Roadmapping the feasibility of impact bonds for improving employment rates in Kyrgyzstan On October 28, 2021, Integrated National Financing Framework (INFF) program hosted a roundtable to present and discuss the feasibility assessment of impact bonds in Kyrgyzstan. Representatives of the Kyrgyz government, ministries, organizations, development partners, and NGOs learned and discussed the applicability of the impact bonds to the country, with a focus on employment, employability and skills development.
“Impact bonds could allow the Government of Kyrgyzstan to spend money exclusively on social programs and ensure the predetermined goals are achieved. Investors cover the upfront costs and get paid by the government only if they achieve the desired outcomes. Also called as “pay-for-success financing”, this mechanism encourages collaborative innovation to tackle difficult social problems by transferring risk from government to third parties,” said Louise Chamberlain, UNDP Resident Representative in Kyrgyzstan.
In impact bonds, private investors provide advance capital to organisations or companies to provide certain services to disadvantaged groups and receive it in return for preagreed outcomes. The government reimburses investors in the case of social impact bonds and donors repay investors in the case of development impact bonds.
With this in mind, INFF program prepared a report examining the feasibility of applying the impact bond model to develop vocational and professional skills and employment opportunities for promoting entrepreneurship in Kyrgyzstan. The report is based on interviews with key stakeholders from the Kyrgyz government, international donor community, potential partners and organisations with experience in the impact bonds market. The report combines a desk review of necessities for social development and impact bonds, including several case studies with UNDP partners, by Gail Hurley, an independent researcher and author of the report.
Impact Bonds are designed to improve the provision of services such as support for the homeless, prisoners, child care, and environment protection. Since 2010, the model has been implemented in both developed and developing countries such as the UK, US, Argentina, Cambodia, India, Kenya, Myanmar, Palestine and Uganda, with a focus on health, employment, education, social welfare, agriculture and the environment.
“In recent years, UNDP has been involved in designing several impact bonds in developing countries of which one is currently in implementation phase. Interviews with various stakeholders in Kyrgyzstan showed a strong desire to learn more about the experience with Impact Bonds in other countries.” said Louise Chamberlain, the UNDP Representative in Kyrgyzstan.
There is a large list of benefits in the impact bond mechanism. For governments and donors, it reduces financial and operational risk by ensuring that public money is spent on projects that have positive impact. For investors and service providers, it offers mission-oriented investment opportunities and returns, allowing greater flexibility in implementation where the only outcome of an activity can be measured.
At the same time, it requires verifiable quantitative indicators, which can be difficult to formulate for some projects. These indicators must be able to be measured within a short period of time. Complex and time- consuming design and negotiation process with multiple partners involved is another challenge in implementing the model. Additionally, few investors and donors are ready to invest in the model or prefer to fund smaller niche interventions.
Meanwhile, interviews with officials from various ministries in Kyrgyzstan show a strong potential in exploring ways to mobilize new sources of funding to strengthen vocational and professional skills among youth for combatting unemployment. This analysis points to several potential priority areas of intervention through social impact bonds.
“For example, the program could address a lack of investment in relevant skills by seeking to improve technical and soft skills, as well as employability, with the aim of developing key digital skills. It could also provide migrants and returnees with targeted job placement and skills support to improve integration into the local labour market,” said Gail Hurley, an independent researcher and author of the report. The assessment document was commissioned by UNDP under the INFF program and aims to assist the government in identifying financing options to support implementation of the Long-Term National Development Strategy (2018-2040) and the Medium-Term National Development Programme (2018-2022) with a specific emphasis on the private sector.