Tutuwa Community Foundation’s social impact bond named Financial Instrument of the Year at Africa Impact Investment Awards

This innovative fund was jointly established and invested in by Standard Bank’s Tutuwa Community Foundation, which is dedicated to the promotion of economic development and the alleviation of poverty in communities throughout South Africa. Because its primary concern is youth development, the foundation’s focus areas are early childhood development (ECD), schooling, and post-schooling initiatives.

“We had established the IBIF in July 2018 to test the efficacy of home-based early learning models in low-income areas in Cape Town. Our aim was to find an effective model for delivering easily accessible and high-quality early learning services to young children,” explains Zanele Twala, Chief Executive Officer of the Standard Bank Tutuwa Community Foundation.

“This was one of the first social impact bonds transacted in South Africa and ran for three years from 2018 to 2020.”

In this time, the learning services were delivered in Delft and Atlantis by the Western Cape Foundation for Community Work (FCW), a leading early childhood development NPO. In these areas, early learning is difficult to access, of poor quality and prohibitively expensive.

Programme goals and targets

The educational service was delivered by FCW home visitors to ensure children were school-ready once they had to enter formal schooling at the age of five or six. A secondary goal was to enable caregivers to contribute to the children’s early learning.

The FCW and the programme had to meet three targets for the investors to be repaid:

1. Recruit 1 000 children into the programme each year for three years, and to keep each cohort in the programme. Over the three years, this amounted to an overall target of 2 000 children between the ages of three and five, given ageing into and out of the two cohorts.  
2. Ensure that children attend (or receive) at least 50% of the programme over the year, measured by attendance records.
3. Demonstrate success against the Early Learning Outcomes Measure (ELOM), an assessment tool that measures the extent to which early childhood development programming is adequately preparing children for grade R.

How success of the programme was measured

To measure depth, as part of the programme, the children had to take a school readiness test. This was to see if the programme had equipped them with the necessary numeracy and literacy capabilities for school. Retention was measured through attendance registers.

The score of each group was then compared to a sample reference group of South African children of similar socioeconomic status and age. The third outcome measure was to demonstrate that the children in the programme performed better than those in the reference group.

Children in the programme saw a statistically significant increase in their ELOM scores, although they did not perform better than those in the reference group. The primary reason is that the targets set were based on benchmarks for children in centre-based care where they receive a higher dosage (frequency) and greater repetition of content.

The other two targets were met. Importantly, resources were applied to an area where there has been a policy or service delivery failure that might not otherwise have been addressed through government funding. What’s more, this pilot project can be replicated across the country to bring early learning to young children.

Pleasing returns for investors

The intervention had both philanthropic and commercial investors who were looking for market-related returns and received close to them, even though this was a first of its kind programme.

The Tutuwa Community Foundation was one of three investors in IBIF who invested in the Impact Bond Innovation NPC (non-profit company), a special purpose vehicle set up to house the social impact bond (SIB). These “investor” funds were then used as working capital by the FCW in two low-income communities to deliver early learning services in people’s homes for the duration of the programme. Because the majority of the programme’s targets were met, the provincial government, which acted as the outcome funder, only “paid” for the services based on the independently audited results achieved, at the conclusion of the programme work period.

This was a departure from government’s traditional “upfront” funding model for services, where money flows regardless of outcome.

As a result, the IBIF delivered annualised returns of 14% to investors, more than double the annualised returns of the FTSE/JSE All Bond Index (ALBI), from July 2018 to October 2020. The investors also received their capital back at the end of the life of the bond.

About social impact bonds

A social impact bond (SIB) is a payment by results financing mechanism. Investors provide working capital to implementing agents, typically NGOs, that act as service providers to deliver social welfare services. If the NGO successfully meets predefined outcome targets – such as improving school readiness through delivering high-quality ECD services to a set number of children – outcome funders repay the investors. If unsuccessful, outcome funders do not pay and investors do not earn returns and could also lose their capital. The success, or lack thereof, at a social level is confirmed by an independent outcome auditor, while the financial success is also determined by an independent financial auditor. An intermediary often manages the relationships between the different participants.

About the Tutuwa Community Foundation

The foundation aims to achieve social change through its investment approach with a focus on youth, specifically in three main areas: early childhood development (ECD), schooling and post-schooling. It aims to create a long-lived legacy by focusing on its mission and ensuring that every young person, regardless of their socio-economic background is empowered to reach their full potential, with equal access to opportunities and support to become productive citizens. The focus in this regard is on youth that are not in education, employment and training (NEETS) to ensure they are given opportunities to transform their lives.

About the Krutham Africa Impact Investment Awards

The Krutham (previously Intellidex) Awards celebrate African organisations and individuals who showcase excellence in impact investments, and successfully mobilise capital for the Sustainable Development Goals. The awards recognise their valuable work in promoting, financing and participating in investments that yield social and environmental benefits alongside financial returns. Nominations were judged by 14 experts drawn from across Africa.