The Ministry of Finance of the Slovak Republic supported a pilot social impact bond in Armenia. It should result in the development of the smallholder dairy industry.
Innovations in the public sector can lead to the improvement of social or economic conditions in a country. The Slovak MoF, together with the UNDP and the European Bank for Reconstruction and Development via Technical Cooperation Fund financed by the Slovak Republic, is lending a helping hand to farmers in Armenia. This is being done through an innovative financial tool, the so-called social impact bonds. The bonds work on the impact investing principle – outcome payers (usually public institutions) agree to pay and reward investors only if agreed-upon socially beneficial outcomes are achieved. The “Armenia Dairy Social Impact Bond” project is the first of its kind to gain support from the Slovak Republic, from its conceptual phase to implementation. It will also be the first social impact bond introduced in Armenia.
The project aims to tackle one of the key social challenges facing Armenia, namely low productivity in the agriculture sector (one of the most important contributors to economic growth in the country), and particularly in the dairy sector. The project focuses on the impoverished north-west of the country, the Shirak region. Shirak is among the most important regions in the country in terms of total milk production and total number of households holding dairy cattle. It is also the poorest region in Armenia. Helping dairy farmers increase productivity will help fight poverty (boosted productivity = increased household income). Improving the milk production quality will have an impact on its sales potential as well as on nutrition.
“Payment by results” concept
Social impact bonds connect the public, private and non-governmental sectors. It is a financial tool that motivates to achieve pre-defined outcomes in a social area (in this case, the development of the agricultural sector and improvement of smallholder farmers´ lives.) If these results cannot be effectively implemented by the state itself or the funding risk of public sector needs to be reduced, the necessary capital will be provided by a private investor or an international financial institution (in this case, the EBRD via a joint fund with the Slovak Ministry of Finance.) If the investor successfully achieves pre-agreed upon results, their initial investment will be repaid from the public budget, including a return for the financial risk that they took.
Key stakeholders
The European Bank for Reconstruction and Development (EBRD) and the United Nations Development Programme (UNDP) are partnering to structure a pilot development impact bond in Armenia to improve the lives of smallholder farmers. The Slovak Republic supports the project by financing feasibility studies, consultancy services, and project implementation. A letter of intent was virtually signed by representatives of the EBRD, the UNDP, the Ministry of Economy of Armenia, and the Ministry of Finance of the Slovak Republic in February 2021.
The project, with all necessary studies, was developed within the Transformative Governance and Finance Facility programme for the support of innovations in the public sector. This is a joint undertaking of the Ministry of Finance of the Slovak Republic and the UNDP, fully financed by Slovakia. The programme aims to support public administration innovation in the partner countries of the Western Balkans and the Eastern Partnership. The “Armenia Dairy Social Impact Bond” was developed within the second phase of the programme, currently underway (2018 – 2021).
Financial support in the amount of EUR 250,000 was provided from “The Slovak Republic – EBRD Technical Cooperation Fund”. The fund was established in 2009 to help the countries of Eastern Europe, Central Asia, and the Southern and Eastern Mediterranean transition to market economy. The fund finances the provision of advisory services and technical assistance for EBRD projects.
For more information, please visit the EBRD website.