A New Way to Finance Services to Disadvantaged Populations Worldwide
Tradeable Income-Based Securities
Nat Ware (Australia), University of Oxford

As we know, millions of refugees are being resettled across Europe. They need access to services – such as education and healthcare - to enable them to gain employment and achieve their potential.

However, governments are under political pressure to not spend too much taxpayer money on refugees. We don’t currently have a way to finance high-quality services to refugees at scale. It’s a seemingly intractable problem.

But what if I told you there’s a way to provide services that doesn’t cost the recipients anything, doesn’t rely on donations, doesn’t cost governments any money, and makes a profit for investors. It sounds too good to be true, but it’s not.

Tradable Income-Based Securities, or TIBS, is a new type of public-private partnership. The idea, in brief, is that governments award contracts to investors to provide services, such as vocational training, to consenting individuals. These services, by their nature, increase expected lifetime incomes, and therefore government tax revenue. Governments then pass on an agreed portion of that tax revenue to investors.

By way of example, suppose a resettled refugee wanted to be a plumber, but he had no money and no training. With TIBS, the government could award a contract to provide a two-year plumbing training course to 1000 refugees, in return for 20% of the lifetime tax revenue attributable to them.

Such an arrangement is mutually beneficial.

Individuals receive services at no additional cost. They just pay the usual tax rate. So rather than other taxpayers paying for refugees, refugees are effectively paying for their own investments with their future tax money.

As for governments, they pay nothing upfront, and there are ways of structuring the contract, so they only pass on in the future what they otherwise would not have had.

Investors can have a huge social impact, without needing to reduce or share profit. Since the securities are tradable, investors can profit in the short-term with uncapped upside.

With TIBS, there’s is no tradeoff between social and financial returns. Investors are incentivized to provide the highest quality services, because what maximizes social impact is also what maximizes profit. A true win-win.

This new type of public-private partnership can help millions of refugees. But more than that, it can also help the millions who will become unemployed and need retraining due to automation and deindustrialization. This is a way to finance that retraining at scale. What’s more, it can help to bridge the socio-economic divide between indigenous populations and the rest of the population, in many countries worldwide.

Overall, a key challenge in social finance and development economics is how to get stakeholders to work in the interests of disadvantaged populations. This idea, TIBS, attempts to do so by bringing together the government, investors, and disadvantaged individuals, in a mutually beneficial way. This is done by aligning their incentives, leveraging their different strengths, and working with the system we already have.

There are millions of people in need, and there are thousands of great ideas for how to help them – language lessons, hospitality training, coding courses. But many of those great ideas never happen, because they do not have a viable financing mechanism. This may be the missing link. This one idea could potentially enable thousands of great ideas to become reality.

The complete TIBS process is illustrated in the two diagrams below.

One final advantage of TIBS is that it enables a new market-based method of measuring social impact called Discounted Expected Marginal Impact (DEMI). DEMI uses the change in the present discounted value of expected lifetime income as a proxy for social impact. The change in the discounted expected lifetime income can be calculated from the change in the market price of a Tradeable Income-Based Security. Whereas the main existing method of measuring social impact, Social Return On Investment (SROI), assesses social return subjectively and intermittently relative to a no-investment counterfactual, DEMI is able to assesses social return objectively and continuously relative to a best alternative investment counterfactual. DEMI is able to measure marginal social impact rather than absolute social impact by ascertaining the counterfactual investment via a contract bidding process.

governments · investment banks · social finance orgs · refugee orgs · impact investors
Nat Ware
Nat Ware is completing a PhD at Oxford, before which he was a Visiting Fellow at Princeton, the Top Oxford MBA Student, and Best Performer in Development Economics at Oxford. He is a Rhodes Scholar, Forbes 30 Under 30, Australian Young Achiever of the Year, WEF Global Shaper, has given three TEDx talks, and is the Founder/CEO of 180 Degrees Consulting.