Moving the Needle: How Anti-Slavery Efforts Can Use Innovative Finance to Mobilize Funding and Make Change
July 19, 2021
Innovative finance has been put to work for several years across international development. However, anti-slavery efforts still tend to rely on traditional grant finance from donors, whether governments, multilateral institutions, or philanthropic ventures. New funding approaches could help bring much-needed additional finance into preventing trafficking.
Among other ideas, GFEMS is interested in outcomes-based approaches like Development Impact Bonds, which aim to use donor finance as efficiently as possible. Instead of tying traditional grant finance to inputs or activities, which may not always link to long-term change, money is tied to the achievement of tangible, long-term outcomes for beneficiaries. And instead of spending time on donor reporting, NGOs can concentrate on solving problems.
Why innovative finance?
Across the global social sector, innovative finance approaches have become relatively mainstream over the past few years. The international development community has recognized that the gap between the donor finance available and the funding needed to achieve the UN’s SDGs is enormous: between $1.4T and $3T per year. This suggests that private finance, including the global capital markets, needs to be harnessed in order to close this gulf, and that existing donor funds must be used more efficiently. For instance, impact investing, which focuses on achieving social or environmental impact as well as financial return, has become a common method of boosting revenue-generating and socially impactful sectors like financial inclusion, health, and energy; green bonds have raised investment for environmental projects; and conditional cash transfers have been used widely to support children’s education and keep them out of work.
However, we still see few of these initiatives in anti-slavery work. Funding in our space remains oriented towards traditional grant finance.While donors have worked hard to achieve impact, anti-slavery and anti-trafficking work is a relatively young part of the global agenda on social issues and human rights, and remains deeply underfunded. Today, even the most generous estimates put the total amount of funding for combatting modern slavery at approximately $700M annually, versus an annual operating budget of almost $10B for the United Nations High Commissioner for Refugees, a sector serving a very similar number of beneficiaries.
Employing innovative new funding mechanisms can mobilize additional capital, money which is badly needed if we are to move the needle towards ending modern slavery for good.
How can innovative finance mobilize resources to propel anti-slavery efforts? There are two primary ways that innovative finance can make a difference:
- Innovative finance can be used to bring new forms of private capital into the anti-slavery space. For instance, blending grant finance with private investment, or providing guarantees, can reduce risk for private investors and allow capital to flow into frontier markets or otherwise risky industries. Equally, supporting private firms with grants for research and development (R&D) can help them to become investment-ready. An example might involve the offer of a guarantee or an R&D fund to incentivize private investment in a financially risky new social enterprise which works to end modern slavery, like a responsible recruiter or a worker voice technology tool.
- Innovative finance can also be used to make more efficient use of existing grant funding. Proving value for money and enhancing impact is a crucial way of incentivizing donors to invest in a particular project or sector. Approaches which seek to maximize efficiency include conditional cash transfers, challenge funds, and outcomes-based finance, among others. Over the past year, GFEMS has been exploring the relevance of outcomes-based finance for modern slavery.
Case Study: Outcomes Based Finance
Traditional grant finance, which is common in anti-slavery work, may not always be the most effective or efficient way to achieve long-term, systemic change for our beneficiaries: survivors of modern slavery. Traditional grant finance has historically tended to focus on defining program inputs; measuring success in outputs that are easy to count; and closely managing grants. However, this approach fails to align funding with long-term outcomes for beneficiaries. For instance:
- In the water and sanitation sector, donors may find it preferable to focus on developing infrastructure, such as water pumps and latrines, rather than measuring whether or not beneficiaries have the safe, sustainable water sources that they need. To have sustainable water sources, beneficiaries need regular operations and maintenance of their water points. This, however, may be harder to plan for and measure than how many latrines or water pumps are installed.
- In education, it is common to measure success through assessing rates of school attendance or elements of the classroom environment. However, this may not reflect whether students are learning or the quality of education. To provide the best educational environment, students need good teachers, the right learning materials, and attention paid to unique needs- a complex and difficult-to-measure set of factors.In modern slavery, it is often simplest to measure the number of participants or people engaged in a particular program, such as a reintegration program providing skills training, or a behavior change communication program to educate people about risky migration. However, program participation does not guarantee results. What we need to measure is whether skills-training participants can support themselves in reintegration, or whether behavior change communication results in reduced risk of modern slavery.
- In modern slavery, it is often simplest to measure the number of participants or people engaged in a particular program, such as a reintegration program providing skills training, or a behavior change communication program to educate people about risky migration. However, program participation does not guarantee results. What we need to measure is whether skills-training participants can support themselves in reintegration, or whether behavior change communication results in reduced risk of modern slavery.
Much of the traditional grant finance approach has been driven by an understandable aversion to risk when spending public money. However, traditional grant finance isn’t risk-free: prioritizing inputs over outcomes is unlikely to ensure value for money in public spending. It can create heavy administrative burdens for grantees and typically doesn’t incentivize innovation in service delivery. Traditional grant finance tends to reward NGOs which are best able to meet reporting requirements, rather than those with the strongest track record or best potential to achieve outcomes.
Outcomes-based finance, on the other hand, involves donors paying for long-term outcomes, rather than inputs or outputs. When donors can find a way to prioritize long term outcomes, they can make sure their money is being spent on exactly what’s intended: the achievement of long-term impact in the lives of beneficiaries.
When donors can find a way to prioritize long term outcomes, they can make sure their money is being spent on exactly what’s intended: the achievement of long-term impact in the lives of beneficiaries.
Importantly, funding in this way allows service providers to focus solely on achieving outcomes, rather than sticking to the inputs and activities which are specified in a donor’s logframe. They can be flexible, adaptive, and data-informed in their implementation. Instead of spending time on donor reporting, they can concentrate on solving problems.
Two questions naturally arise from this idea: first, how does the donor know if outcomes have been achieved or not? Donors typically employ independent third-party evaluators, who are used to running Randomized Control Trials and similar evaluation exercises which rely on objectivity and accuracy. In the examples above, this might involve measuring the educational attainments of a group of children, perhaps through testing readiness for the next grade; or running surveys to analyse whether families have been able to access the amount of safe water that they need. Donors then only pay out if the evaluator assures them that the program has been successful.
Second, who funds the program up front? Is the service provider expected to fund it themselves, and take the risk that they won’t be successful? This may be possible, depending on the size and financial security of the service provider. But in most cases, a social investor – an organization with a joint social and financial mandate- gets involved to provide working capital to the program. If the program is successful, the investor is repaid by the donor, plus a below-market return. One of the first and most successful examples of this approach in international development was used to fund the Educate Girls Development Impact Bond in India, which sought to keep girls in school and improve their learning. The investor in this case, UBS Optimus Foundation, received an internal rate of return of 15%, to compensate them for the risk they took in funding the project up-front.
Among other innovative finance approaches, GFEMS is interested in piloting outcomes-based finance in the modern slavery space for the first time. We believe it may be particularly effective to explore skilling models for survivors, since long-term outcomes in skilling are relatively straightforward to measure: these could include job starts, sustainment, progression, or satisfaction, and could be paired with measurement of mental health outcomes to ensure a holistic consideration of reintegration. We are also interested in trialing outcomes-based finance to prevent child labor or child marriage, given the success of outcomes-based finance programs in education, as seen in India’s Educate Girls.
We are looking to test and understand whether this innovative new funding model really can help grant finance work harder: can it better serve program beneficiaries and move us closer to ending modern slavery? We think it can.
If you are interested in learning more or contributing to our thinking, please contact firstname.lastname@example.org.