Category: social impact bonds

Social impact bonds – exploration across the world

Governments worldwide are examining the social impact bond structure as a potential mechanism to deliver social services to their constituencies.  I gather here the latest information I have found about various

exploratory efforts around SIBs.

UNITED KINGDOM
– Peterborough ongoing recidivism SIB 
– Exploration of SIB addressing preventive care with troubled families
UNITED STATES
– Massachusetts
– Minessota:  investinoutcomes.org

– New York: “‘We’re actively moving it forward,’ said Richard Buery, president and chief executive of the Children’s Aid Society, which is working with the Cuomo administration and social justice organizations on the project.” (source)
– Rhode Island: “SVPRI [Social Venture Partners Rhode Island] is collaborating with Boston-based Social Finance, Inc. to explore the feasibility of implementing Social Impact Bonds in Rhode Island. […] We are currently reviewing the process of implementing a bond that would focus on reducing recidivism and could make Rhode Island among the first states to adopt this groundbreaking approach on investing with impact.” (source)

SCOTLAND
– “The Scottish Government is currently investigating the potential of SIBs to contribute to improved outcomes and these may have potential to contribute to regeneration as well as other Governmental priorities” (source)

CANADA
– “Feasibility studies are already underway in Canada to explore the use of SIBs, including one with the Heart and Stroke Foundation of Ontario that looks at lowering health-care costs through an innovative health management intervention to reduce hypertension. This initial feasibility work will provide tools and a path to development that will document the support necessary to develop SIBs in Canada.” (source)
IRELAND
– Ireland’s social investment fund has issued a call for ideas for SIB funding, with the deadline of Sept. 2011.  Clann Credo – The Social Investment Fund, The Atlantic Philanthropies and the Centre for Effective Services have begun research Social Impact Bonds (SIBs) and their potential applicability in an Irish context. (source)
– Programme for Government (2011 to 2016) commits to establish Social Impact Bonds. Topics mentioned include social housing, anti-social behavior, children with ADHD, and diabetes.

AUSTRALIA

– “The New South Wales Government in Australia has announced that it intends to implement a Social Impact Bond (SIB) from February 2011.” (source)
SRI LANKA
– “Jeevan Thiagarajah, Executive Director of the Consortium of Humanitarian Agencies, in a proposal to the Ministry of Finance has suggested the creation of social impact bonds. He says under this the initial objective is to attract contributions of Rs.5, 000 from one million citizens who would receive annually 2 % interest on their investment which will be the initial capital of the fund.” (source)

Update:

ISRAEL
– “The Portland Trust is in the process of establishing a Social Investment Task Force (SITF) in Israel. This will be led by Sir Ronald Cohen. The SITF will define and determine the course of action to reduce social gaps in Israel. A number of areas are being examined including: case studies of community investment funds from different countries; effective financial tools for social investment (including social impact bonds)” (source)

Structuring a social impact bond intermediary (Young Foundation)

I came across a paper on social impact bonds by the Young Foundation in the UK that describes a “Public Sector SIB” where local authorities borrow in capital markets to finance a social program and are repaid by the national government is the social program meets predetermined outcomes.

This is an interesting variant on the social impact bond structure that was implemented in Peterborough, UK.  There, funding was raised from foundations and other philanthropic sources, rather than the capital markets; the intermediary was Social Finance UK, a nonprofit, rather than the local government; and the payer was the local, rather than the federal, government.

The obvious advantage of borrowing from capital markets by floating municipal debt is that capital markets offer access to much more money than philanthropies have at their disposal.  And capital markets can not only fund larger and many more interventions, but also offer rating by pricing the risk of the social impact bonds.  In this sense, the pay-for-success contract actual does become a bond — whereas now the bond is a misnomer for a contract contingent on outcomes.

Perhaps the largest disadvantages to using local governments rather than third-party intermediaries as the project manager revolves around risk and management.  The Peterborough model transfers risk from government — that is, from taxpayers — to the funders of the intervention.  If the intervention does not achieve the predetermined outcome, then funders do not get paid.  In the model described by Young Foundation (and they describe other models as well) local taxpayers retain the risk of intervention failure because the bond must be paid, yet the federal government payments are contingent on outcome.  In fact, because mutual funds are large purchasers of municipal debt, and people’s retirement portfolios often sit with mutual funds, taxpayers are hurt three times:  from the failed intervention that aimed to improve their social welfare; by having their taxpayer dollars diverted to payment for a failed intervention; and from whatever effects this may have on their retirement portfolio.

Second, although whichever party bears this payment risk faces the greatest incentive to organize the program in a way that best achieves outcomes, the local government may not be the best suited to accomplish this program management.  Local governments typically work with service providers on a regular basis and understand the existing landscape of service delivery well.  But not every local government has the capacity to discover and understand new types of interventions, orchestrate complex delivery of services in a new way, or oversee service delivery in a new way that forces providers to prioritize outcome over process compliance.  Outsourcing of programmatic content and project management is one of the things the innovative social impact bond scheme is testing.

Paper source:

Geoff Mulgan, Neil Reeder, Mhairi Aylott & Luke Bo’sher
Social Impact Investment: the challenge and opportunity of Social Impact Bonds
The Young Foundation March 2011.
http://www.youngfoundation.org/files/images/11-04-11_Social_Impact_Investment_Paper_2.pdf

Social impact bonds at the Social Market Conference

The Rt Hon Iain Duncan Smith, a British MP, spoke about social impact bonds at the Social Market Foundation conference last week.  He mentioned the Peterborough UK social impact bond, as well as Steve Aos’s research in Washington State about estimating per-dollar social returns.   Some interesting news:

Many of you will be aware of the reoffending Social Impact Bond in Peterborough – the first of its kind anywhere in the world.
We are also in the middle of procuring for the Innovation Fund, which will enable investors to back innovative projects which help disadvantaged young people.
This is about getting in there before people have left school, targeting kids from the age of 14 and up and tackling the root causes of disengagement from education and employment.
And the Cabinet Office is currently leading innovative pilot projects with four local authorities, looking at how social investment can be used to help turn around the lives of some of the most troubled families.