Blog Articles

Last week I participated in a very interesting workshop organised by the European Commission in which experts from the European institutions, financial institutions, investors and social service providers gathered to discuss the possible use of some innovative financial instruments to cope with the refugee crisis. We also explored if these instruments could be developed in the framework of the European Fund for Strategic Investments – a cornerstone of Commission President Jean-Claude Junker’s Investment Plan.

The key question we were trying to respond to was whether financial instruments based on “Payment by Results – PbR” mechanisms would be appropriate to finance some responses to the humanitarian crisis of people fleeing war, persecution and poverty. The underlying principle of PbR initiatives is that service providers are paid by the public sector according to the outcomes they achieve, as opposed to the activities they carry out.

The most commonly known financial instruments based on PbR are Social Impact Bonds (SIBs). They are mechanisms in which the public administration makes a contract with an intermediary in which it specifies what a social service should achieve in terms of social outcome. The service is carried out not directly by the intermediary, but by one or more service providers that are selected by the intermediary. The latter is also in charge of finding one or more investors that would bear the financial risk of the intervention. In fact, investors get paid back by the public authority only if the intervention is successful, plus a return on the investment (if you would like to know more about SIBs, please read my previous blog).

I had the opportunity to highlight that many members of Social Platform are providing services to asylum seekers, refugees and migrants. Traditionally, this is one of the core businesses of faith-based member organisations such as Caritas Europa and Eurodiaconia, and of Red Cross. However, due to the urgency of the situation, many other of our European members and their national members have recently started to respond to the emergency: CECOP-CICOPA, EDF, ENAR, ENSIE, EWL, FEANTSA, Housing Europe, ILGA-Europe, PICUM and SOLIDAR.

A distinction should be made between the provision of humanitarian aid (food, clothes, access to water and sanitation, accommodation) and other longer-term integration services, such as legal counselling services, translation services, language courses, training, recognition of skills, job- and accommodation-seeking assistance, integration in families, intercultural mediation, healthcare, access to the education system, and psychological support when needed.

The main conclusion arising from the workshop was that SIBs are not suitable to finance emergency responses, but they might be useful to shape innovative longer-term responses. SIBs addressing the refugee crisis are currently being piloted in Finland, Austria, Switzerland and Slovenia.

Another key finding was the importance of flexibility; for these pilot projects to work, it is important to ensure flexibility in the design, delivery and governance of these instruments. There should also be flexibility for service providers; considering the variety of service providers engaged in the humanitarian crisis, we should not look at the legal forms of organisations (e.g. charities, social cooperatives, etc) but rather at their social mission and their experience and expertise on the ground. Flexibility should also be applied to investors (e.g. foundations, social investment funds, etc). Workshop participants also stressed the importance of capacity building and technical assistance.

These were the initial reflections, but there is still a long way to go in the development of these tools!