When designing and implementing Social Impact Bonds (SIBs), practitioners and policy innovators in the developing world will inevitably face the challenge of understanding and adapting SIBs to each government’s legal jurisdiction. For example how do tax regulations vary for investors funding service providers? Or what is the nature of a particular government’s contract relations with social services? Until very recently, practitioners did not possess any guidance or framework that would help them tackle these significant legal challenges.
The “Legal Road Map for Social Impact Bonds in Developing Countries” attempts to change that: it comprises an in-depth legal analysis across 7 jurisdictions namely Colombia, Mexico, South Africa, Mauritius, India, Chile and Brazil. The report marks the completion of a research project initiated by Instiglio—the non-profit intermediary working on several SIBs, including the Education DIB in India— which later evolved into a cross-cutting analysis by 5 legal firms. Its aim is to first provide a thorough and methodological document tailored to each partner of a SIB or DIB – investor, service provider, government and intermediary. Second, it offers recommendations in the context of various jurisdictions, in order to better mitigate and calculate risks involved. It illustrates how legal and procurement systems need to shift to allow publicly-funded social programs to work for those who need them through results-based financing.
Structured on a country-by-country basis, the report presents answers to questions relevant for each partner of a SIB. This includes funding and procurement questions and covers an array of tax aspects tailored specifically to investors. Intermediaries, government representatives and service providers of a SIB can find relevant legal information for each jurisdiction that affects their work realm. It clarifies to what extent the SIB structure and the contracts entailed within can be implemented under the legal jurisdiction, while suggesting paths to approach certain shortcomings or particular challenges. For example, in the case of Brazil, the intermediary is not free to choose the service provider to deliver the desired outcome of a SIB. This decision will remain in the hand of the government (see p. 133).
Although the report focuses on the details of Social Impact Bonds, policymakers and innovators working on results based procurement processes can also find the conclusions useful in their work. It is an important first step to establishing a framework that can be adapted not only in the SIB, but also in future DIB schemes.
CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.