Pay-for-impact models are currently being tested in Latin America. Adva Saldinger explains how social impact incentives work in this report published in Devex:
A social impact incentive, or SIINC, is a results-based financing mechanism focused on helping unlock impact gains from market-based solutions and companies by paying directly for impact achieved. SIINCs are the brainchild of Bjoern Struewer, the founder and CEO of Roots of Impact, and Peter Beez, a senior policy adviser at the Swiss Agency for Development and Cooperation, or SDC.
Struewer found himself frustrated that solutions such as blended finance rarely helped small businesses and wanted a tool that would better work to build markets and be more accountable for impact, he said. Struewer also saw the growth of social impact bonds, but he wanted to create a similar system that would support for-profit enterprises, rather than nonprofits or governments.
Beez was also interested in social impact bonds but wondered why something similar couldn’t be done more simply. SIINCs are quicker and cheaper than impact bonds, he said.
“It’s so far proven to be an effective pay-for-impact model, because both the payment structure is directly linked to the impacts and the payment amounts were set up based on years [of] portfolio data and the costs to serve these high impact businesses,” (Impact Manager Katie Naeve) said, adding that it is a robust and simplified pay-for-impact model.
While it’s still early days in the three-year project, Naeve said it shows promise. About six months in, Root Capital has just submitted its first group of loans to Roots of Impact for the impact review, that if verified, would trigger the first SIINC payment.