Development impact bonds: learning from the Asháninka cocoa and coffee case in Peru
Impact bonds effectively allow the risk of implementing social development activities to be shared with private sector investors. Social or development impact bonds replace the upfront financing of charitable activities with a pay-for-success contract. Four actors together agree upon the outcomes and their indicators: outcome sponsor, investor, project implementers, and verifier. Under such a contract, a charitable donor or government (‘outcome sponsor’) takes the obligation to pay the ‘investor’ an amount determined by a set of objective indicators reflecting the outcome desired by the donor. The investor, expecting contract-based future payout, can recruit and pre-finance project implementers (‘service provider’) to achieve the agreed results. The achievements of the outcome indicators are assessed by an independent verifier to conclude the payout from donor to investor according to the contract. The structure allows charitable donors to transfer a significant share of risk to investors and/or financial markets. The Common Fund for Commodities (CFC), the Schmidt Family Foundation (SFF), Rainforest Foundation UK (RFUK), and the Royal Tropical Institute (KIT) were the first to apply the model in the agricultural sector in an emerging economy. The main objective of the impact bond was to increase productivity and market sales of cocoa and coffee produced by the Asháninka people, an indigenous community living in the Peruvian Amazon. This pilot provides valuable lessons learned to contribute to the development of the mechanism.
Crossfire: ‘Private sector engagement in smallholder value chains’
Improved access by disadvantaged smallholders and other poor people to lucrative agri-food value chains remains one of the most promising options for reducing rural poverty at scale. There is general agreement that the private sector plays a critical role in building value chains with the rural poor; however, debate in EDM and elsewhere has said little about the conditions under which the private sector is willing and able to lead the way in building inclusive value chains. This crossfire brings together two experts, John Belt of the Royal Tropical Institute (KIT) and Jonathan Hellin of the International Maize and Wheat Improvement Center (CIMMYT), to debate the following proposition: Value chains are more likely to include and substantially benefit large numbers of poor producers, and to continue to do so, if they are initiated, financed and managed by private for-profit businesses rather than by donors or NGOs.
Book Review: Poverty and Entrepreneurship in Developed Countries by Michael Morris, Susana Santos, and Xaver Nuemeyer
This book claims to be the first in-depth examination of entrepreneurship and poverty within advanced economies. The authors see entrepreneurship as a source of empowerment representing an alternative pathway out of poverty. They stress that up to now the initiatives tackling poverty in developed countries have yielded limited or no results. They give the example of the United States where, despite spending many billions of dollars, the poverty rate remains close to 14 per cent, similar to what it was 50 years ago. It is a similar story for the European Union where almost 24 per cent of its population are at risk of poverty or social exclusion. And the tendency is not positive: the disparity between rich and poor continues to grow, indicating a problem in both absolute and relative levels of poverty. The authors see different responses to this: a call for spending more money, spending the existing money differently, letting the poor fend for themselves, redistributing income from the rich to the poor. They suggest another approach: entrepreneurship, where they see venture creation as the pathway out of poverty.