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JOHANNESBURG — Futuregrowth Asset Management, acting on behalf of client funds, recently concluded an investment in the Impact Bond Innovation Fund (IBIF), a South African outcome-based financing mechanism that seeks to improve early childhood learning and development (ECD) outcomes in the Western Cape. The IBIF, a social impact bond, is the first ECD-focused transaction of its type in the Global South. The transaction has been structured and led through an intermediary partnership between mothers2mothers (m2m), an international nonprofit organisation, and Volta Capital – an international impact investment structuring specialist. In this interview, Michelle Green, who is an Investment Analyst at Futuregrowth Asset Management, and David Torres, who is the Senior Advisor to the CEO at mothers2mothers, explain more about the transaction. – Gareth van Zyl
It’s a pleasure to welcome Michelle Green, who is an Investment Analyst at Futuregrowth Asset Management, and David Torres, who is the Senior Advisor to the CEO at mothers2mothers. Michelle, Futuregrowth has invested in a Social Impact Bond, also known as an SIB. What exactly is an SIB and what makes this type of bond such an attractive investment for Futuregrowth?
Thanks Gareth. Essentially, a social impact bond is a contracting and financing mechanism where socially motivated investors pay for social services upfront and are then repaid by outcome funders, if pre-agreed outcome targets are achieved. In this case, it’s the South African Government, through the Department of Social Development, and ApexHi Charitable foundation. We found this deal particularly interesting as it’s actual lives of young children being positively impacted and as you may be aware, government’s resources are finite and we believe that social impact bonds are a way of crowding-in private sector funding to assist in implementing those social impact initiatives, which we, at Futuregrowth, believe to be critical to the development of both the SA economy and the social landscape. Therefore, we’re very excited to be partnering up with mothers2mothers and Volta Capital on this journey.
David, can you tell us about mothers2mothers and your role in this transaction?
Certainly, mothers2mothers is an SA headquartered international NGO based here, in Cape Town, and we work across eight different African countries. We employ and train HIV positive women as mentor mothers or as frontline healthcare workers, community health workers, and they then deliver health services to support women and their families in an under-staffed community. We also have a large programme to provide technical assistance to other organisations and to NGOs around our programming. We currently reach about two-million women, directly and indirectly across all our countries. My interest and role in this transaction stemmed initially from my prior work experience where I was in finance for 22-years before joining mothers2mothers. This transaction is part of our line of work to provide technical assistance across many organisations and several governments. This transaction is another way of expressing that business line to mothers2mothers.
David, how will the funding be used to make a difference in SA?
That’s a great question. This funding will be used to provide early childhood development funding to a partner organisation in this transaction called FCW (Foundation for Community Work). FCW has been a partner to the Department of Social Development and has been providing early childhood development programming for many years. FCW, in this case, will work through its network of community health workers or home visitors to provide early childhood development services, targeting children in the 3-5 year age bracket. The idea is that this early childhood development programming will have a positive, cognitive, and socioemotional development impact on the children. We know, through many studies, that ECD programming is a critical way to ensure that children thrive over their lifetime.
Michelle, how was the transaction structured and how many other investors are involved?
There are three investors in this transaction, of which Futuregrowth is the only institutional investor. The capital, in this case, has been invested through one of our flagship funds: The Futuregrowth Infrastructure and Development Bond Fund. The fund is essentially a specialist yield enhanced bond portfolio that targets investments facilitating infrastructural, social, environmental, and economic development in SA. This social impact bond was structured as a three-year unlisted debt investment whereby investors are repaid with interest when specified social outcomes are achieved. Now, Gareth, this is actually in contrast to traditional contracting methods where governments pay for a set of inputs or activities upfront that may or may not lead to intended outcomes. This investment that we have made is actually a way to introduce competitive efficiency, normally associated with the private sector, into the public and non-profit realm thereby, ensuring that both the social and environmental programmes are able to deliver maximum impact.
David, what is your long-term vision for mothers2mothers?
Mothers2mothers has a long-range vision of providing services to mothers and their families, and that very much includes early childhood development services across all its programming. We hope, over the next 3 to 5 years, to increase our reach, both directly through our own programmes, and indirectly through organisations like FCW and through the governments we work with to many more women and their families. In the near-term we are hoping to increase our reach from two million to three million beneficiaries. The really interesting thing about this transaction though (and we hope that we can also apply this across all the countries where we work) is that it marks one of the first times in Sub-Saharan Africa that governments are working with the NGO sector and the private sector to determine the cost of delivering quality services. And to have a benchmark for those quality services across all the implementing partners that the government works with. Not only that – so, you’re also setting a quality benchmark and you’re setting a cost benchmark. As Michelle said, to date governments pay for inputs and how many children they reach etc. In this case, we want to go beyond inputs and look at how many children we reach and the outcomes that those children achieve, as they enter school from this cohort. So, mothers2mothers very much wants children not only to survive but to thrive and early childhood development programming is a really critical way to ensure that children survive over their lifetime and thrive.
Michelle, do you foresee Futuregrowth doing any more such deals in the future?
Gareth, I do think so, and as I mentioned earlier, our funds mandates does allow for such investments. However, like any other deal that crosses our path we, as a committee, will assess the risks and returns for each investment to ensure that our clients are fairly compensated. So, I do think this is the start of it and we’re very excited to start with many other investments like this.
Michelle Green and David Torres, thank you so much for chatting to me today, about this very interesting transaction.
Thank you, Gareth.