Outcomes-Based Finance to Strengthen the Entrepreneurial Ecosystem of SMEs and Startups in Guatemala
In partnership with IDB Lab and Alterna, Social Finance International conducts ecosystem and market assessments, co-designs pilot mechanisms focused on verified social and nature-based solutions outcomes and provides technical assistance throughout the design cycle. This support includes feasibility analysis, theory of change development, instrument design, partner selection, and implementation support.
Guatemala faces overlapping challenges of climate vulnerability and labor market exclusion, particularly impacting rural communities, youth, and women. As part of the Central American Dry Corridor, the country experiences recurring droughts and extreme weather that threaten agriculture and food security. Unsustainable farming practices further accelerate soil degradation and biodiversity loss. Despite a low official unemployment rate, 66% of workers are in informal employment, and 25% of young people are neither studying nor working. Traditional financing models, which fund activities instead of outcomes, have not produced the necessary scale of change toward climate resilience and formal employment, highlighting the need for innovative, results-driven solutions.
The Project: A Collaborative Approach to Outcomes-Based Finance in Guatemala
To support the development of an Outcomes-Based Finance (OBF) initiative in Guatemala, Social Finance International partnered with Alterna and IDB Lab to conduct ecosystem and market assessments and to co-design pilot mechanisms focused on verified social and Nature-Based Solutions (NBS) outcomes. The initiative targeted two main areas: promoting NBS adoption among smallholder farmers, cooperatives and SMEs; and improving formal employment opportunities for youth facing labor market barriers.
The program developed pilot instruments applicable to NBS outcomes, partnering with cooperatives, associations, and SMEs that use regenerative agricultural practices. It also targeted employment outcomes, through local businesses and organizations recognized for tech-focused workforce training. To fund these efforts, the program leveraged investment from IDB Lab with additional capital from local foundations, corporate funders, and impact investors aligned around NBS and workforce development. Social Finance International provided technical assistance throughout the design cycle, including feasibility analysis, theory of change development, instrument design, partner selection, and implementation support.
Key Elements of the Approach
In collaboration with Alterna and IDB Lab, Social Finance International undertook the following to design and launch the OBF pilots in Guatemala:
Sectoral feasibility analysis across four dimensions: funder interest, regulatory environment, implementer capacity, and technical conditions, to assess the viability of OBF mechanisms in the NBS and employment sectors.
Mapping and engagement of potential stakeholders, including outcome funders, impact investors, SMEs, cooperatives, associations, and sectoral experts, through interviews, workshops, and structured consultations.
Development of two theories of change: one for Nature-Based Solutions and one for employment, to define the causal pathways between activities, intermediate results, and long-term impact, and to identify the most appropriate payment metrics for each pilot.
Evaluation of five design options for the NBS sector and one for employment against criteria such as NBS impact, social impact, innovation, replicability, and scale, leading to the selection of three priority pilots.
Definition of the technical and operational framework for each pilot, specifying target populations, potential implementing organizations, outcome metrics, verification methods, and recommended OBF instrument type.
Facilitation of co-design workshops and capacity-building sessions with Alterna and potential implementing organizations to strengthen understanding of outcomes-based approaches and build local implementation capacity.
The Role of Partners in Driving Impact
IDB Lab provided the foundational financing for the program and played a central role in defining the strategic priorities and sectoral focus of the initiative. IDB Lab's involvement also reflects a broader commitment to advancing sustainable financing models and scaling OBF mechanisms across the region.
Alterna, as the lead implementing organization, contributed its direct relationships with local SMEs, cooperatives, and ecosystem actors, facilitated access to potential implementing organizations, led stakeholder engagement and performance management throughout the pilot phase, and actively supported resource mobilization to attract additional funders.
Together, these partnerships enabled a rigorous, context-sensitive design process. Given that OBF mechanisms linking NBS outcomes to SME financing have rarely been tested at this scale, the program has the potential to serve as an internationally replicable model for how outcomes-based finance can drive both environmental resilience and economic inclusion in emerging markets.
Insights for Future Programs
Match outcome metrics to what the context can support: For NBS outcomes, focusing payments on intermediate results that are observable in the short term, rather than final impacts that materialize over years, increases technical viability, reduces verification costs, and builds confidence among all actors. We adopted this approach specifically for the NBS pilots, given that the topic is underexplored in OBF, results are complex and costly to verify, and baseline data is scarce. For employment, where the sector is better understood and attribution is clearer, final outcomes remain the benchmark. Critically, the NBS pilots are also designed to generate the baseline data and field evidence needed to shift toward final outcome measurement, such as improvements in soil health, biodiversity, and water quality in future program iterations.
Heterogeneity among implementers demands differentiated approaches: The wide diversity of organizations working in Nature-Based Solutions, from large cooperatives to tech-driven SMEs, means that a single OBF instrument cannot fit all contexts. Tailoring the instrument type, payment structure, and outcome metrics to the specific model and financial capacity of each implementer is essential for designing viable and effective pilots.
Securing outcome funders early is critical: The availability and commitment of outcome funders is the central bottleneck in launching OBF mechanisms. Engaging potential funders from the earliest stages of design, rather than after the technical instrument is defined, ensures that financial timelines, strategic priorities, and payment conditions are aligned before implementation begins.
Looking Ahead: Scaling Impact and Future Collaborations
Generating evidence on OBF in NBS and the Guatemalan ecosystem. While youth employment has an established evidence base in OBF globally, applying these mechanisms to NBS outcomes, particularly linking regenerative agricultural practices to verified social and environmental results among smallholder farmers and cooperatives, remains largely untested. This program generates practical data on feasibility, verification costs, and outcome attribution in a context where baseline information is scarce, contributing directly to the evidence base needed to scale OBF in NBS sectors across Guatemala and the region.
Mobilizing resources and catalysing broader OBF adoption in Guatemala. As one of the first OBF initiatives of its kind in Guatemala, with a specific goal of integrating SMEs, this program builds the relationships, instruments, and operational knowledge needed to attract additional outcome funders, impact investors, and philanthropic capital. By demonstrating that OBF mechanisms can be designed, contracted, and implemented in a new ecosystem, it lays the groundwork for broader adoption among local funders and policymakers.
Interested in partnering to advance outcomes-based financing in climate resilience and workforce development? Connect with us:
📩 María Alejandra Urrea, Associate Director,
Social Finance International – maria-alejandra.urrea@socialfinance.org.uk
📩 María Fernanda Gomez, Consultant,
Social Finance International – maria-fernanda.gomez@socialfinance.org.uk
Partners
Alterna | IDB Lab
Location
Guatemala
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