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IDB-MIF supports Colombia as pioneer of social innovation

BOGOTA, Colombia – The Colombian government’s Department of Social Prosperity, the Multilateral Investment Fund (MIF) of the Inter-American Development Bank (IDB), the Economic Cooperation of Switzerland (SECO) and the Corona Foundation announced today that 514 of the most vulnerable people in the cities of Pereira, Cali, and Bogota will soon have the opportunity to be placed in formal jobs as a result of Colombia’s first social impact bond.

Colombia’s announcement marks the launch of the first Social Impact Bond (SIB) in a developing country; of the 74 social impact bonds launched to date, all have occurred in high income countries.

The $750,000 Social Impact Bond is structured so that its investors, Corona Foundation, Mario Santo Domingo Foundation, and Bolivar Davivienda Foundation, are repaid only if unemployed, vulnerable Colombians including those who have been displaced by the armed conflict, find stable, formal employment.

This is the first of three Social Impact Bonds that the Colombian government will launch in partnership with the MIF and SECO and will support a critical learning process for Colombia and other developing countries on paying for results.

This launch clearly demonstrates the type of social innovation and focus on greater impact that can come about from close collaboration between the public, private, and social sectors to solve Colombia’s most pressing social problems.

More About Social Impact Bonds

Social Impact Bonds are an innovative model to finance social programs under a pay for success approach. This type of funding seeks to increase the effectiveness of social investment, innovation in the public sector, as well as to promote flexibility to solve social problems and to better allocate public resources.

Under this model, the outcome payer – either a government alone or together with other interested parties - agrees to pay for the pre-defined results of the social program, once these are achieved and independently verified by a third party. To this end, (private) impact investors provide initial funds to service providers to implement a social intervention that benefits vulnerable populations. This happens under a Pay for Success contract, encouraging the private sector to participate in social programs by creating investment opportunities that involve a financial return, and combining efforts with the government to achieve greater impact.

The first Social Impact Bond in Colombia, from the experts

"Social Impact Bonds offer the public sector an innovative social investment mechanism that increases the effective use of resources and generates insights to continue progressing towards comprehensively overcoming poverty in Colombia. This initiative seeks to add to the efforts we make every day in terms of social inclusion, reconciliation, and overcoming poverty, which has already borne fruit as more than 5 million people have overcome multidimensional poverty,"said Nemesio Roys Garzón, Director of Prosperidad Social.

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"For the IDB and the MIF, it has been especially important to help bring private impact investors closer to funding the government's social projects, in this case, formal employment for the most vulnerable people. Shifting the financing for program implementation and, thus, the risk to the investors, while leaving the Government to pay only if the results are obtained and verified by independent experts, is a fundamental change in how social programs are financed in Colombia. By generating greater efficiency in public social spending, improving and creating more specialized social services , and making decisions based on data and evidence, Social Impact Bonds demonstrate how innovation of this sort can motivate change and encourage new and better initiatives between the public and private sector in the search of joint solutions to the problems affecting the poorest in our society. While this is the first of three Bonds to be implemented in Colombia, we expect that this experience will help create a replicable model that can be scaled across other government social programs at both the national and subnational levels, as well as across the rest of the Latin America and Caribbean region. It has been a special pleasure to join efforts with the Swiss Technical Cooperation Agency, SECO. This launch demonstrates how Colombia and other middle-income countries can undertake initiatives that put them at the level of the high income countries in the world,"said Rafael de la Cruz, Representative of the IDB Group in Colombia.

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"Under this first Social Impact Bond, efforts by the Government, the private sector, and international cooperation have come together in order to launch an innovative initiative. This has been done to achieve the financing of the Sustainable Development Goals, translated, in this case, into more and better jobs. This mechanism, of paying for success, becomes even more important in a context in which funds dedicated to investment are limited,"said Swiss Ambassador to Colombia, Kurt Kunz.

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"The Corona Foundation believes in the importance of creating a new innovative model that will contribute to solving social problems in Colombia in an effective way. We are convinced that focusing on the results of employability will increase income generation and create social mobility for vulnerable populations to overcome poverty. Our task from Corona Foundation will be to contribute our experience, knowledge, and learning regarding labor inclusion issues to promote the achievement of successful results,"said Ángela Escallón Emiliani, Executive Director, Corona Foundation.

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"Within the lines of action of the Mario Santo Domingo Foundation, we have found that efforts directed at employability issues are a necessity for the most vulnerable families in the country. This innovative program of employability, in which private companies and the public sector, will foster the improvement of the socio-economic conditions for communities living in poverty, contributing to social inclusion in the country,"said Pablo Gabriel Obregón, President, Mario Santo Domingo Foundation

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"The current times require the private sector, particularly the financial sector and investors, to actively participate in the search for new alternatives and more effective and innovative solutions to the social and environmental problems that we face as a country. In this context, Impact Investment and Social Impact Bonds are new opportunities focused on successful outcomes and financial efficiency that bring together the social and economic interests of investors and governments to achieve structural changes,"said Cesar Rodriguez, Inversor Corporation.

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“For the field of international development and the community of experts on Results-Based Financing (also known as Pay for Success), this project will pave the way by answering questions that, until now, could only be theorized, such as when and how to develop a Social Impact Bond in new contexts and how a Social Impact Bond can really change the field of economic and social development. With this Social Impact Bond, Colombia creates the world's first in a developing country, positioning itself as a leader of social innovation, not only in Latin America, but among all countries at a similar income level,"said Avnish Gungadurdoss, Co-founder and Managing Partner of Instiglio.