Frontier tech in outcomes-based financing: Three ways donors can help
Evidence has to be collected, reported, and verified before payments are released, and this process can be slow and resource intensive.
We’ve seen how this plays out in the Finance for Jobs development impact bond in Palestine. Payments for job start and job retention milestones require documents like employment contracts, timesheets, and, in some cases, workplace observations. This adds complexity to data collection and costs to the verification workstreams.
Wouldn’t it be easier if there was an app for that?
Many see the promise of tech improving the speed, accuracy, and cost efficiency of data collection and outcome verification, but we still haven’t seen widespread uptake of this potentially transformative tool.
As part of our collaboration with the Frontier Tech Hub (FT Hub) and the Foreign, Commonwealth and Development Office (FCDO), we’ve been exploring the role of frontier tech in outcomes-based financing (OBF) programmes in low- and middle-income countries and how donors could encourage its adoption.
At times, it feels like we’re swimming against the current. Some of the barriers include:
- A tech product’s value proposition isn’t always clear to stakeholders, especially if it means a fundamental change to how a delivery partner operates.
- Legacy data systems – optimised for auditing – can struggle to accommodate a different approach to data governance.
- Delivery partners don’t have the budget headroom to closely monitor the market of emerging technologies in the hopes of finding a solution that could address some of their challenges.
But these aren’t insurmountable challenges, and with careful thought and position, donors are in a great position to catalyse uptake.
Our case study focus
With the FT Hub, Social Finance had just such an opportunity. We developed a case study of South Africa’s first national impact bond, the Imagine social impact bond (SIB). The case study sought firstly to explore how an existing tech solution was successfully integrated into the SIB’s operations and, secondly, to identify wider lessons that could be shared with development partners to enable the wider adoption of tech solutions.
The Imagine SIB will fund the delivery of a package of services to 15,000 adolescent girls and young women aged 15–19 in 25 schools over three years. The intervention is designed to improve health outcomes and reduce the incidence of HIV and teenage pregnancy, and is intended to serve as a blueprint for scaling adolescent sexual and reproductive health services (SRH). The South African Medical Research Council (SAMRC) is mobilising the SIB’s outcome funding from the Department of Science and Innovation. NACOSA is serving as the implementer, and Triggerise – a non-profit technology firm dedicated to expanding access to SRH services – will provide its Tiko platform to support NACOSA in delivering more user-responsive services.
What we learned
The partnership didn’t materialise overnight. It required organisational commitment and perseverance. The timeline below shows some of the milestones on the journey.
Three key lessons emerged from our consultations with Imagine SIB stakeholders.
- Power of match-making: In 2021, FCDO and the FT Hub launched a request for Expressions of Interest from impact bonds looking for funding to support the integration of frontier tech for outcomes measurement. SAMRC and Triggerise – who themselves were implementing a SRH impact bond for adolescent girls in Keyna – each submitted a response to the call. During the evaluation process, FCDO recognised that Triggerise’s offer was well placed to address the Imagine SIB’s data needs, brokered a partnership between SAMRC / NACOSA and Triggerise, and provided funding to cover the costs associated with integrating the product. Without this match-making, it’s unlikely that the NACOSA-Triggerise partnership would have developed in time for the launch of the Imagine SIB.
- Importance of value proposition: The value proposition for Triggerise’s digital solution resonated very strongly with NACOSA. Triggerise’s Tiko platform offered benefits that complemented NACOSA’s M&E architecture, while enabling a two-way communication between the programme and service users. The blue boxes in the user journey below illustrate the value-add of the Triggerise solution. Trust and confidence in the product’s value was critical. Without those, it’s unlikely either NACOSA or Triggerise would have allocated valuable staff time needed to build the partnership.
- Interoperability and flexibility: By the time NACOSA and Triggerise had been matched, the Imagine SIB had already procured an M&E system from RQTech using a ring-fenced grant awarded by an external partner. The M&E system served as the single source of truth on programme performance and outcomes, but NACOSA saw additional value in staying in touch with participants to monitor their longer-term health behaviours. Triggerise’s Tiko product was able to provide that direct user interaction capability. Triggerise and RQTech were then able to deliver on a vision of one seamless system through an API integration, highlighting the importance of modular and interoperable systems.
So, where do we go from here?
The case study has helped us identify several recommendations for how donors like FCDO could encourage the wider adoption of frontier tech in OBF.
- Build awareness and broker relationships: Donors are well-placed to support match-making between tech providers and delivery partners. Open-ended challenge funds set up to solicit proposals and broker relationships could be a powerful tool to support wider awareness of existing and emerging tech and its applications to the breadth of social impact programmes. An independent brokering organisation could fill that role to help build the market for tech-enabled OBF.
- Support open-ended discovery and relationship building: The process of designing programmes requires navigation of many unknowns. Providing tech contingency budgets into the project preparation process would allow for partnerships to grow over time, just as FCDO funding helped the Triggerise and NACOSA partnership to build over more than 12 months.
- Bridge financing: Delays are common in impact bond design processes, especially when they are a first (i.e. the first project in a country, the first impact bond for an investor, the first time an impact bond is incorporated in a procurement framework). This can mean that disbursement of project financing is slow, requiring delivery partners to cover the working capital gap in the interim. This introduces significant financial risks that could be addressed by the provision of a low or no-cost bridge financing pool that impact bond partners could draw down on in the event of mobilisation delays beyond their control.
It’s undoubtedly true that there are tech solutions that can deliver tangible value to outcomes-based financing programmes. But it’s not enough for these products to exist. They have to find their way to the right programmes, and delivery partners need support in actually embedding them in internal processes. As FCDO has demonstrated, donors are well positioned to catalyse this vital market brokerage role.
We’re always looking to learn more about success stories, as these can be powerful blueprints for delivering impact at scale. Do reach out to us if you’re keen to learn more or to share your own experiences with Social Finance’s International and Data + Digital Labs teams.