Michael Belinsky

Triodos bank uses social impact bonds to improve employment in the UK

A while back, UK’s Department for Work and Pensions (DWP) created a 30 million GBP innovation fund competition to encourage “social service delivery organisations, financial intermediaries and private sector investors to work together to design and finance programmes which can help improve employment outcomes for the most vulnerable young people in society.”

Today, VNFW reports details of one of the winners of DWP’s competition: Triodos Bank. Triodos will partner with a service provider, Greater Merseyside Connexions Partnership (GMCP), on a program, that will start in 2012 and run for 3 years, to help 3900 youth ages 14-24 in Merseyrside get jobs.

The maximum payout of the social impact contract appears to be 4.5 million GBP ($7 million USD). Triodos raised 2 million GBP to fund upfront operating costs from “a syndicate of leading UK social investors, including the Big Society Investment Fund.” The key question is whether the syndicate included for-profit investors. If it did, this would make this social impact bond the first to attract private capital. (The Peterborough prison SIB was funded by philanthropic institutions exclusively.)

Two other interesting features of this contract are that a) Social Finance, the originator of social impact bonds, does not appear to be involved and, b) the contract is not for recidivism. These are both firsts for SIBs. The first point means that if this works, it proves that yet another firm can act as a SIB intermediary. The second point expands the proof of concept to an additional social problem. Social problems addressed by SIBs, so far, are:

Peterborough, UK – adult recidivism (service delivery in progress)

Mass., US – youth recidivism (RFR released in Jan 2012)

New York, US – youth recidivism (in planning stages)

Merseyside, UK – youth employment (in planning stages)

Official Triodos release:
http://www.triodos.co.uk/en/about-triodos/news-and-media/media-releases/social-impact-bond-for-merseyside/

Social impact bonds to reward elderly who downsize

Here is an interesting proposed application of social impact bonds:

There are 25 million empty bedrooms in England – mostly where elderly couples have remained living in family homes.The Redbridge pilot scheme “Free Space” offers them to the chance to remain owners but to move out. The local authority pays for the cost of moving and charges an “affordable rent” (up t 80% of market rent) the proceeds of which go to the owner ( who also saved money on Council Tax and utility bills by having a smaller property.)
It is proposed that Social Impact Bonds – the scheme to attract private investment for schemes where the social benefit produces a financial return – would be suitable for these schemes.

The way SIBs worked in Peterborough, UK, government shared savings that were generated by a social intervention – in that case, avoiding a costly incarceration – with the service provider that delivered that intervention. For SIBs to work here, a social service providers could be tasked with moving elderly couples out of family homes. Each moved couple would generate financial return if the affordable rent on their now-vacant house (80% of market rent, as the article says), exceeded the cost of housing them elsewhere plus the cost moving them, plus the cost of operations for this social service provider. This financial return could be split with the provider – and the social impact bond scheme could work.

The government could, however, go it alone and keep all the savings to itself. The only reason to use social impact bonds here, in my mind, is if the government thinks that financially-incentivized providers could do a drastically better job at moving elderly couples (while adhering to social and ethical standards), or could do the job just as well but have the capacity to act on a much larger scale. If the government can get the same efficiency and scale, then perhaps social impact bonds are not the right approach here.

Andrew Lohse discusses hazing at Dartmouth

Although I love Dartmouth dearly, I rarely turn to Dartmouth-related issues in this blog in my attempt to focus on social enterprise and such. But an opinion piece by Andrew Lohse ’12 in today’s issue of The Dartmouth, for which I wrote op-eds back in the day, as well, is, in short, huge.

Here’s the op-ed piece. Here’s the gist:

We attend a strange school where a systemic culture of abuse exists under a college president who has the power and experience to change what can only be described as a public health crisis of the utmost importance: the endemic culture of physical and psychological abuse that occupies the heart of Dartmouth’s Greek community. President Jim Yong Kim’s sterling credentials in public health are fundamentally at odds with the pervasive hazing, substance abuse and sexual assault culture that dominates campus social life.
I was a member of a fraternity that asked pledges, in order to become a brother, to: swim in a kiddie pool full of vomit, urine, fecal matter, semen and rotten food products; eat omelets made of vomit; chug cups of vinegar, which in one case caused a pledge to vomit blood; drink beers poured down fellow pledges’ ass cracks; and vomit on other pledges, among other abuses. Certainly, pledges could have refused these orders. However, under extreme peer pressure and the desire to “be a brother,” most acquiesced. While not every pledge is asked to do these things, many are. The specific tasks vary year to year, but these are things I’ve witnessed as a member of the fraternity.

And here is Dartblog, a blog that focuses on events related to Dartmouth, writing about the op-ed piece and posting an earlier version of it.

Updates with social impact bonds

Great news from the White House on social impact bonds and pay-for-success contracts:

Today, in keeping with that October 21^st commitment, we are pleased to announce that the Department of Justice and the Department of Labor will support Pay for Success pilots through 2012 funding competitions. The Department of Justice plans to give priority funding consideration in 2012 Second Chance Act grant solicitations to highly qualified applicants who incorporate a Pay for Success model in their program design. The Department of Labor will also launch Pay for Success funding opportunities through the Workforce Innovation Fund by early spring, making up to $20 million available for programs that focus on employment and training outcomes. Federal agencies will be releasing more information on these, and potentially other, opportunities in the coming weeks and months.

