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Rockefeller and UBS Optimus test pay-for-success model for water purification

ImpactAlpha, April 23 – The Rockefeller Foundation and UBS Optimus are partnering with Impact Water to finance the installation of water purification systems in Ugandan schools.

UBS Optimus will loan $500,000 to Impact Water using a “Social Success Note” that reduces interest payments if Impact Water hits installation targets and meets other goals. Rockefeller, meanwhile, is offering an additional $200,000 bonus to cover Impact Water’s loan interest and boost UBS’s returns if those targets are met.

The Social Success Note, like other social-impact incentives, is meant to provide incentives for private capital to finance early-stage social enterprises that need debt to scale up operations, but can’t get commercial loans.

“From the philanthropic perspective, we care about social outcomes,” said Rockefeller’s Lorenzo Bernasconi. “What’s exciting about this structure is that it [allows us] to leverage private investment to achieve [them].”

UBS Optimus Foundation’s five-year $500,000 loan will be used to help Impact Water expand its water purification systems’ reach across Ugandan schools. The project aims to reach 1.4 million school children.

Impact Water offers the schools no-interest financing for the systems, which cost about $1,000. Schools repay the loans from their savings on fuel they would otherwise purchase to boil water.

Sustainable Development Goal No. 6 calls for universal and equitable access to safe and affordable drinking water for all by 2030. Since 1990, 2.6 billion people have gained access to improved drinking water sources, but 663 million people still don’t have such access, according to the United Nations Development Programme. Achieving universal access will cost an estimated $114 billion per year; official development assistance, or “foreign aid,” targeted at the need amounts to $8 billion a year.

The nonprofit venture fund Yunus Social Business developed the Social Success Note concept. Other investors are testing other varieties of social impact incentives (and The Brief will report on one such test later today). Impact Water’s social success note is a small example of a model Bernasconi hopes to see replicated for bigger projects, like public-private financing for climate action.

The Impact Water note depends on a layer of philanthropic capital that subsidizes both the lender and borrower. But the subsidy is justified by the additional capital being mobilized. Bernasconi says the Social Success Note uses philanthropic dollars more effectively than most foundation grants.

“US foundations give in the ballpark of $350 billion per year, and that hasn’t been able to effectively leverage other investment,” he says.

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