No Risk - No Sustainability

Social Impact Bonds pay for Success! 

The United Nations has appealed for $24.88 billion to provide humanitarian aid to more than 105 million people in 2018; 13 million people more than 2017, whereby a funding gap of $11.2 billion is registered by October. Are further stakeholders with open and innovative mindsets required in order to crack the challenge, or will a novel constellation of existing stakeholders suffice?

As greater austerity has limited governmental funding support, there has been growing interest in Social Impact Bonds (SIB's), invented in 1988 by Ronnie Horesh, a New Zealand economist and first implemented in a prisoner rehabilitation program in Peterborough/UK. The ‘Pay for Success Bond’ is a type of social service contract between governments, investors and service providers, through an intermediary, to implement programs designed with very well-defined outcome metrics. The range of financial assets provided by private entities stimulate the idea that this will develop a response to a specific sector and unlock new capital investment. No doubt, Social Impact Bonds are proven to be more than just a promising tool that puts private funds to work, their results manifesting themselves in cross-sectorial impact in the social supply chain. Since Peterborough, 108 Impact Bonds were signed globally with $392M capital raised and 738’000 people reached.

Financiers of SIB's - Traditional investors may target the maximization of the financial return only, whereas foundations and donors put social responsibility outcome-financing in forefront combined with traditional returns. Within traditional investors there is migrant capital! According to newly available census data, more than 247 million people were living outside of their countries in 2017, and remittance flow to developing countries was estimated at $444 Billion (The World Bank). Hence, what are the fundamental psycho-social drivers for a migrant to invest in his home country?

The investing Migrant - ‘Home is where the heart is’, a statement heard throughout time that encompasses the beauty of why a person’s origins and roots continue to be of particular significance to them, despite the increased rates of migration we witness today caused by globalization and postmodernism. The mobility of humans has created new senses of place-less identities and notions of home. Yet, the form of engagement in pro-social behavior by migrants towards their cultures that have been left behind continue to hold a sense of belonging for them as part of their central identity. Therefore, how would we motivate migrants into continuing to exhibit pro-social behavior?

Meta-analysis concludes that these acts are driven by a blend of altruistic and self-interested models. Instinctively, evolutionary psychology has shown that feeling a sense of belonging to one’s group fulfills many basic human needs, and this has been found to be an innate desire. Research has shown that in our evolutionary past there was a substantial survival advantage to group settings where it has helped us define who we are and our self-identity. Hence, a migrant’s key desire is to continue feeling that he is part of his group setting, despite moving away from it. He seeks to enjoy the well-being of the members of his group by applying the social exchange theory, providing in the same manner that he would for himself to maximize the social rewards and minimize the social costs.

Dr. Almarestani, Assistant Professor in Biopsychology emphasizes that this may result in a challenge if the migrant investors feel that they are giving because of external motivators and not intrinsic ones, whereby the act of pro-social behavior would not be sustainable, as the most powerful motivators are reflected in the migrant’s emotion. To avoid this risk, motivated behaviors are determinant for individuals. Understanding the interplay between neuropeptides, molecules that influence the activity of the brain and the body in specific ways, and hormones in the control of motivation has been revealed by using functional brain scanner (fMRI), showing that different human motives can yield observable responses in the brain. Demonstrated that goal-directed human behaviors are driven by motives. Granted, research shows that there are altruistic personalities by nature, highlighting key individual personality differences; yet, it appears that focusing on people’s strengths and virtues through positive psychology will motivate them to become altruistic by planting empathy in their hearts.

Despite the increased interests of institutional investors in Social Investment Bonds, securing investment from wealthy migrants is still a challenge. The approach has to be structured in a way that works for the investor and in a language he can understand. Media plays a big role in this drive towards empathetic behavior, by aiding pro-social behavior through its various digital marketing campaigns that purposely integrate pro-social lyrics and images to drive people’s emotions.

Social Impact Bonds remain a topic of discussion because they are complex and expensive. Data collection/verification and measuring the social outcome are significant challenges. Further, it is essential to understand the politics and incentives of the involved players and to constantly be ready to adapt to revised mission statements. Adjusted risk management and techniques can practicably convert contraction of available capital and loss of confidence from investors into financial innovation, to deliver both social value and public-sector cost savings. Yet, shifting the development and humanitarian aid discourse through Social Impact Bonds from remittances resonates as a factual opportunity to target the annual $2.5 Trillion investment gap for reaching the Sustainable Development Goals by 2030.