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  Social Impact Bond   
  Social Impact Bonds at Social Finance   

social finance-smSocial 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.


Local authorities are currently being asked to make significant savings in children’s services. In this environment, the public sector struggles to find the funds for early interventions aimed at improving future outcomes (which would reduce the need for acute services in the long-term). Preventative services are difficult to fund for two main reasons: firstly, there are a great many demands on increasingly tight public sector budgets. Reducing funding from acute services, such as residential care placements for those with complex needs, to pay for prevention work would be controversial. Secondly, prevention services are often perceived as financially risky, since their impact is sometimes difficult to predict.

Social Impact Bonds provide a way of financing the upfront investment required in the provision of preventative interventions in children’s services. Public sector payments are only made once the outcomes and savings are achieved. Some possible areas of intervention that a Social Impact Bond could fund include:

  • Adolescent Intensive Intervention: The provision of interventions targeted at young people with complex needs and their families, aimed at reducing family breakdown and consequent entry into care;
  • Making better use of adoption: The provision of interventions that enables better adoption performance and provides better support to adoptive parents.

To read more about our work in specific sectors, click the links below.

■ Criminal Justice

■ Health and Ageing

■ Drug Rehabilitation

■ Other

  Social Impact Bond at Wikipedia   

A Social Impact Bond, also known as a Pay for Success Bond or a Social Benefit Bond, is a contract with the public sector in which a commitment is made to pay for improved social outcomes that result in public sector savings. The first Social Impact Bond was launched by Social Finance UK in September 2010.

Advocates of these performance-based investments claim that they encourage innovation and tackle challenging social issues. According to advocates, new and innovative programs have potential for success, but often have trouble securing government funding because it can be hard to rigorously prove their effectiveness. This form of financing allows the government to partner with innovative and effective service providers and, if necessary, private foundations or other investors willing to cover the upfront costs and assume performance risk to expand promising programs, while assuring that taxpayers will not pay for the programs unless they demonstrate success in achieving the desired outcomes. The expected public sector savings are used as a basis for raising investment for prevention and early intervention services that improve social outcomes.

Critics note that because the outcomes-based payments are dependent on governmental funds which must be budgeted, Social Impact Bonds do not actually raise additional capital for social programs, but instead displace funding for other programs. Given the need to budget for a return on investment, a program evaluation, middle managers, and the expenses of designing the complex financial and contractual mechanisms, social impact bonds, according to critics, may be an expensive method of operating social programs.

Social Impact Bonds are a type of bond, but not the most common type. While they operate over a fixed period of time, they do not offer a fixed rate of return. Repayment to investors is contingent upon specified social outcomes being achieved and therefore in terms of investment risk Social Impact Bonds are more similar to that of a structured product or an equity investment.

In the US, Social Impact Bonds have been called Pay for Success Bonds. A report from the Center for American Progress (released in February 2011) analyzes their potential. State and local governments across the country have begun launching Social Impact Bond pilots.

In Australia, Social Impact Bonds have been called Social Benefit Bonds. A Request for Proposal was released by the New South Wales Treasury on 30 September 2011 asking non-government organisations to propose pilots in the areas of reoffending and children in out-of-home care. On 20 March 2012 three successful respondents were announced and entered into a joint development phase with the >Government of New South Wales.


The idea of the Social Impact Bond has been promoted and developed by a number of agencies and individuals in an attempt to address the paradox that investing in prevention of social and health problems saves the public sector money, but that it is currently difficult for public bodies to find the funds and incentives to do so. New Zealand economist Ronnie Horesh first advocated them in 1988 calling them Social Policy Bonds. He argues that they be made tradable.

The first Social Impact Bond was announced in the UK on 18 March 2010 by then Justice Secretary Jack Straw, to finance a prisoner rehabilitation program. In the UK the Prime Minister’s Council on Social Action (a group of ‘innovators from every sector’ brought together to ‘generate ideas and initiatives through which Government and other key stakeholders can catalyse, celebrate and develop social action’) was asked in 2007 to explore alternative models for financing social action. The group began to develop the idea of a Social Impact Bond, and the work is being taken forward by a number of organisations including Social Finance, an organization committed to increasing investment in the third sector, Young Foundation, the Center for Social Impact in Australia, and other NGOs and private firms.

The idea of a Social Impact Bond has generated significant interest from across the political spectrum in multiple countries, including U.S., UK, and Australia. .

Social Impact Bonds have also generated interest in the United States. In February 2011, Barack Obama’s proposed 2012 budget stated that up to $100m would be freed up to run Social Impact Bond pilot schemes. In August, 2012, Massachusetts became the first state in the nation to use a competitive procurement process to secure social innovation financing for social services. The state legislature authorized spending up to $50 million on the initiatives.

