During the time that Social Impact Bonds have been proliferating in 38 countries around the globe, I’ve been captivated by the other big social innovation of the twenty-teens: Collective Impact.
Seven years after Social Impact Bonds became the hottest new social finance strategy, I thought it was time to find out what I’ve been missing. This month I got up to speed.
This is the first in a series of posts about what I found.
Social Impact Bonds: quick overview
A Social Impact Bond uses private sector capital instead of taxpayer money to fund social services.
Basically, investors attempt to ‘buy’ a specific outcome by fronting money to social service organizations. These organizations then agree to try to achieve specific targets related to that outcome.
If the targets are met, the government repays the private investors, with interest. If they aren’t, the investors lose their money.
Sounds good, right? Really innovative. Maybe exactly what we need to sort out some of our intractable social problems.
Transfer that Risk
One of the compelling early arguments in favour of Social Impact Bonds was that they transferred the risk of engaging in experimental approaches to solving long-standing social problems from governments (the public sector) to private individuals and foundations (the private sector). While at the same time providing secure funding to nonprofit organizations.
In reality it turns out that – surprise! – it’s a lot more complex than that.
A Brief History
Social Impact Bonds were invented in the UK in 2010 and in 2013, they started spreading around the globe.
As of 2017, 74 Social Impact Bonds have been launched in 18 countries and another 70 are under development, with an additional 20 countries getting ready to jump on the SIB train.
Development Impact Bonds use a similar financing mechanism, but focus on international development.
Somewhat up-to-date details are available on interactive Social Impact Bond database.
Payment by results
Social Impact Bonds are part of the ‘payments-by-results’ movement for financing for social services.
Social Impact Bonds are different than other ‘payments-by-results’ models in that they engage private sector investors; focus on outcomes rather than outputs; are supposed to provide secure funding to service providers; and are intended to transfer risk to the private sector.
I’ll consider all of those aspects in upcoming posts.
The first Social Impact Bond
In 2010, the first Social Impact Bond launched at the Peterborough prison in the UK.
It offered a radical new approach to reducing recidivism. Keeping people from ending up back in jail after they had been released.
Private investors contributed £5 million.
The government agree to repay their investment with interest if if the reconviction rate of prisoners released from Peterborough fell by at least 7.5%.
A non-profit intermediary raised the funds and handled coordination.
The intervention focused on supporting recently released inmates with addressing mental health and substance abuse issues and practical stuff like finding accommodation and applying for benefits.
This pilot project did not meet its targets, and was cancelled after the first two cohorts received service between 2010 and 2015.
Nevertheless, they spread…
In 2012, 13 Social Impact Bonds were launched in the UK.
The first Social Impact Bond outside of the UK started in New York City in January 2013. This initiative attracted $9.6 million USD in investment but, like the Peterborough pilot, didn’t meet its target (a 10% reduction in recidivism days) and was abandoned.
The first Australian Social Impact Bond launched in July 2013. It raised $10 million AUD and is focusing on improving family resiliency. It published a very pretty progress report on its contractual outcomes metrics in 2016, and is making good headway so far.
The first European Social Impact Bond launched in Germany in September 2013. A comparatively small initiative, with only €0.3 million in capital, it focused on unemployed youth. Given the small size of this initiative, its aspirations were modest and it “reached its predefined objectives” in 2016.
2014 saw the advent of the first Canadian Social Impact Bond in Saskatoon. This five-year project leveraged $1 million CAD to reduce the number of children removed into foster care.
2015 was the high water point for Social Impact Bonds, with 22 launched around the globe, including the first Development Impact Bond, Educate Girls, in India. Here’s a seriously inspiring video about this project:
The first Asian Social Impact Bond got going in 2016, a South Korean project worth 1.1 billion Won designed to support the development of children with mild intellectual disabilities.
That’s just the beginning. There are currently over 70 SIBs in the pipeline worldwide.
Social Impact Bonds are complex due a number of factors, including:
- The involvement of multiple stakeholders with diverse interests;
- The high-stakes nature of the contracts; and
- The emphasis on accurate measurement of progress toward improving ‘big hairy audacious’ social problems within a specified time frame.
I’ll dig into that complexity in my next post in this series.