The blending of outcomes funding and impact finance

Earlier this week, I attended the Outcomes Finance Alliance in Zurich and I'm glad I did. I arrived with some preconceptions about outcomes finance. First, when I hear the term, "outcomes finance", or results-based finance (RBF), I think of Social Impact Bonds (SIBs) or Development Impact Bonds (DIBs). And then, like many others,?I think of a well-intentioned, even intriguing concept, bogged down by complicated and expensive financial engineering. I was glad to see how the pioneers of this space are pushing to move beyond the original structures and language to a more principles-based way of creating opportunities to fund good work based on actual results. It is not ever going to be easy but it is the right direction to go, especially as an alternative to activities based payments, which have been the dominant funding mode for decades.

Part of this evolution is joining forces with impact investors who have, in parallel, been developing impact-linked finance -- where terms of a deal are improved or relaxed based on investees' hitting impact thresholds. I had a conversation with Village Capital's Allie Burns about this last fall and her perception that impact-linked finance is a much cleaner, more scalable approach.?I was happy to see a breakout session to discuss this convergence of blended finance, results-based finance, and impact-linked finance. I snuck into the session (this was a very Swiss, sign-up-in-advance, well-organized conference and I'd missed my window to sign up) and was bemused by the question about whether anyone in the room considered themselves part of the private sector. Five of us hesitantly put our hands up and it became clear to me that outcomes finance is firmly anchored in the nonprofit and public sectors, but wants to work more with impact investing.

Another observation relates to our domain of job creation. Job creation is one of the more mature segments in RBF. It was noted that most of these projects are SIBs or DIBs and most of them are in middle income countries. I couldn't help but notice though that the outcome being sought was to move people from informal employment to formal employment. We at Upaya Social Ventures know that if you are looking to make a meaningful difference in the lives of people in extreme poverty, you have to recognize that employment doesn't always look like a 40-hour a week formal wage job. Helping a microentrepreneur achieve regular and higher payments for themselves and their supplier is "job creation" that can scale and change lives. By being open to the diversity of job definitions (without lowering quality standards) RBF can be a powerful tool-- especially as job creation is a tangible and trackable outcome measure. I was happy to see that our friends at Village Enterprise (pioneers in an earlier DIB) won a grant from the Outcomes Acceleration to design a new project that will target these kinds of microentrepreneurs.

Finally, a sobering note.?The World Bank has appropriately been lauded for using these tools effectively for many years. The first person I met at the opening coffee was a World Bank employee who described her first exposure to them on a successful project?creating jobs in Gaza several years ago. As she said it, we both paused, wondering what has happened to the people doing those jobs.