Blended Finance in AfricaReviewing how one commercial and investment bank, Rand Merchant Bank (RMB), embarked on their pioneering blended finance transaction.
Context of the Actors:
After considering the impact and financial returns, RMB took the role of a social investor.
Public entity, South African Medical Research Council (SAMRC), is the outcomes funder.
Non-profit, Networking AIDS Community of South Africa (NACOSA), is the programme implementer.
Verification: independent verification from a consultancy or audit firm.
The Deal:
RMB provided upfront funding as a social investor for the Imagine Social Impact Bond, an outcomes-based funding model aimed at improving the health outcomes of young women in South Africa. Public funder, SAMRC, in its role as outcomes funder, made payments based on the achievement of pre-agreed impact outputs and proxy-outcomes. As the social investor, RMB only received a return on the upfront funding provided. The outcomes funder is only required to make a payment to the extent that the impact outputs and proxy-outcomes are achieved by the programme implementer, NACOSA. NACOSA delivers a package of interventions targeting the prevention and management of HIV/AIDS and pregnancy within the target population. Outcomes achieved each quarter are verified by the independent verifier.
How is success measured:
The implementation risk of the program was transferred to RMB, and the efficiency of public health service funding was increased.
Success is measured by impact - looking at the replicability, scalability, and additionality of each outcome. Success was also keeping this structure simple. Complex structure could repel important investors.
The outcomes achieved may be slower than if deploying traditional debt, however it's important to navigate long-term (patient) capital. Key instruments for blended finance are equity-like instruments (e.g. convert debt to equity), guarantees, concessional finance, insurance, and grants that lower risk or enhance returns for private investors.