4 min read
- AIM is shifting the social sector from reliance on protection to an active social investment economy
- Addresses need for reliable data and multi-sector stakeholders through systematic frameworks
- Examples of evolving Social Finance Model through lessons learnt
“Wealth is not new. Neither is charity. But the idea of using private wealth imaginatively, constructively, and systematically to attack the fundamental problems of mankind is new.”
– John Gardner
The successful application of new concepts and knowledge into new products, services, or processes to deliver new customer value in the marketplace is known as “innovation”. At the National Innovation Agency Malaysia (AIM), the tenets of innovation are also applied to the social sector.
As a government agency under the Prime Minister’s Department, AIM focuses on creating healthy ecosystems for innovation, with innovation in the social sector (Social Innovation), as one of its 6 key focus areas. In line with the 11th Malaysia Plan (2016 – 2020), AIM Social Innovation is working to shift the social sector from reliance on social protection to the cultivation of a thriving social investment economy.
Even though government social services and safety nets consume large amounts of public expenditure, isolated remedial actions may not be the optimal solution. As a result, the government looks to innovative approaches to tackle societies’ problems with better outcomes at a lower cost.
Building Blocks towards a Social Finance Model
AIM’s Social Finance Roadmap outlined the need for i) reliable data, evidence and measurements, and ii) concurrent development, capacity-building and growth of multiple parties in the ecosystem.
Disparate Measures and Frameworks
A Social Impact Measurement Toolkit (SIMT) was created to streamline measurement, tracking and reporting for the private sector and Social Purpose Organizations (SPOs). With a do-it-yourself tool, SPOs can self-assess, track and measure impact based on the Theory of Change model and report impact by aligning Key Performance Indicators (KPIs) with the KPIs of their relevant stakeholders.
In 2015, AIM launched the Social Public-Private Partnership (SPPP) initiative to encourage private sector participation in the social sector. This resulted in collaborative social intervention programs such as a sign language education game for the hearing-impaired. RM1,000,000 (US$200,000) in matching grants was allocated each year for projects incorporating concepts of high impact, low cost and rapid execution.
Obstacles to education for children with disabilities, child abuse, baby dumping, child abandonment, juvenile crime and drug abuse were among the issues identified as having high social costs. To spur innovative interventions in these areas, AIM published a Social Progress Assessment (SPA) identifying 40 social issues across 7 categories. The SPA not only quantified direct costs incurred by the government, but also aggregated the total costs associated with each social issue, instead of separating the costs segregated by jurisdiction (i.e, investigation, arrest, medical care, courts, shelters, prisons, etc). The aggregation of these costs also led to more collaboration across government ministries and agencies on social problems.
SPA – 7 Categories of 40 Social Issues
By quantifying the costs of social issues currently borne by the government,
- Ministries and agencies can quantify the benefit of funding more preventive interventions;
- SPOs are incentivized to create innovative social programs and, monetize and scale preventive solutions with proven records of success;
- Private funders, foundations and corporations are encouraged to go beyond traditional models of funding, donation and CSR to fund high-potential SPOs with measurable social impact.
These advantages spurred the launch of a “payment-for-outcomes” social finance model called the Social Outcome Fund (SOF). In its pilot-stage, the SOF allocated RM3 million (~US$700,000) for social intervention projects to assist marginalized communities.
Payment-For-Outcomes – AIM’s Social Outcome Fund
Social Outcome Fund Framework
The SOF model supports SPOs fundraising activities, thereby allowing them to focus on the social intervention and its intended outcomes and impact. The private funder provides initial funding to the SPO, which then carries out the preventive intervention. If the SPO’s program achieves the target outcome (set at a cost-saving to government of 1.5x), the government will reimburse the private funder. This reimbursement could potentially be channelled to fund more social intervention programs creating a highly sustainable model for funding innovative solutions.
Multiplying Impact: Collective Impact, Impact Investment & Social Impact Bonds
The fund structure of the SOF paves the way for foundations, CSR and individuals to collectively fund social intervention projects in a many-to-many relationship. This will reduce the duplication of initiatives that sometimes occur in the social sector.
In 2015, AIM supported the development of the Malaysian Collective Impact Initiative (MCII), which saw multiple corporations in Malaysia come together for collective CSR. MCII also runs a Collaboration Challenge that encourages SPOs to work with each other to address social issues.
Another goal of the SOF is to attract new private capital to the social sector. The target outcome of 1.5x was set to allow room for future iterations of the SOF to reimburse and provide additional return-on-investment (ROI) to the private funder (or impact investor).
Finally, the data and outcomes from the pilot SOF could also be extrapolated to develop other longer-term social finance instruments, such as government-issued Social Impact Bonds.
All in all, the progress of the multiple programs run by AIM Social Innovation suggests that there is no one-size-fits-all model for the social sector. However, social finance can align government, private and social sectors to facilitate better outcomes, and empower social innovators to create and deliver impact at scale.
To build on the earlier quote from John Gardner, “The idea is to use public funds and private wealth collaboratively, imaginatively, constructively, and systematically to attack the fundamental problems of mankind.”