Social Impact Bonds

Social Impact Bonds are a form of outcomes-based contract in which public sector commissioners commit to pay for significant improvement in social outcomes (such as a reduction in offending rates, or in the number of people being admitted to hospital) for a defined population.

Social Impact Bonds are an innovative way of attracting new investment around such outcomes-based contracts that benefit individuals and communities. Through a Social Impact Bond, private investment is used to pay for interventions, which are delivered by service providers with a proven track record. Financial returns to investors are made by the public sector on the basis of improved social outcomes. If outcomes do not improve, then investors do not recover their investment.

Social Impact Bonds provide up front funding for prevention and early intervention services, and remove the risk that interventions do not deliver outcomes from the public sector. The public sector pays if (and only if) the intervention is successful. In this way, Social Impact Bonds enable a re-allocation of risk between the two sectors.

The diagram below is an example of a typical Social Impact Bond structure.

Social Finance launched the first Social Impact Bond in September 2010, called the One* SIB, in the Criminal Justice sector. Social Finance now wants to support the development of a market for Social Impact Bonds. This will involve structuring a series of Social Impact Bonds to develop a successful track record, attract a broader range of socially-motivated funders and open the market to private individuals.

We are currently working with local and national commissioners, and sector experts, to explore the potential for Social Impact Bonds that address diverse issues such as improving the outcomes for children in and on the edge of care, reducing substance addiction and reducing unnecessary hospital admissions, as well as further Criminal Justice Social Impact Bonds.

For more information, please see our publication: Towards a New Social Economy: Blended Value Creation through Social Impact Bonds. To join the community involved in the creation of Social Impact Bonds, please see our Social Impact Bond Forum Social Impact Bond Forum. To read more about our work in specific sectors, click the links below.

Criminal Justice
Vulnerable Children
Health and Aging
Drug Rehabilitation
Other