Does the private sector have a role in helping Syrian refugees?

"Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime" – the origin of this quote is highly contested although the message is not. 

Sustainability is key when it comes to economic success. This is the driving principle behind the investment vehicle called the Social Impact Bond (SIB).

A SIB is used to finance a pay-for-success contract between a government with one or more service providers to acquire or improve social services. Pay-for-success contracts are exactly that: the government only pays service providers if they are able to meet predetermined standards for services provided.

To illustrate how this works, the first "pay-for-success" contract in the US was aimed at cutting juvenile recidivism by ten percent among adolescent inmates at Riker’s Island in New York City, through an intervention focused on building social and decision-making skills.

The pay-for-success contract was between the local government of New York City and a service provider that delivered the programme to adolescent inmates. As the government only pays the service provider when it is able to show results i.e. a ten-percent reduction in adolescent inmates at Riker’s Island, private investors, namely Goldman Sachs, provided upfront capital to run the programme.

The idea was that if the service provider did a good job as per third-party evaluation and the programme helped young people stay out of jail, New York City would reimburse Goldman Sachs with interest, as long-term costs are reduced by savings from avoiding re-incarceration besides the obvious social benefits. This made sense considering New York City pays more than $118,000 per inmate per year.

Unfortunately, the Rikers Island programme was not successful at reducing recidivism, leading to Goldman Sachs losing $1.2M, even though it was based on successful results of the 2010 Peterborough social impact bond, the first ever, which improved the life outcomes of ex-prisoners. Had the programme performed as expected however, Goldman Sachs would have made a cool $2.4M.

However, the Riker’s Island programme was still deemed successful because city officials were able to test innovative solutions for a recurring social problem without risk to taxpayers. New York City residents did not pay a dime for the programme, and their tax dollars were utilised more effectively elsewhere.

Though critics believe such programmes discourage the use of sustained taxpayer funding for vital social welfare programmes at risk of becoming profit-oriented, proponents believe the innovative financing mechanism could protect social welfare programming from public spending cuts as well as introduce more accountability to reduce government dysfunction. Additionally, because of the lengthy evaluation period involved, pay-for-success contracts may not be useful when it comes to quickly developing interventions for pressing problems. However, they could be instrumental when it comes to developing interventions that have been proven to work.

This is why the pay-for-success model has gained traction: as of March 2016, ten social service projects related to vocational training, health, education and infrastructure have been launched in the US with at least twenty US states considering legislation in support of social impact bonds. Besides the UK and the US, the model has also been deployed in Australia, Belgium, Canada, France, Germany, Ireland, Israel, South Korea and the Netherlands.

Now might be a good time to consider a similar model in Turkey. As of 2017, Turkey has spent more than $25 billion on aiding Syrian refugees. Although the Turkish government and public response has been generous and welcoming, Turkey’s resources are limited, especially considering the European Union which is taking a security – rather than a humanitarian – oriented approach. 

Policies that encourage financial self-sufficiency on the part of the Syrian refugees have been implemented, but given the scale and longevity of the crisis, they are not enough as evidenced by continuing unemployment among them.

It does not help that more than a quarter of them belong to female-led households, living outside of refugee camps beyond the reach of humanitarian organisations. With low education levels and little prior experience, female household heads are not able to provide for themselves or their families through formal employment. 

Given that many of them have to turn to dangerous and exploitative work in order to be able to survive, setting up a small business is considered a reliable, if limited, but most importantly, a safe way for them to earn a living, but requires capital that most of them do not have. However, it turns out that start-up funding opportunities for female-led households are lacking. Even though there are donor-funded efforts to provide unconditional cash transfers, the scope and sustainability of such support is limited.

This suggests a potential opportunity for the Turkish government to help a very vulnerable, and more importantly, sizable group among Syrian refugees achieve economic security in a cost-effective way: by devising a large-scale conditional cash transfer programme for female-led households based on a pay-for-success model financed by a SIB, i.e. provide them with cash transfers that can only be used to develop or expand businesses. The programme can be managed by a local service provider and paid for by private investors who could make a profit based off reimbursements by the Turkish government if the programme succeeds.

No doubt, it is a risky endeavour – like all businesses, especially small ones, the investment may not translate into economic security, and particularly for female-led refugee households. Research also shows that female-led households are often forced to use capital for non-business purposes, such as family emergencies.

However, evidence from a recent study in Lebanon showed that cash transfer programming resulted in a $2.13 return to the local economy for every dollar given to Syrian refugees – perhaps evidence enough for private investors to take the plunge. It may or may not be replicated in Turkey – the conditionality aspect of the cash transfer programme may lead to failure or unprecedented success – but the pay-for-success model would allow the Turkish government to test it.

If the programme does not bear fruit, the Turkish government does not pay, and there is no burden of failed policy on the Turkish tax payer. However, if it does work, not only have we found a solution evidenced to work, it also helps consolidate the Turkish economy. Regardless of the outcome, the hardest hit Syrian refugees will get much-needed support.