More here: http://www.whitehouse.gov/blog/2012/01/24/pay-success-new-results-oriented-federal-commitment-underserved-americans

Social enterprise classes around Harvard

There has been a boom in course offerings for social enterprise and impact investing around Harvard University. Here are some of the classes I’ve seen being offered this year.

Entrepreneurship in the Private and Social Sectors, a class taught jointly between HBS and HKS, a class for which I’m a teaching assistant. Taught by Richard Cavanagh and Robert Higgins. This class was taught at HKS, and has taken on new form as a joint offering across the river.

Social Impact Investing: Field Course at HBS, taught by Michael Chu. In this field course, students select and advise a social enterprise that has received, or has the potential to obtain, funding from impact investors.

Social Innovation Lab: Field Course at HBS, taught by Allen Grossman and Dutch Leonard.

The above courses are taught at Harvard’s new i-Lab. The Innovation Lab is Harvard’s most recent attempt to introduce cross-disciplinary curricular and extracurricular offerings. The idea, as I have heard it, is that students from across disciplines can better tackle the world’s problems, which never respect disciplinary boundaries.

New Frontiers in Philanthropy, Social Enterprise and Impact Investing at HKS, taught by David Wood and James Bildner. David takes a policy perspective on impact investing, thinking about how government should react to the trend.

Social Entrepreneurship at HLS, taught by Suzanne McKechnie Klahr. Suzanne has taught this class at Stanford and is visiting Harvard Law School this winter as she teaches Harvard Law’s first entrepreneurship class.

Social Entrepreneurship and Global Innovation, at the College, taught by Gordon Bloom. Gordon taught this class at Stanford, Princeton, and at the Kennedy school, and now teaches it to undergraduates in the Yard.

Social Impact Bonds: Lessons From the Field

Now that I’m back from India, I’m excited to report that Stanford Social Innovation Review published my article on social impact bonds:

Social Impact Bonds: Lessons from the field
Stanford Social Innovation Review
By Michael Belinsky
January 12, 2012

And Massachusetts released two requests for proposals regarding pay-for-success contracts, in juvenile youth recidivism and chronic homelessness. The state press release is here:

http://www.mass.gov/anf/press-releases/ma-first-to-pursue-pay-for-success-contracts.html

Horizontal capital aggregation for social enterprises

I found a really interesting study on horizontal capital aggregation for social enterprises (the process of syndicating distinct pools of impact capital matched to the multiple phases of an social enterprises’ development and growth).

Overall, our analysis confirms that a variety of contrasting investment models and investment expectations exist, and the poor coordination of impact investors creates inefficiencies and redundancies that obstruct the efficient flow of capital system-wide. We conclude that the aggregation of capital can benefit businesses when investors are first and foremost aligned by return expectation.
Our research indicates that social capital mobilization is early in its development and lacking market mechanisms common to other asset classes. While developed markets enjoy a well-worn path of “upround” private equity sources, there is little, if any, of this “vertical” capital aggregation ladder for social entrepreneurs operating in underserved markets. Consequently, much of the capital formation needed to support the scaling of social enterprises will necessarily be “horizontal”—meaning that capital sources are much more varied than pure equity investors and may include philanthropy, “soft” loans, quasi-equity, and private equity. The hand-off between these participants would not necessarily require valuation increases. Instead, such participants may require systems or organizational infrastructure development, increased management capacity, and a more rigorously stress-tested business model to attract follow-on investors.

Source:

COORDINATING IMPACT CAPITAL: A New Approach to Investing in Small and Growing Businesses

An Examination of Impact Investors and Phased Investing for the Launch and Growth of Social Enterprises, John Kohler, Thane Kreiner, Jessica Sawhney, July 2011.

M&A in the nonprofit world

Here’s a great article on co-locating nonprofits to capture economies of scale.

Expand Your Nonprofit’s Mission Through Co-Location, Jean Butzen, 11 Jan 2012, Stanford Social Innovation Review.

There is a more general movement to reduce back office costs for nonprofits. SeaChange Capital Partners helps nonprofits, among other services, merge to reduce costs. Their idea – and their leadership – comes from Goldman Sachs. They saw an especially strong need for M&A in the nonprofit sector because too often multiple nearly-identical service providers compete for and split the same donor pools and then eat away at that money with their own backend systems and other SG&A expenses. (Of course donors may have an interest in funding several manifestations of the same service, for example to discover which version works best.) And not all nonprofit operations could reduce operational costs – or live through post-merger integration that is difficult even in environments where employees are not as mission-driven.

The rise of social impact investment funds

An interesting bit about impact investment funds from the WSJ:

Only a small number of donor-advised funds also have social impact investment screens or goals, but they are attracting more interest. For example, the socially responsible pool within Schwab Charitable, the second-largest national donor-advised fund by assets after Fidelity Charitable, has more than tripled to $7.5 million since its introduction in 2009. The pool is invested in the Parnassus Equity Income Fund (PRBLX).

More here.