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Why Latin America is ripe for impact bonds

ImpactAlpha, March 26 – Four of the 11 social impact bonds (which are paid off by government based on outcome) and development impact bonds (paid off by foundations or development agencies) in low- and middle-income countries have launched in Latin America. Ten more deals are in development in Chile, Brazil, Mexico, and Peru.

Experience in paying for outcomes, relatively good government data and a growing impact investing market have helped drive early adoption of social and development impact bonds in Latin America.

A program funded by a 2017 social impact bond in Colombia placed 899 young people into jobs, exceeding its target of 766, but fell short of its targets for retention after three- and six months, according to recently released results. Other social impact bonds in the region include a 2015 bond to boost Peruvian Amazon farmer production and livelihood, a 2018 bond to improve youth employment in Buenos Aires, and a similar employment bond in Cali, Colombia. A total of 136 impact bonds are underway worldwide.

  • Paying for outcomes. In Argentina, Plan Nacer helped improve birth-related outcomes and reduce neonatal mortality with results-based financing. Prospera in Mexico demonstrated promising education and health results. Conditional cash transfer programs have been used in Brazil, Nicaragua, and Mexico.
  • Open data. Latin America scores higher than the Middle East and North Africa, South Asia, and sub-Saharan Africa on the Open Data Barometer, a measure of how governments use open data for accountability, innovation and social impact. Efforts including Mejora tu Escuela in Mexico, Semaforo Escuela in Peru and A tu Servicio in Uruguay have helped encourage open data.
  • Investor capital. Impact investors invested $4.7 billion in Latin America and the Caribbean in 2016 and 2017 (see, “50 deals that signal a growing impact investing market in Latin America”).

“Nevertheless, the region’s impact bond market hasn’t grown as quickly as many would have expected,” writes Brookings Institution’s Emily Gustafsson-Wright. Among the challenges: macroeconomic instability, unfavorable tax regulation, legal straitjackets and political uncertainty, including recent elections in Mexico and Brazil.

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