Early childhood is a period of opportunity for developing human potential. Photo: Supplied
CAPE TOWN – An early Childhood Development (ECD) social impact bond has been launched in South Africa, with the aim of boosting human capital to boost economic development.

This bond uses an innovative financing mechanism.

The public-private sector coalition will first roll out in Cape Town and be expanded to the rest of the country.

By the age of three, children from low-income families have heard 30 million fewer words than their more affluent peers, which is why this ECD intervention is targeted at low-income households.

The project is managed by the intermediary partnership of mothers2mothers and Volta Capital, working closely with implementing partner, the Western Cape Foundation for Community Work (FCW).

The transaction is led by the Western Cape Department of Social Development, in a matched funding arrangement with ApexHi Charitable Trust, and supported by a coalition of investors: The Standard Bank Tutuwa Community Foundation, Futuregrowth Asset Management, and LGT Venture Philanthropy, so that it also makes use of the concept of blended finance or a mix of public and private sector funds.

A social impact bond is structured so that governments only pay if pre-determined outcomes are achieved. The ECD project forms a public-private sector coalition that can sustainably finance ECD.

Over a three-year period, the project, through FCW, will seek to improve the cognitive and socio-emotional development outcomes of more than 2000 children in the low-income communities of Atlantis and Delft, in the Western Cape.

Early childhood is a period of unparalleled opportunity for promoting and developing human potential. The period from conception through the first five to six years of life is critical for the development of a child’s physical, social, emotional, and cognitive well-being.

These benefits are life-long as they improve educational performance, lead to better careers and higher earnings performance and health. Huge social and economic benefits result.

If successful, the model could be replicated across the Western Cape, and throughout South Africa, changing the way social interventions are funded and creating a new way forward for additional public-private funding opportunities.

“Volta Capital believes innovative financing mechanisms like social impact bonds can be a powerful tool to tackle pressing social challenges, and we are privileged to play a role in making this landmark transaction a reality,” said Lily Han, the principal at Volta.

The Lego Foundation, which aims to build a future where learning through play empowers children to become creative, engaged, life-long learners, provided early-stage development funding for the transaction.

The World Bank last month launched its annual Development Report with a special focus on human capital.