What is a social impact bond?
A social impact bond (SIB) is a pay-for-success contract where a commissioning body – typically the government – commits to pay for the achievement of a desired social outcome, and investors provide up-front financing for the operations of a service provider, receiving a return from the commissioner once results have been achieved. Finance for Good connects social service providers, investors, and the government in this arrangement to solve complex social issues with innovative, preventative solutions.
An example in practice
Reducing re-offending among offenders from the Peterborough Prison
The Peterborough social impact bond, commissioned by the UK Ministry of Justice in 2010, with support from Social Finance UK, is intended to reduce re-offending rates by 7.5% over 6 years. The SIB raised $8 million from 17 investors to establish the ONE Service. This multi-service provider collaboration was initiated to help offenders navigate the current ecosystem of supportive services and establishes new services to address unmet needs.
The role of the ONE Service™ is to coordinate offenders’ participation in existing programs provided by organizations such as St. Giles Trust, Ormiston Trust, YMCA, Sova, and others (Source: Social Finance, The One Service, One Year On). Two years into implementation, stakeholders and participants are pleased with the difference ONE Service is making. Managers are impressed with ONE Service’s ability to adapt to the needs of offenders by focusing on outcomes, rather than the delivery of a set of activities. This focus is one of the unique characteristics of social impact bonds: their ability to engage all of the stakeholders in the entire design, implementation, and review process to ensure sustainable outcomes are achieved.
Who is involved?
In this model there is opportunity for:
To pay for social programs that work
To expand your funding and programs
Overall there are 5 key roles in a SIB:
1.The Role of the Commissioner
If an intervention is successful, the commissioner provides a return to investors based on a negotiated amount per unit of success (e.g., percentage decrease in re-offenders, increase in graduation rates, decrease in hospital admissions). If the intervention is unsuccessful, the public sector does not pay for the intervention. The commissioner is investing in the opportunity to pilot social innovation without bearing the upfront monetary investment costs and associated risks.
2.The Role of the Service Provider
The service provider (i.e. non-profit) delivers the program services (e.g. mentoring, employment services) to the program participants (e.g. vulnerable youth, unemployed). Under the SIB model, qualified service providers are able to access multi-year, unrestricted funding to design and/or scale-up prevention-focused programs.
SIBs enable us to:
- Channel financial support to innovative social programs
- Allow for program co-creation and creative partnerships
- Address long-term issues with guaranteed, up-front funding
3.The Role of the Investor
Investors can support SIBs through funds created and managed by Finance for Good. At the end of each SIB process Finance for Good distributes payments to investors, proportionally based on initial contributions. In a SIB, investors bear the bulk of the financial risk instead of the government, because under most SIB structures, payback on the investment isn’t guaranteed unless target social outcomes are achieved.
4.The Intermediary, the Management Committee
Finance for Good, the intermediary, supports service delivery by coordinating among relevant service providers, carrying out periodic service evaluations, and making recommendations as required. A management committee will also be formed, featuring individuals from each stakeholder group. The mandate of the committee is to support and monitor service delivery, and report progress to stakeholders.
An independent evaluation team is required to provide an independent assessment of the intervention at the end of the SIB contract (and at interim points in some cases). It is important the evaluation team is external to Finance for Good and the commissioning ministry to avoid possible conflicts of interest in measuring outcomes.
To see example social impact bonds please view our SIB Tracker.
Bringing it together
When we bring these roles and relationships together, we see the following process:
Contact us directly to set up a meeting to discuss using SIBs in your community, for more specific information about social impact bonds, or to join our group of interested investors.