Proyectá tu futuro – Buenos Aires Youth Employment Social Impact Bond

Project insights

1. Overcoming regulatory constraints and seeking legal assistance from the get-go

   Legal support was paramount when it came to public advocacy in favour of the SIB and its prospective beneficiaries. Legal technical assistance helped address that challenge that the general fiscal framework in Argentina does not allow NGOs to become social investors. The Beccar Varela Law Firm, together with Acrux Partners, contacted the Argentine tax authorities and presented proposals on the income tax regulation reform, which made it clear that social impact bond investment was possible. 

   For the SIB financial assessment, it is necessary for the trust (SPV) to deduct expenses incurred by NGOs, which means that NGOs had to bill for services. However, the tax exemptions enjoyed by NGOs could be at risk if they have to bill the SPV for services. During the negotiation process with NGOs delivering the program, legal support and opinions were presented to assure the NGOs that by providing services and billing, their tax exemption would not be put at risk

   Source: Estudio Beccar Varela, 2019.

2. Building relationships takes time

   The legal team involved in the impact bond reinforced the importance of designing a working schedule which contemplates the necessary time to negotiate and build trust among the different parties, which are generally diverse, given their heterogeneous characteristics.
   

   Source: Estudio Beccar Varela, 2019.
   

3. The importance of legal frameworks

   It will be important to refine the technical design of future payment-by-result projects to improve the cost-effectiveness of the structuring phase. While development costs are higher in a first intervention structured as a pilot (as it is the case with Proyecta Tu Futuro), and many of their learnings and structure will be capitalised in the following interventions, other costs will continue to be high in the short term and it is important to develop strategies to reduce them and increase the scalability of the tool. A way to streamline this process would be the development of a specific legal framework for contracting by results, which would allow the different government agencies to contract with a pay-for-result scheme more easily.

   Source: Acrux Partners, 2022

4. The need for new outcome validations methods

   For the next projects, it will key to look for an alternative way of outcome validation using technological options that reduce verification times and costs.

   Source: Acrux Partners, 2022

5. Finding new ways to align incentives of all parties

   In the future, it will be important to develop strong contractual and measurement mechanisms that enable outcome payers to allocate different payment percentages to the outcome metrics, according to the level of difficulty that they present. These mechanisms should help us align the incentives of service providers, investors and outcome payers.

   Source: Acrux Partners, 2022

6. The importance of a champion in government agencies

   As demonstrated, it is very important that the area of government that is going to work with the project is involved in the development of the social impact bond, in order to promote a sense of ownership of the project. In this sense, it is necessary to first consolidate political support through the figure of a "champion" to help drive the project forward.

   Source: Acrux Partners, 2022

7. Political context matters

   It is important to be mindful of government management times and the potential influence of volatile political contexts that might extend the timelines for implementation. In such contexts, it is advisable to develop shorter projects, more adaptable to the timelines of the public sector, to make them more appealing to governments. In volatile contexts, it is recommended to prioritise pragmatism, scale and reaching the desired populations, rather than disruptions.

   Source: Acrux Partners, 2022

8. Next steps for the ecosystem: putting the right incentives in place

   Social impact bonds are an opportunity to attract private capital and invest it in the resolution of social problems. It is recommendable that the government generates the right incentives and financial guarantees to incentivise the development of new social impact bonds and the attraction of private capital from philanthropic organisations. In the case of Proyecta Tu Futuro, organisations such as foundations were exempted from being able to invest for two reasons. Investing in Proyecta Tu Futuro would mean that they were risking their tax exemption from Treasury. Additionally, the taxes associated with the structure of the investment made it very onerous for them to invest. In the future, governments should fix these issues in order to access more and more diverse sources of capital.

   Source: Acrux Partners, 2022