Artificial Intelligence Solutions Funded with Social Impact Bonds

IRCAI aims to work with non-profits such as Social Finance and sustainable investing firms to support us to develop both Development and Social Impact Bonds as an innovative and complementary funding model that can be used to target development projects in AI.

The idea is to catalyse private capital to complement traditional development efforts and funding sources. For bilateral donors, this would be an attractive way to partner with private sector investors and demonstrate to tax payers that funds for aid are being deployed cost effectively to achieve their intended purpose. For non-profit organizations, it provides a new, outcomes-focused funding model for expanding or replicating successful social programs.

Governments worldwide are looking for ways to better manage budgets in an era of fiscal constraint. At the same time, many are searching for new ways to tackle persistent social issues where results have been limited. Non-profit organizations, together with private investors, may have answers that could help shape how capital is accessed to achieve social outcomes in the future.

One example is through the use of the Social Impact Bond (SIB). A SIB is a new multi-stakeholder partnership agreement created to raise private capital to fund preventive interventions. This potentially disruptive innovation draws on assets from across sectors to transform the way we respond to social problems. Traditionally technological solutions have not been funded with SIBs.

Equally the Development Impact Bond (DIB) has come a long way in a short time. Despite its relative novelty as a source of development funding, it is attracting growing interest from investors, front-line implementers and major development aid agencies[1].

Increasingly, the DIB is seen as a complementary source of development aid, rather than as a rival, that can stimulate new sources of finance to plug the huge funding gap of several trillion dollars annually to reach the UN SDGs.

A big selling point of the DIB is its emphasis on outcomes rather than activities. A DIB typically incorporates a series of mechanisms[2] that measure results to provide transparency to the investors, outcome funders and other stakeholders that shows their funding is having an impact. This is a key differentiator from traditional approaches to development funding that may fail to deliver what was agreed on, or simply lack the means to measure it.

[1] DIB – The new kid on the development block https://www.ubs.com/global/en/ubs-society/our-stories/2018/kid-on-the-development-block.html

[2] How Development Impact Bonds work, and when to use them https://dalberg.com/our-ideas/how-development-impact-bonds-work-and-when-use-them/