Colombia Workforce Development Social Impact Bond - EMPLEANDO FUTURO

Project insights

1. Record design time

   This social impact bond was designed in record time. The design process started in May 2016, and contracts were signed in March 2017. Several years of building up stakeholder awareness and exploring the model were critical to achieving this relatively short timeframe.

   Additionally, this was the first fully contracted impact bond in a developing country for which there is a government outcome funder and a donor government – in this case the IDB-Lab channelling resources from the Swiss government, contributed towards the funding of outcomes payments. 

   Source: Gustafsson-Wright and Boggild-Jones (2017).

2. Sustained vision for SIBs

   The SIB programme in Colombia - SIBs.CO consists of a number of SIBs to be implemented over 5 years, as well as two additional components: market-building and dissemination of learnings. The programme is being supported by SECO and the IDB. The goal is to run at least 3 SIBs on the same policy area – employment of vulnerable populations – so that a model is built, feedback is fed into that model through different piloting processes, and the market of service providers is proactively built. 

   In addition to the capital to pay for outcomes, SECO and the IDB have allocated a dedicated budget to finance key market infrastructure activities such as data infrastructure projects, concept studies, public advocacy, and legal support.  

   The Workforce Development SIB - Empleando Futuro provided a lot of relevant insights into innovation in public contracting and the effectiveness and efficiency of different approaches to employability programs. These learnings were incorporated into the design of the second SIB, currently taking place with the Cali Municipality. The Cali SIB has 3 of the 4 service providers that were present in the first SIB and three additional investors, it has a 6-month formal job retention rate as its end goal, and the maximum return for investors is capped at 10% before inflation.  

   A third SIB will be structured and launched through an outcomes fund. 

   Source: SECO (2018) & communication with Fundación Corona (2019).

3. Engagement of outcome funders 

   According to analysis by Emily Gustafsson-Wright and Izzy Boggild-Jones at the Brookings Institution, “the engagement of the outcome funders for technical assistance to the design phase of the project adds to both the uniqueness and complexity of this deal. Given that this contracting model is new for government, the role of SECO and IDB-Lab provided needed assurance, and an ability to seek technical assistance from a third party (Instiglio). Furthermore, donor engagement facilitated an extra push on outcome achievement by including a bonus payment of 10 percent of the outcome funding commitment contingent upon job retention after 6 months”.

   Source: Gustafsson-Wright and Boggild-Jones (2017).

4. Extending the SIB 

   The project was initially meant to target 514 individuals and last until mid-2018. However, the outcome payers decided to extend the project until the end of 2018 (phase B) and increase the budget to pay for more outcomes (from an initial maximum of 2.2 billion Colombian pesos, equivalent to USD 764,093), raising the total outcome payment limit to 766 individuals.  

   The extension of the SIB to target 766 beneficiaries was motivated by different reasons. Naturally, it was based on encouraging initial results. However, there was an additional motivation. Colombia held national elections in May and June of 2018, as such, it was strategic to extend the SIB into the new government to ensure the overall SIBs.CO strategy was embraced by it. 

   Source: Communication with Fundación Corona (2019).

5. SIB as a driver to create a better data infrastructure  

   One of the main achievements of the project has been the creation of an information system designed specific for employability programs. This system supports better policy making and quality inputs to improve the structuring of future employability programs in terms of price, costs and payment metrics. In Colombia, this was the first time that labour retention was defined as a key official success indicator of employability programs.

   The impact bond partners continue, together with the Government, to develop the data infrastructure that will be required to assess, in the long-term, how successfully unemployment is being tackled.

   The use of administrative data from the Ministry of Employment – which was not engaged in provision of services or outcome payment – to assess outcomes was creative solution to the challenge of data availability in the country.
   

   Source: SECO (2018) & Gustafsson-Wright and Boggild-Jones (2017).

6. Promoting employment of vulnerable groups demands a holistic approach

   During the SIB, the providers learned the importance of engaging directly with the companies and potential employers. They engaged the companies by positioning the program as a way to reduce the turnover of employees. This relationship allowed some providers to have the companies present on the day of registration in the program. This was important for the success of the intervention because the beneficiaries could see that there were tangible companies and job opportunities waiting for them at the end of their training.

   Transitioning from informal to formal employment changes family dynamics, namely in the redistribution of domestic work and the need to adjust household budget management to a single monthly payment (rather than in smaller, more regular tranches, characteristic of informal work). The payment by results scheme and proximity with employers forced the providers to confront the reasons why some people were dropping out of work after a successful entry. As a result, they adjusted the intervention to help people cope with these challenges and stay in their jobs: namely by providing support with family budgeting and follow-up soft skill support after the beneficiaries were already employed.

   Source: SECO (2018).

7. Making sure the service providers have some skin in the game

   The service provision contracting and oversight was done by the Fundación Corona with the support of Corporación Inversor. In these contracts, an average of 10% of payment to service providers was based on outcomes (actual rate varied across the four providers), so that they too had an incentive to focus on outcomes achievement. This small incentive was privately managed within between the providers and Fundación Corona as it is not part of the SIB outcomes framework. Of the four providers, two reached all the contracted goals and got the final 10%, one got a part of it, and one did not receive any of the final 10%. 

   Source: Communication with Fundación Corona (2019).

8. Overcoming challenges in future projects

   When setting up the second social impact bond in Colombia, legal and procurement restrictions arose as it coincided with national elections. Because there was a strong relationship with the local authorities where the first SIB was conducted, one way to work around that challenge was to work at the sub-national level, directly with the Cali municipality. The set-up of the second SIB also allows for testing the model with a sub-national government rather than with the national government, which is strategic for the development of the ecosystem. 

   Source: SECO (2018) .