Finance for social impact
Social Impact Bonds
What is the innovation and how does it address a pressing problem?
Publicly funded attempts to help poor and vulnerable populations often focus on treating existing problems, rather than preventing problems from arising in the first place. Prevention-focused interventions work, but are not being used by the government.
Social Impact Bonds help fund preventive intervention that can help poor and vulnerable populations in the long term. Social impact bonds are a contract between private investors and government. Investors fund organizations to provide prevention-oriented social services, and a government agency agrees to pay the investors, with interest, if these services achieve the desired social outcome. These bonds allow risk to be transferred to investors, ensuring that government will only pay for successful interventions.
What existing practices inspired the innovation and how does it represent something new?
Social impact bonds transform existing relationships between government and service providers by injecting private capital. Government only pays for successful services, shifting taxpayer dollars toward what has been demonstrated to work. Investors are often better positioned to evaluate and price risk, and face less political consequence for high-risk decisions. What this model represents is a transfer of risk, in terms of program efficacy, from government to investors. SIBs represent the first successful attempt to provide financial return based on results, thereby transforming impact-driven interventions into sound investment opportunities.
Please describe the social impact to date, as well as potential impact in the future.
The first pilot SIB is aimed at reducing recidivism amongst an estimated 3,000 male prisoners with short-term sentences, in an economically depressed area of the U.K.
Specifically, the SIB is financing a program, branded the “ONE Service”, which is working with prisoners in the five week period pre-release to provide holistic support. The support continues post-release to enable reintegration into the community.
It is too early in the pilot to release reliable data on reoffending. However, the ONE Service program has received positive feedback from participants and stakeholders. In addition, a random and unannounced survey of prisons conducted by the Ministry of Justice resulted in complimentary evaluations for the ONE Service.
The SIB model has already spread from the UK to the US and Australia and is under examination in Canada, Israel and Germany. If proven effective, it could revolutionize the manner in which social programs are funded. It has the potential to unlock substantial capital from private capital markets to invest in addressing a variety of persistent social problems globally, such as decreasing the burdens on public health systems of preventable diseases. This could transform the political dynamic of under-investment in prevention and over-expenditure on treatment in which most governments are trapped.