I am spending my summer working as part of the innovative finance team at United Nations Development Programme (UNDP) in Jakarta, Indonesia. First thing you are probably wondering is what is innovative financing? Is it just new jargon, or was the word “‘innovative” thrown on for posterity? No, it is about finding new ways to improve lives. It allows the UN to go outside its normal project-based approach to work in new ways with the private sector. We are working with the private sector in 3 ways:
Social Impact Bonds: A Social Impact Bond (SIB) is a fairly new financing mechanism in the world of pay-for success funding. While the details vary, in the diagram is the basic structure of a SIB. The key concept is that there is a market incentive for achieving goals and rather than focusing on outputs (such as the number of patients treated), payoffs are tied to outcomes (such as the change in malaria rates). The innovative financing team organized a focus group discussion which brought together key stakeholders to explain a SIB was and to brainstorm ideas. UNDP, in partnership with the country’s national development ministry, Bappenas, is planning to launch the first ever SIB in Indonesia in the upcoming months.
Impact Accelerator: The idea behind this is that many businesses with the potential to make a large impact are stuck as small social enterprises. Special efforts are needed to support further development of these social enterprises to grow their markets, increase their investment absorption capacity, and to better integrate real impact into their businesses. To support these social enterprises, UNDP and its partner organizations are in the process of creating an accelerator with the goal of helping companies grow in scale, with a special focus on impact. This will be similar to other intensive accelerators which help companies to go from ideas or a small scale to expand but include a special focus on impact. Some examples of the types of businesses that UNDP are looking to support would be a digital market platform for fishers, aggregators and distributors of specialty single origin products, rural health care companies, and educational loan products.
Impact Fund: Even if a business is ready to expand, it often takes further investment and support especially to reach foreign markets. In partnering with a fund manager to create an SDG growth fund, social enterprises will be able to receive further financing to expand. I will spare the details here but in order to make investment in the fund attractive, the fund includes a portion of soft financing from other sources. As part of the United Nations, UNDP must act as neutral party and therefore cannot run or invest in private businesses. However, it can help businesses increase their impact and to better integrate it into their operations. Naturally, businesses that come through the Impact Accelerator would be good candidates for the fund but it would under no obligation to actually invest if they are skeptical of the company.
As a PADI intern, I’ve spent the summer living with my host family, who warmly welcomed me into their home and taught me so much about life in Indonesia. It has been an eye-opening experience learning about just how diverse Indonesia is in basically every characteristic—languages, food, clothes and religious practices are quite different both between islands and within them. Uniting Indonesia, is Bahasa Indonesia, a practically universally spoken common language, and the principles of Pancasila, a set of five principles to guide the Indonesian state. (These principles are described here: https://www.bahasakita.com/pancasila/). These ideas are taught in all school and practically Indonesian could cite these principles.)