Executive Summary
Social Impact Incentives (SIINC) are a financing instrument designed to incentivize impact-oriented enterprises to go the extra mile to make their products or services accessible for beneficiaries from all walks of life, particularly for the Base of the Pyramid (BOP) population. For this purpose, SIINC rewards high-impact enterprises with time-limited premium payments for achieving impact. Especially in the WASH sector, enterprises face pressure by investors to fully commercialize and discard their impact mission in favor of financial sustainability. SIINC, however, enables them to do both, by providing additional financing to attract investors, as well as offering the enterprise a non-repayable premium for reaching predefined social and/or environmental outcomes.
A SIINC constellation typically features two parties: 1) an impact enterprise that is in negotiations with an investor already and 2) an outcome payer who pays an additional premium for impact, once certain impact milestones are achieved.
The outcome payer usually comes from a philanthropic or development-focused background, such as a foundation or a governmental institution, and intend to encourage the enterprise to exceed their growth curve by creating additional impact. The premium payments are linked to a verification of outcomes by a third party.
Unlike impact bonds, the investor is not involved in the negotiations. However, one of the conditions to be eligible for SIINC outcomes payments is finding external investments, which means investors do play a role. It is important that the investor should be on board with the impact-oriented approach of the enterprise to avoid mission drift.
When is a SIINC a suitable financing option?
SIINC are a suitable investment option for impact-oriented enterprises that not only have a sound financial and business model, scaling potential and have already raised first investments (often in the form of grants), but also a clear idea of their impact and a plan to take their socially and environmentally beneficial activities to the next level. SIINC kicks in in addition to a more traditional investment, for example by an impact investor, and offers an extra revenue stream to enterprises which is linked directly to outcomes they manage to achieve during the funding period.
The following (non-comprehensive) characteristics and implications provide you with an overview to analyse the pros and cons for this investment instruments:
| Enterprise Lifecycle | Mid- to later-stage enterprises and organizations |
| Amount | Depends on impact achieved |
| Pay-back period (Maturity) | Non-repayable (depending on model) |
| Use of funds | unrestricted |
Source: Based on (Roots of Impact, 2020)
The following table summarises some key characteristics of SIINC and implications you should consider:
| Characteristics | What does this mean for your enterprise? |
| SIINC are not for early-stage enterprises. | In order to secure a SIINC contract, you should be able to demonstrate that you already have a proven business model as well as tangible impact. This usually means that you should have received some kind of funding beforehand. SIINC is designed for growing enterprises who already have experience with soft-term investments (e.g., soft loans, equity injections, or grants) and genuinely care about impact while scaling. |
| SIINC is tied to another investment stream. | SIINC funders generally want to see proof that you are currently in conversation – or about to close – with another investor. They will not be interested in funding your day-to-day activities and operations, but rather provide an extra revenue stream linked to your impact that will allow you to grow. |
| While operations and financials matter, impact is key. | It’s not enough to claim that your enterprise is socially or environmentally oriented. You need to be able to back this up with systematic evidence. However, you do also need to demonstrate sound operations and governance. |
| SIINC can help you avoid mission drift. | SIINC wants to make it possible to become financially sustainable, but still stick to your impact goals. In fact, the premium payments are designed to incentivise you to go one step further towards generating impact. It is thus important that the third-party investor also has an interest in achieving impact and will not try to push your enterprise into a purely commercial direction. |
| Monitoring process is required. | You will go through annual or biannual monitoring and evaluation processes with an external third party to measure your impact. Based on those findings, the outcome payer releases the premium payments tied to your SIINC contract. |
| No equity is acquired and there is no board representation. | You can continue to manage your enterprise without having to engage and manage a(nother) shareholder. |
Key features
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Tips to build your investment case as an early-stage water-related enterprise
Basic requirements
SIINC requires that you already have processed prior investments and have up-and-running operations and a proven business model. As with any investor, your SIINC funder will care about sound business practices, a grounded financial model, a capable management team and governance structure, and accountability and transparency in your organizational structures.
[Roots of Impact / A4A case will be added once available in Q2 2021]
Leveraging your impact profile to access SIINC
On top of this, however, you need to already be making traceable impact, making this financing tool a great option for high-impact enterprises. Talking about the impact you want to achieve in the world is good, but you will have to back this up with successful prior impact-related projects and a clear dedication to working towards social and environmental outcomes. You should therefore explore SIINC if…
…you are able to systematically demonstrate your impact.
You also need to know what you’re talking about when it comes to impact – who are you helping exactly, how, and what would happen if you weren’t around? Would that impact still happen on its own over time, or are you the deciding factor? Do you understand your impact across the board, related to all the relevant SDGs, not just SDG 6 - Water? For example, what other benefits may your solution have on gender, employment opportunities, infrastructure… just to name a few? The more impact you can demonstrate, the higher your premium payments will be (although there will usually be a cap on those payments)! Of course, you will need to be realistic here in terms of what you are able to achieve. Not meeting the targets will prevent you receiving the outcome payment.
… you want to keep focusing on impact, but also want to scale and become financially sustainable.
SIINC are essentially an additional revenue stream for your company. Based on the agreements with your third-party investor(s), you will of course have to put in the work to scale up and grow your operations – and this is also in the interest of your SIINC funder. SIINC are there to make sure you do not lose track of your impact while doing so. In addition, the non-repayable extra revenue stream provided through SIINC also makes your company more attractive to investors in the future.
