand effective social programmes among a pre-defined target group”, said Jane Newman, international director at Social Finance.
“They bring rigour, innovation and flexibility to social programmes by focusing on agreed outcomes, testing new innovations and building responsive programmes that are managed to deliver the best results.”
In South Africa, a study conducted in 2010 by Abor and Quartey estimated that 91% of formal business entities in the country are SMEs and that these enterprises account for approximately 55% of GDP and 61% of employment.
Yet, the 2012 Global Entrepreneurship Monitor (GEM) report estimates that only 2% of South Africans own businesses that have been established for over three and a half years.
This indicates a high failure rate among SA start-ups.
One aim of BDS is to address the obstacles faced by businesses so as to decrease the chances of business failure.
As such, the facilitation of BDS focused specifically on catalysing economic and employment growth is a high priority area.
“Although there is no shortage of BDS providers in South Africa, there is limited evidence on what interventions are effective," said
Ryan Short, a partner at Genesis Analytics.
"SIBs could play a significant role in addressing this limited understanding of what works and what doesn’t, driving future funding to the most effective players.”
A SIB focuses on specific, pre-agreed, social outcome(s) and clear metrics for measuring success.
Investors provide the upfront funding of a programme, which is designed to achieve the target outcomes. An outcomes funder – usually government – repays investors if (and only if) independently verified evidence shows that the programme has been successful.
The report recommended that the interested outcome funders (including the National Treasury, corporations and foundations) consider creating an Innovation Fund that would commission simplified, tariff based Social Impact Bonds for business development services.
It also recommended that Outcomes Funders explore SIBs in other social areas such as early childhood development, education and health.
Finally the report asks that National Treasury explores tax relief for social investors interested in putting capital into social investment vehicles such as SIBs.
In the 2014 UK budget, a 30% tax relief for social investment was announced.
This tax relief is expected to generate £480 million in social investment over the next five years. Similar legislation could be catalytic in its effect around social investment in South Africa.
