Can blockchain help us scale Social Impact Bonds?

Enough has been said about the biggest barrier to large-scale adoption

of impact bond mechanisms in emerging economies; the need for those who want to

be commissioners of outcomes to address their internal procurement and contracting

mechanisms.

In this article we look at, what systemic changes would enable the rapid scale-up of pay-for-success financing mechanisms?


TRANSPARENCY, RELIABILITY, ACCOUNTABILITY

It is inevitable that use of distributed ledger technology (DLT), of which the blockchain

is the most well-known example, will become an integral part of the mechanics of

impact bonds mechanisms in the future. Thanks to the built-in trust of the technology,

DLT will not only enable transparent, secure and real-time data collection but also,

through smart contracts, enable immediate outcome payments when a target is met.


EFFICIENT, COST-EFFECTIVE, IMMUTABLE VERIFICATION OF RESULTS

Having independent verification agents cross-checking data is an expense that pay-for

success financing mechanisms can ill afford if they are to be scalable. Using DLT

coupled with existing technology – including basic feature phones – we will be able to

build systems that cross-reference inputs, outputs and outcomes through a number of

validated filters to provide robust evidence of achieved results, obviating the need for a

second layer of verification.


COST-EFFECTIVE PERFORMANCE MANAGEMENT

The feedback loop that service providers need to be able to adapt their approach to

successful implementation of their activities – and to be able to achieve the impact

goal – can be used with all confidence given verifiable front-line data. This will address

a larger development challenge around capacity and the challenge in impact bonds of

costly performance management.


THE DEMOCRATISATION OF INVESTMENTS IN DIBS

Developing an impact exchange built on distributed ledger technology will enable

individual investors to contribute to the SDGs, using a secure, transparent platform on

which they will be able to choose the area of impact for their investment, and

ultimately have visibility of the precise impact that their investment has enabled.


Are you working on Blockchain and other DLTs in the field of innovative finance? Get in touch with us!We would love to know more!

Innovative Finance