Social Impact Bonds

Promoters:

Toby Eccles, Social Finance UK.

Country:

United Kingdom

A pay-for-results contract between a public administration and impact investors, to finance innovative solutions to social problems. It overcomes barriers to experimentation, as the administration only repays if the intervention is successful.

What solution does the innovation propose?

From the perspective of the outcomes-payer, a SIB overcomes multiple barriers that hinder their capacity to experiment with innovative solutions:

Risk aversion. Governments avoid financing social interventions where there is a potential risk of ‘failure’ due to the political, electoral, economic and reputational repercussions of misusing taxpayers' money.
Inflexible public procurement of social services. Public procurement regulations require social service providers to deploy an intervention as described in a contract, which hinders capacities and/or incentives to adapt the service in real-time to get better outcomes.
No outcomes-based accountability. Social service providers are held accountable by public procurement regulations for inputs and activities (i.e. how the service is implemented) and not outcomes (i.e. achieved impact).
Short-term horizons. Social service procurement contracts have short implementation calendars which hinder the possibility of addressing complex challenges that require longer timeframes and collecting evidence of mid and long-term impact.
Incapacity to address social challenges preventively. Either due to budgetary constraints, social and political ‘emergencies’, or low public opinion/electoral payback, governments do not invest in preventively addressing social challenges, which impedes maximizing impact and saving public budget in the long run.
Little knowledge regarding the efficacy of their portfolio of services.

Impact evidence

Outputs

As of October 2020, the model has expanded at the global level, with 138 bonds in 25 countries.
SIB have been used to tackle a wide range of social challenges, particularly unemployment, health, homelessness, child and family welfare, education and early years, criminal justice, poverty and environment.
441€ capital raised worldwide.

Outcomes

1,711,902 lives touched worldwide.

Sources

Social Finance Database

Social Finance website

Instiglio

How does it work?

Social Impact Bonds provide upfront risk capital to help finance innovative solutions that can effectively address entrenched social problems and look to fund preventative interventions. If, and only if, the pre-agreed social outcomes are achieved (which are validated by an independent evaluator), the outcome payor repays the investors for their initial investment plus a return for the taken financial risks.