In Australia, the intention to trial Social Impact Bonds was announced in New South Wales in November 2010 by Premier Kristina Keneally of the Australian Labor Party. The policy direction was continued by the Coalition (Australia) after a change in Government in 2011.

In November 2012 Essex County Council became the first local authority in the UK to commission a Social Impact Bond in Children’s Services, with the aim of providing therapeutic support and improving outcomes for adolescents at risk of going into care. Nick Hurd, the minister for civil society, commented: "Social impact bonds are opening up serious resources to tackle social problems in new and innovative ways. This is about communities, businesses and charities all working together to change people's lives, whilst at the same time making savings for the taxpayer."

In February 2013 Allia, a charitable social investment organisation, announced the first public opportunity in the UK to invest in a social impact bond. Although the product was later withdrawn from sale due to lack of investors, the Future for Children Bond combined a relatively low-risk ethical investment into affordable housing to provide the funds to repay capital to investors, with a higher risk investment into a social impact bond with the aim of delivering a high social impact and providing an additional variable return. It would have invested into the Social Impact Bond for Essex County Council to ‘improve the life outcomes’ of children aged 11–16 at risk of going into care.

  Wall Street's Latest Investment: Ex-Convicts   

From: ZeroHedge

Either the Volcker Rule is making Wall Street's menu of investment choices so unbearably limited, or traditional assets are so overpriced Wall Street won't even touch them with other people's money, but when it comes to allocating capital the smartest conmen in the room are coming up with some truly unorthodox products. Such as investing in ex-convicts in the form of 2000 newly released prisoners.

According to Reuters, Merrill Lynch and U.S. Trust reached out to some high-powered clients this quarter to invest in a social-impact bond whose proceeds finance a program to lower recidivism rates among ex-convicts in New York.

The project raised $13.5 million over 60 days from clients of the Bank of America Corp-owned brokerage and wealth management firms. Investors included former U.S. Treasury Secretary Lawrence Summers, Utah philanthropist James Sorenson, hedge fund founder Bill Ackman's Pershing Square Foundation and billionaire investor and oil trader John Arnold, according to the bank.

Merely the presence of the bolded words in the above paragraph is enough to explain why this latest investment product will be an inevitable disaster. But at least in the meantime, it will allow people such as Larry Summers to purchase a clean conscience if only for a few months. And of course, let Merrill collect structuring and "advisory" fees.

"They are looking for new and creative ways ... to have a more direct connection between the dollars they are investing and the impact it is having on a social problem that they care about," Andy Sieg, head of global wealth and retirement solutions at Merrill Lynch said during a telephone news conference on Monday.

In an ideal world, however, where investing in ex-criminals has a happy ending, what kind of return can investors hope for? "Investors can realize annual returns of up to 12.5 percent over five-and-a-half years, although the probable return is in the high single digits, he said. Actual returns depend on the success of job-training programs for 2,000 newly released prisoners administered by the Center for Employment Opportunities. Success rates will be determined by Chesapeake Research Associates."

Just what is a "social impact bond":

The social impact bond is the first pay-for-success instrument in which Bank of America participated, and the first in which a state, New York, is participating. Reducing recidivism will help control prison costs, the fastest growing budget item in New York in 2012 after Medicaid, Gov. Andrew Cuomo said in a news release.

About 20 pay-for-success bonds have been issued in programs worldwide, but more than 10 U.S. states are considering the programs, said Tracy Palandjian, chief executive of Social Finance Inc, a nonprofit that structures such investments.

The new issue attracted an average order of $350,000 from 40 high-net-worth individuals and from family and other foundations. Capital from investors will come in two stages, this June and again in early 2016.

As for the lead investors, no surprises there:

The Rockefeller Foundation provided a $1.32 million guaranty that covers 10 percent of investors' principal should it fail to repay 100 percent of their investment. The Robin Hood Foundation, a nonprofit with strong support from Wall Street and private equity, invested $300,000 in the project.

Supposedly the Reverse Robin Hood foundation was too busy using the proceeds from QE to inflate away the purchasing power of the few hundred people left in the middle class. As for Wall Street investing in ex-cons, why just think of all the money saved from not having to perform any diligence.

  Social Impact Bonds: Pay for Progress   

From: Harvard Magazine | by Ashley Pettus | July-August 2013

sib-smHomelessness is a complex social problem that societies often treat, but rarely fix. Existing social services do little to remedy the underlying causes, and governments too often lack the resources and long-term commitment to invest in preventive approaches that could improve lives and reduce society’s burden in a lasting way. And there are many similar problems, from chronic unemployment to juvenile delinquency, that impose ongoing costs on governments and taxpayers. But a new funding mechanism — social impact bonds (SIBs) — may offer an innovative means of harnessing private capital to achieve measurable gains on some of the most persistent social ills. Weiner professor of public policy Jeffrey Liebman is spearheading an effort at Harvard Kennedy School to accelerate their adoption.

