New case briefs explore the Impact-Linked Finance Fund’s use of innovative financing mechanisms in education
The IFE-2-Leave No One Behind project is excited to share the launch of six new case briefs showcasing the Impact-Linked Finance Fund’s (ILFF) use of innovative financing mechanisms in education.
ILFF is a Dutch foundation established by Roots of Impact and iGravity whose mission is to provide access to capital for enterprises that generate social impact through their business activities. They offer a variety of instruments that link financial terms to realised outcomes and act as a knowledge hub for the practice of impact-linked finance.
The Impact-Linked Fund for Education is a ring-fenced fund established by ILFF with funding from the Swiss Agency for Development and Cooperation (SDC) and the Jacobs Foundation. A ring-fenced fund is a financial structure in which funds are protected for a specific purpose, segregating them from other funds, so that they are dedicated solely to their intended use. Under the Impact-Linked Fund for Education, three different innovative financing approaches have been offered to organisations providing inclusive and equitable education for vulnerable children and youth in the Middle East and Africa. These mechanisms are Social Impact Incentives, Impact-Linked Loans, and Impact-Linked Payments.
Social Impact Incentives
A Social Impact Incentive (SIINC) is a blended finance approach to results-based financing, where financial incentives for achieving specific social outcomes are provided by public and philanthropic funding, which is expected to catalyse private investment for social enterprises. It provides financial rewards to enterprises in exchange for generating measurable social impact. These incentive payments are only made after pre-defined outcomes have been independently verified. To qualify for SIINC, enterprises must secure repayable investments from external sources to finance their activities. However, any external investments are entirely independent of the SIINC contract. As SIINC payments are rewards, not loans, the enterprises can use these funds at their discretion.
Four new case briefs exemplify how this SIINC mechanism has been applied in practice to incentivise education enterprises to enhance their services to marginalised populations.
Social Impact Incentive Financing for Little Thinking Minds
Little Thinking Minds is an EdTech company providing Arabic language learning opportunities for private students from kindergarten to Grade 12. It plans to use the SIINC payments to expand its reach to children in public schools across the Middle East and North Africa.
Between 2024 and 2026, ILFF will reward Little Thinking Minds up to USD 300,000 for enhancing access to its digital platform for public school students and for demonstrating improvements in Arabic language learning.
Incentivising School Enrolment and Retention in Liberia through Social Impact Incentives
Rising Academies is part of the Liberian Education Advancement Program (LEAP), a public-private partnership in which non-state actors support the education service provision in Liberia by providing services such as professional development training, community engagement and quality assurance. Across 30 months, SIINC payments of up to USD 350,000 are intended to supplement the funds Rising Academies receives from the government to increase enrolment and retention of students in LEAP schools.
Addressing Technical Skill Gaps through Social Impact Incentives: The Case of Sprints
Sprints is an EdTech platform that specialises in developing skills for technology-related jobs by offering a variety of courses and guaranteed hiring programmes. Using SIINC payments, Sprints aim to increase the number of women who graduate from their courses and are placed in jobs.
Across three years (mid-2024 to mid-2027), up to USD 285,000 in SIINC finance is available to support Sprints’ operations in Egypt. The SIINC payments will specifically incentivise Sprints to increase the proportion of underserved female youth graduating from their courses, improve the technical proficiency of learners, and increase the proportion of female youth placed in jobs.
Incentivising Upskilling and Employment in Egypt: Social Impact Incentives for EYouth
EYouth, an EdTech company, provides interactive online learning and career development programmes for youth in the Middle East and North Africa. Between 2024 and 2027, SIINC payments of up to USD 450,000 will be made to EYouth to support unemployed youth aged 18-27 in Egypt. Payments will be disbursed based on the increased number of certified learners and job placements achieved.
Impact-Linked Loans
ILFF’s Impact-Linked Loans are similar to traditional loans, except that the interest rate is linked to impact: the greater the impact created, the lower the interest rate will be. In other words, the lender implements a variable interest rate linked to the impact goals they want to achieve, meaning that the borrower repays the entire loan principal amount at a lower interest rate if they reach the predefined results during the loan term.
Financing SOS Ghana’s Schools for the Vulnerable: A Case Brief on an Impact-Linked Loan
In 2023, SOS Children’s Villages Ghana (SOS Ghana) received an impact-linked loan of USD 400,000 from ILFF to expand its reach to children from vulnerable, low-income households. SOS Ghana has been supporting children and young people since 1974, operating at the basic education level. Their private, non-profit schools cater to both non-fee-paying students and fee-paying students. They use revenue from fee-paying students to subsidise school operational costs for non-fee-paying students.
Between 2023 and 2026, the impact-linked loan is intended to be used for building additional classrooms and improving teacher capacity. It is expected to be repaid with an interest between 0-5%, meaning that if all the results are achieved, SOS Ghana would only be required to repay the principal amount. The two incentivised outcomes are intended to increase the proportion of vulnerable children in the schools and decrease the learning gap between high-performing and low-performing students.
Impact-Linked Payments
Impact-Linked Payments are an outcomes-based financing approach in which ILFF disburses a non-repayable amount to the enterprise contingent upon the achievement of predefined outcomes.
Impact-Linked Payments: A Model for Incentivising Service Delivery to Deaf Learners in Kenya
eKitabu is an EdTech company specialising in supporting children who are deaf or hard-of-hearing and has developed educational content for local sign language acquisition in Kenya, Ethiopia, Rwanda, Malawi, Tanzania and Zanzibar.
ILFF has offered up to USD 350,00 through an Impact-Linked Payment mechanism to enable eKitabu to scale its activities to reach approximately 15 schools in Kenya over three years, with five new schools being added each year. Annual payments are contingent on increasing the total number of deaf learners reached and improving the average learning gains of deaf learners. Within this Impact-Linked Payment agreement with eKitabu, ILFF has provided a portion of the total expected payment to eKitabu upfront to support operational costs. This advance payment will be deducted from the final payment depending on the results achieved by eKitabu.