Social Impact Bonds Structure
Each SIB is a pay-for-success contract the public sector makes with Finance for Good, in which a ministry commits to pay for a particular social outcome.
Finance for Good raises private sector capital to scale-up proven interventions and deliver target social outcomes. If the intervention is successful the public sector provides a return to investors based on a negotiated amount per unit of success (e.g., percentage decrease in re-offenders, increase in number of graduates, decrease in number of hospital admissions). If the intervention is unsuccessful, the public sector does not pay for the intervention.
Schematic of SIB process
Investors are consolidated into one unit to simplify the fund raising and payment process for the commissioning ministry. Individual investors can support SIBs through Finance for Good and at the end of each SIB process Finance for Good distributes payments to investors, proportionally based on investors’ initial contributions.
The management unit exists to support service delivery and report progress to stakeholders. Finance for Good supports service delivery by coordinating among multiple service providers, carrying out periodic service evaluations, and making recommendations as required.
An evaluation team is required to provide an independent assessment of the intervention at the end of the SIB contract. It is important the evaluation team is external to Finance for Good and the commissioning ministry to avoid possible conflicts of interest in outcome measurement.
Case study
Reducing reoffending among offenders from Peterborough Prison
The Peterborough social impact bond, commissioned by the UK Ministry of Justice in 2010, with support from Social Finance, is intended to reduce reoffending by 7.5% over 6 years. The SIB raised $8 million from 17 investors to establish the ONE Service™ that helps offenders navigate the current ecosystem of services and establishes new services to address unmet needs. The role of the ONE Service™is to coordinate offenders’ participation in existing programs (e.g., St. Giles Trust, Ormiston Turst, YMCA, Sova, and others) is shown in the schematic below (Source: Social Finance, The One Service, One Year On).
Two yeas 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 delivery a particular set of activities. The long-term stability of funding for ONE Service™ is seen as valuable. The stability enables integration with existing prison programs and even the creation of new prison program to facilitate ONE Service™.