This innovative investment mechanism is gaining traction with investors around the world. The reason is simple: on top of earning a return, they also bring about social impact, hence the name – social impact investing
In cooperation with the Finnish Embassy in Serbia, and in partnership with the Government of Serbia, UNDP Serbia is working with a pioneering team of experts from Finnish Innovation Fund Sitra, who have already achieved success with similar impact bonds in the fields of employment of immigrants and occupational wellbeing.
UNDP is piloting a project that will help employ more young people in Serbia through so-called “impact investing”. What does this entail?
The project that we are piloting in Serbia will tackle the issue of youth unemployment. We are working towards providing investors with a competitive option to invest their funds into youth employment bonds in the near future, which will yield a satisfactory return, whilst simultaneously putting more young people into work by financing such measures as training for vocations in demand or support programmes for new entrepreneurs.
The youth unemployment rate is very high in Serbia, reaching 43.2% in 2015. This incurs large losses for the Government – estimated at over €1.6 billion a year in costs of unemployment-related benefits, lost tax revenue and productivity losses
Once an independent evaluator assesses that work has been done and the impact has been achieved, the Government pays out on the bond, thereby effectively “paying for success” – for youth employment solutions that have worked in practice.
Is the key to addressing this burning issue in public-private partnerships?
Yes, the youth unemployment rate is very high in Serbia, reaching 43.2% in 2015. This incurs large losses for the Government – estimated at over €1.6 billion a year in costs of unemployment-related benefits, lost tax revenue and productivity losses.
While young university graduates have more job opportunities, youth in long-term unemployment continues to struggle. We believe the solution lies in aligning public-private partnerships, which these bonds can do by turning the desired social gains into an attractive but safe investment opportunity.
Who can invest in youth employment bonds in Serbia?
We expect to partner mainly with the business sector. With corporate social responsibility funding, for example, more and more companies invest back into society, which is an increasingly important part of corporate sustainability strategies in Serbia.
The experience from other countries has shown that upon getting the return on investment, such investors choose to continue the cycle of impact investing for a different cause. We hope to replicate that practice in Serbia.
How safe and attractive will this investment be?
The return on investment for comparable bonds globally ranges from five to 10 per cent. Of course, just like for any investment, there is risk involved. However, UNDP is designing a customised approach to youth unemployment to ensure the risks are minimised.
What other applications do you envisage for impact investing?
We will use the same mechanism to support the IT Council of the Government and the Ministry of Public Administration and Local Self-Government in training future junior programmers in skills required by Serbia’s growing IT sector. The concept will be tested with four training providers for an initial group of 100 trainees over the course of six months.
If successful, this project will be continued for another 900 trainees with more service providers, seeking to embed the social impact bond mechanism for sustaining and upscaling the initiative.