The model of social services is changing in the Gulf.
As demand for public services increases, some GCC governments are rethinking their social development approach and crowding in the private sector and not-for-profit organisations in creative ways.
With population growth, fiscal pressures, falling oil revenue and other factors to consider, the current social services model in the region is no longer sustainable.
Last November, the Abu Dhabi government announced plans to launch the region's first 'social impact bond' – an innovative financial tool that raises private investment to fund social programmes.
First introduced in the United Kingdom in 2010, social impact bonds have been gaining momentum globally in the past decade.
Despite the name, SIBs are not conventional bonds and are not sold on capital markets. SIBs are a financial tool where governments raise capital from investors for innovative social programmes and projects. They have been used to tackle social issues such as youth unemployment, mental health, homelessness and recidivism.
Investors fund a social programme that is of interest to a government commissioner. Then the government repays the investors (the initial investment and a return) only if certain pre-agreed social outcomes are achieved.
As part of its mandate, Abu Dhabi's Ma'an Authority for Social Contribution will be introducing SIBs to use private capital to tackle social ills.
Established early last year and the first government entity of its kind in the region, Ma’an is mandated to “deliver social impact in Abu Dhabi”.
With such innovations taking place, what are the implications of this financial mechanism and what does it mean for the way social projects are funded?
The first potential implication is the rethinking of how these programmes get funded.
GCC countries have long been the sole funders of social development in the region, backing everything from education to health care and other forms of people protection. By using SIBs, investors fund some of the social projects and often provide the upfront capital needed to get them started.
At a time when regional demand for high-quality social services is increasing while fiscal pressures mount, this innovative financial structure offers a change in how state services can be funded.
SIBs are known as "payment-for-results" instruments where capital is allocated to programmes based on the achievement of pre-agreed objectives.
By linking funding to measurable results, SIBs incentivise service providers to achieve and improve objectives – ultimately helping to transform social provisions in the region.
This means that social initiatives that have achieved better outcomes stand the best chance of receiving more funding to scale, while projects that fail to meet their objectives will struggle for support.
The result should be greater innovation and competitiveness among social services providers to operate as effectively as possible. This, in turn, should mean an improvement in the efficiency of services so that recipients receive high-quality benefits.
SIBs also transfer risk to investors as the public sector only has to repay when objectives are met.
The unique design of SIBs means that if results are not achieved, investors risk losing part or all of their investment. But those that are successful gain a return. This not only crowds in private sector capital but also relieves some of the burden from governments.
The involvement of other actors such as private investors and wealthy individuals allows governments to tap into a growing base of socially-conscious investors, who are interested in making a financial return, but also look to generate a positive impact.
SIBs are by no means a silver bullet but their introduction into the social services arena is the start of a significant transformation in social funding.
There will, of course, be challenges. Although these financial mechanisms have been successfully applied in other regions, a “drag-and-drop” approach using other models and standards used elsewhere simply will not work. The distinct challenges and the varying dynamics and characteristics of the region’s social development needs have to be taken into consideration.
But with the rapid growth of the impact investment industry, the introduction of SIBs is a good indication of such development in the region.
In creating a government entity and taking the lead in launching such bonds, Abu Dhabi is laying the foundations required to unlock the potential of SIBs.
If proven successful, they could be potential remedy to effectively address some of the region's distinct social issues and have the opportunity to increase efficiencies in public spending.
Maram Ahmed is a Senior Fellow at SOAS, University of London