I perhaps need to clarify what I meant by Impact Finance. Given that this risks being confused with Impact Investment, I’ll rename it to Conditional Impact Finance.
Conditional Impact Finance occurs when a Project receives funding involving a Conditional Donor and an Impact Investor as follows:
(1) The Conditional Donor (who may be a pool of donors) agrees to fund the Project *on the condition* that they achieve a certain outcome
(2) The funds needed + a bonus go into escrow. If the outcome is achieved the funds are paid out, if not they are returned to the donor.
(3) In order that the Project receives the funds it needs to proceed with the work, it receives funding from an Impact Investor (or a pool of investors).
Further notes:
(1) Examples of conditions (fictional):
“The ABC innovative education Project will receive funding if a longitudinal RCT shows that employment rates among beneficiaries are at least 15% higher than control in 15 years’ time”
“The DEF malaria Project will receive funding if the malaria-linked mortality rate in Busia, Kenya is better than a control under a RCT conducted by LSHTM”
(2) A bonus is needed primarily to pay the interest on the debt (although perhaps a bonus for the staff might be a good idea too)
(3) If the project fails, the impact investor loses out. This means that all the incentives that currently apply to financial markets now apply to impact.
I consider this better for any reasonably sized project. If we are thinking of just one person doing some work on their own, I could imagine Impact Purchase maybe having some value.
This is very similar to this notion of impact prizes. The main difference there seems to be that there is a specific allotted sum of money for a variety of possible possible projects, which share that allotted amount proportionally to their estimated impact.
I think that the downside of impact prizes compared to Conditional Impact Finance is mainly that it is much more volatile for investors—both because of dependencies between different projects and somewhat due to the continuum of possible values of estimated impact. Also, it is much harder on the donors. Well, there is also the problem that it may be clear that other competing projects are closing in on something much better (9x is enough to limit the prize to 10% of the original amount), and also competing interests between projects.
The major upside of impact prizes seems to be that the incentives of the project is better aligned with maximizing impact because they get a prize which scales sort of linearly with impact (unless they are enormously successful).
I perhaps need to clarify what I meant by Impact Finance. Given that this risks being confused with Impact Investment, I’ll rename it to Conditional Impact Finance.
Conditional Impact Finance occurs when a Project receives funding involving a Conditional Donor and an Impact Investor as follows:
(1) The Conditional Donor (who may be a pool of donors) agrees to fund the Project *on the condition* that they achieve a certain outcome
(2) The funds needed + a bonus go into escrow. If the outcome is achieved the funds are paid out, if not they are returned to the donor.
(3) In order that the Project receives the funds it needs to proceed with the work, it receives funding from an Impact Investor (or a pool of investors).
Further notes:
(1) Examples of conditions (fictional):
“The ABC innovative education Project will receive funding if a longitudinal RCT shows that employment rates among beneficiaries are at least 15% higher than control in 15 years’ time”
“The DEF malaria Project will receive funding if the malaria-linked mortality rate in Busia, Kenya is better than a control under a RCT conducted by LSHTM”
(2) A bonus is needed primarily to pay the interest on the debt (although perhaps a bonus for the staff might be a good idea too)
(3) If the project fails, the impact investor loses out. This means that all the incentives that currently apply to financial markets now apply to impact.
I consider this better for any reasonably sized project. If we are thinking of just one person doing some work on their own, I could imagine Impact Purchase maybe having some value.
I believe this is what is being done by alice.si
This is very similar to this notion of impact prizes. The main difference there seems to be that there is a specific allotted sum of money for a variety of possible possible projects, which share that allotted amount proportionally to their estimated impact.
I think that the downside of impact prizes compared to Conditional Impact Finance is mainly that it is much more volatile for investors—both because of dependencies between different projects and somewhat due to the continuum of possible values of estimated impact. Also, it is much harder on the donors. Well, there is also the problem that it may be clear that other competing projects are closing in on something much better (9x is enough to limit the prize to 10% of the original amount), and also competing interests between projects.
The major upside of impact prizes seems to be that the incentives of the project is better aligned with maximizing impact because they get a prize which scales sort of linearly with impact (unless they are enormously successful).