Social Impact Bonds: The early years

Social Impact Bonds so far

Social Finance, the organisation behind the first Social Impact Bond aimed at tackling reoffending from Peterborough prison in 2010, has launched a new report which charts the development and take up of the SIB model across different countries and different social issues. The paper reflects the shared lessons from the three Social Finance organizations in the UK, US and Israel.

Entitled Social Impact Bonds: The Early Years, the report reflects on the value and impact the model has brought to delivering more effective programs, the complexity the model entails in identifying social outcomes and attribution methods, and the opportunities we believe will present to the market in the future. Key questions discussed include:

  • What makes a successful Social Impact Bond market?
  • Are Social Impact Bonds really as complex as they seem?
  • How do Social Impact Bonds scale?
  • What follows a Social Impact Bond?

Alongside the paper, Social Finance has also launched a comprehensive online database of Social Impact Bonds worldwide. The online directory can be sorted by country, issue area, investor, payer or service provider, giving a complete overview of live and proposed programmes worldwide. Developed by the three Social Finance offices in the United Kingdom, Israel, and the United States—the map provides users with a view of the Social Impact Bond ecosystem, and functions as a market-sharing tool for those interested in the global Impact Investing market.

To view the database click here.

SIB early years

Unproven but not untested

The report acknowledges that SIBs are not a proven model (an important fact to remember given the UK government’s objective of creating £1 billion worth of SIBs during this parliament) but says they are not untested. As of June 2016, 60 projects have launched in 15 countries of which Social Finance says:

  • 22 have reported performance data
  • 21 indicate positive social outcomes
  • 12 have made outcome payments — either to investors or to be reinvested into service delivery
  • 4 have fully repaid investor capital

As the originator of Social Impact Bonds, it is unsurprising that Social Finance praises their virtues, particularly in a shift to commissioning outcomes and attracting investment from outside the public sector.

However, Social Finance also acknowledges that one of the key challenges to the expansion of the SIB model is their complexity and that there is a need to simplify the SIB model if the market is going to continue to grow.

Social Finance argues that we are already seeing signs of standardisation in the field, with programmes being replicated and adapted to multiple geographies.

Once outcome measures and verification systems have been field tested, it becomes easier to rely on these in new schemes, accelerating the development of individual SIBs and reducing the costs and liberatin gmore resources to service delivery rather than the servicing of the SIB model itself.

What happens after a SIB

Social Finance argues that as more projects reach their conclusion, the question about what happens when a Social Impact Bond finishes will become routine. If a project successfully achieves positive outcomes, they set out two different options:

  • It could be refinanced serving perhaps a larger population or an expanded geography; or
  • The government could directly expand services, without private capital, with a focus on outcomes.

Looking to the future

Unsurprisingly, Social Finance (like Bridges Ventures who also recently published a report on the evolution of SIBs) see a positive future for their product.

While I agree about the potential for SIBs, my recent work reviewing the evidence on payment by results internationally revealed that, to date,  there have probably been more PbR schemes which have failed than have succeeded. Many commentators, including myself, argue that this is partly because so many PbR projects have been poorly designed and have been more focused on cutting costs than improving outcomes.

Nonetheless, it is clear that we still need a much better understanding of how PbR operates in practice and to develop much more robust models if SIBs are to be an important way of funding new approaches to social problems in the future.

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