A beginners guide to Social Impact Bonds (SIBs)
We wanted the Peterborough Social Impact Bond to show the world that private investment could be mobilised to tackle even the most complex and intractable social problems.
Gordon Brown, former Prime Minister of the United Kingdom, writing in Financial News
How Social Impact Bonds work
Social Impact Bonds — or Social Outcomes Contracts as they are known today – were pioneered by Social Finance. They are a way to finance projects where funding is not tied to specific activities and outputs, but to the outcomes it is aiming to deliver.
They need three partners:
An impact investor who can provide at risk, upfront funding with no guarantee they’ll get it back – often a private philanthropic organisation or individual
An implementing organisation to deliver the programme – often service providers or charities
An outcomes funder who will pay back the investor if and when the project achieves the desired outcomes – for example a government or commissioner
Return on investment depends on whether or not the social outcome improves. If it does, the outcome payer repays the investors for their initial investment plus a return for the financial risks they took.
Development Impact Bonds (DIBs) are a type of Social Outcomes Contract common in low- and middle-income countries, in which investors advance fund development programmes with returns linked to specific development goals. The lead outcomes payer in a DIB is external to the country, typically an official development partner, but occasionally a philanthropic foundation.