Social Impact Bonds
A Social Impact Bond is a contract between a public sector body and Social Impact Bond investors, in which the former commits to pay for an improved social outcome. Investor funds are used to pay for a range of interventions to improve the social outcome.
By enabling non-government investment to be utilised, Social Impact Bonds will lead to greater spending on preventative services. These interventions can have a direct impact on costly health and social problems.
Social Impact Bonds are a unique funding mechanism, in that they align the interests of key stakeholders around social outcomes:
- Government – the public sector pays only for positive outcomes by releasing a proportion of savings to Social Impact Bond investors. Success payments are calculated such that, if Social Impact Bond-funded services improve outcomes, these payments will cover the costs of the interventions. This enables investors to make a return. Investors carry the risk that funded interventions may fail to improve outcomes.
- Social investors – investment in Social Impact Bonds by trusts and foundations, commercial investors, and high net worth individuals offers an opportunity to generate a blended social and financial return on investment. The social and financial imperatives are aligned; investors receive greater financial return as the social return improves.
- Social service providers – Social Impact Bond investment is used to pay upfront for the delivery of services. This enables providers of all sizes to participate in generating success. Providers are encouraged to innovate in order to achieve the best possible outcomes for the target population. The focus is on the social value that service providers can offer, rather than on the cost of services alone.
RE-OFFENDING SOCIAL IMPACT BOND LAUNCHED BY SOCIAL FINANCE
On the 18th March 2010, Social Finance announced the launch of the first Social Impact Bond with the Ministry of Justice.
This first issue will fund social organisations working to reduce the re-offending rates of short sentence male prisoners leaving Peterborough Prison. The Ministry of Justice has agreed to make payments to investors in the event that re-offending is reduced below an agreed threshold.
Re-offending is an area where preventative work could lead to a better society and save the taxpayer money. Of the 40,200 adults on short term sentences, an estimated 60% will go on to reoffend within a year of release, at a significant cost to the taxpayer and society.
During the Peterborough Prison pilot, experienced social sector organisations, such as St Giles Trust, will provide intensive support to 3,000 short-term prisoners over a six year period, both inside prison and after release, to help them resettle into the community. If this initiative reduces re-offending by 7.5%, or more, investors will receive from Government a share of the long term savings. If the SiB delivers a drop in re-offending beyond the threshold, investors will receive an increasing return the greater the success at achieving the social outcome, up to a maximum of 13%.
READ ABOUT SOCIAL IMPACT BONDS
Social Finance launches the first Social Impact Bond
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