Michelle Kaffenberger, Munshi Sulaiman, and Dianne Calvi show how innovative finance can make the real difference. The Africa Competitiveness Report 2017 show that this continent is forecasted to produce just 100 million new jobs by 2035, while the working age population is projected to grow by more than 450 million.
The African population will increase at a high rate and to ensure new workers engage in productive livelihoods and prevent increasing the extreme poverty, governments will need to enable job creation. They will have to engage with cost-effective livelihood development programs targeting the extreme poor.
Village Enterprise and Instiglio, a pioneer in results-based financing, are partnering with the US Agency for International Development (USAID) and the U.K. Department for International Development (DFID) as outcome funders, with impact investors providing the working capital. IDinsight will conduct an RCT measuring consumption and asset outcomes, which will determine the repayment rate paid to investors. Global Development Incubator (GDI) is the trustee of the outcome fund, which serves as the central “clearinghouse,” and holds outcome payers’ funds in escrow until agreed-upon outcomes are verified through the RCT.
This unique payment-for-results model provides a guarantee that donor money will be linked to meaningful improvements in poverty alleviation outcomes and requires funders to pay back Village Enterprise and its investors only if outcomes are met.