Social Impact Bonds

Social Impact Bonds

16 June 2016

In the realm of social finance, one of the most interesting products on the market are Social Impact Bonds (SIBs). Here we have a closer look at them and some of the conditions needed to put them into action.

Social Finance, an organisation specialising in working with the financial products to find solutions to social problems, says: “A SIB is a financial mechanism in which investors pay for a set of interventions to improve a social outcome that is of social and/or financial interest to a government commissioner.

“If the social outcome improves, the government commissioner repays the investors for their initial investment plus a return for the financial risks they took. If the social outcomes are not achieved, the investors stand to lose their investment.

“Social Impact Bonds provide investment to address social problems and look to fund preventative interventions. As such, they present an opportunity to provide support to reduce the strain on acute services”.

Overall, they’re a great way to attract funding for projects or initiatives that may not otherwise be able to gain access to the money they need. Whether it be through the project being deemed to risky or not politically palatable.

It stands to reason, therefore, SIBs will not apply in all circumstances. In many areas, traditional funding streams will remain the most appropriate but it is good for groups and organisations to know what options are out there should they struggle to access these traditional funding streams.

In this really useful document, Social Finance lay out what is required for an SIB:

A Clearly Defined Target Group

If the target group is not sufficiently defined the interventions may be too diffuse to have a significant impact in achieving the target outcome. If it is too narrow, the target population may be too small to demonstrate a statistically significant effect.  

Robust outcome metric

The outcome metrics form the foundation of the SIB contract between the public sector and investors. All stakeholders need to trust that there is an objective mechanism for assessing and agreeing the degree to which social outcomes have been achieved. Such a metric might need to be linked to cashable savings on the part of the public sector commissioner. Whether suitable metrics can be identified is a key determinant of whether or not a SIB is the appropriate instrument for addressing an identified social issue.

Innovative interventions

Social Impact Bonds look to fund preventative, innovative interventions that tackle the root causes of a range of social issues. Tackling these issues effectively often means a variety of interventions need to be brought together.

Overall, SIBs are an exciting way for organisations to access funding for projects and interventions that maybe don’t lend themselves to traditional funding streams.

We at the Trust are interested in all ways in which the NI Voluntary, Community and Social Enterprise sector can further sustain itself financially. Is it maybe time for products like SIB to become common practice in NI?

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Peter Crory

"It seems that our search for innovation is being driven by government looking for a SIB rather than by the voluntary/community sector looking to identify an appropriate area of work. My experience of SIBs elsewhere in the UK led me away from the mega model of Peterborough where investors earned large amounts of interest on their money and took me to the mini SIB in Perth, Scotland where local companies and churches were an integral part of the project. Facilitating a small group to identify preventative opportunities across our sector would Im sure be very productive. Much better working from the ground up on this and planning smaller, value-based bonds. There is also the prospect of negotiating with commissioners/local authorities to agree outcomes in advance that once achieved receive full payment after the event. Trusts and others can invest in this way freeing the commissioner from risk. "