SIBs — also known as “social innovation financing” or “pay for success” — offer governments a risk-free way of pursuing creative social programs that may take years to yield results. Usually, governments decide what problems they want to address and then enter a contractual agreement with an intermediary (or bond-issuing organization) that is responsible for raising capital from independent investors including banks, foundations, and individuals, and for hiring and managing nonprofit service providers. If the project achieves its stated objectives, the government repays the investors with returns based on the savings the government accrues as a result of the program’s success. (Taxpayers also receive a portion of the budget gains in the form of freed-up public resources, though the investors may need to be fully paid first.) A neutral evaluator, agreed on by both parties, is hired to measure the outcomes and resolve any disputes that arise.

Liebman became intrigued by the SIB model after learning about a British project that is testing it in an effort to reduce re-imprisonment rates among adult males in the English city of Peterborough. He spent six months studying the issue and in 2011, with the Center for American Progress, published a report on his findings. The paper lays out SIBs’ potential to overcome institutional barriers to social innovation, but Liebman was convinced that American state and local governments lack the necessary staff, time, and expertise to get such projects off the ground. “I realized that if I didn’t find a way to solve the government-capacity problem,” he explains, “this promising approach to contracting for social services wouldn’t get tested.”

He therefore established the Harvard Social Impact Bond Technical Assistance Lab (SIB Lab). Funded by the Rockefeller Foundation, the lab serves as a hands-on think-tank for helping governments foster innovation and improve the results of their social-service spending. The Rockefeller grant supports current students and recent graduates of the school’s master’s in public policy program who provide pro bono assistance in government offices on all aspects of a SIB start-up phase.

Massachusetts was the first state to welcome SIB Lab support. (New York quickly followed.) Ryan Gillette, M.P.P. ’12 — one of Liebman’s “government innovation fellows” — has worked full time in the Commonwealth’s budget office since June 2012, helping put together two inaugural SIB deals. One will address homelessness by contracting with the nonprofit Massachusetts Housing and Shelter Alliance to find stable housing for several hundred people. The other will address youth recidivism, providing a range of interventions and supports to the more than 750 young people who “age out” of the juvenile justice system each year. Gillette notes that the SIB financing structure allows governments to identify savings acrossagencies, which encourages interagency cooperation toward a common goal. “The savings we project for the recidivism project, for instance, are due not only to reduced incarcerations and other adjudication expenses,” he explains, “but also to improved employment and educational outcomes.”

Although initial results from the first SIB projects are a few years away, government interest is growing: when Liebman received additional Rockefeller funds to expand the SIB Lab’s work into four more states, 28 state and city governments applied. (The winners were announced June 10.) The investor market remains harder to predict. George Overholser ’82, the founder and CEO of Third Sector Capital Partners (the intermediary on the Massachusetts recidivism project), notes that banks have responded more quickly to the opportunity than foundations or individuals. “Social innovation financing is not a heartstring puller, but the upside is powerful,” he says. “With traditional philanthropy, you pay for the program and then the money is gone; this way the money comes back and can be recycled into the program to help more people.”

It is too soon to say if social impact bonds will fundamentally change how social services are funded and implemented in the United States. But Liebman sees hope in the way the projects bring public and private actors together on a long-term basis to tackle some of society’s toughest problems. “The key,” he says, “is that all the partners are on the hook for developing better outcomes.”

  Apples to Plums     From: Robin Hood

Finding and selecting the most effective organizations to fund is a challenging task. How do you choose between programs that offers job training to the unemployed, to programs that focus on children's health, to programs that help the homeless?

To compare apples to oranges to plums, Robin Hood has developed a disciplined system for comparing the impacts of dissimilar programs by measuring them on this same scale: how much the program is going to increase future earning and income. Watch how we utilize metrics to select the top programs in New York City.

Robin Hood’s system of metrics, dubbed Relentless Monetization, pursues a powerful ambition: to spend philanthropic money smartly. In Robin Hood’s case, that means spending donors’ money in a manner that cuts poverty as deeply as possible. Our metrics help staff to decide the relative impact of poverty-fighting options. Is money better invested in a high school that graduates 50 more former dropouts or, instead, a job-training program that places an extra 75 unemployed workers in long-term jobs.

To answer the fundamental question of how to measure the relative poverty-fighting success of grants, staff, first, identifies each mission-relevant outcome generated by a grant. For example, school grants boost high school graduation rates and improve the future long-term health of graduates. Next we assign dollar values to those outcomes (staff “monetizes” the value of a high school diploma and improved health). Third, we explicitly compare what happens to participants in our programs —the students in schools we fund; the workers enrolled in our training programs —to what would have happened to them had they in fact not received our help (the latter estimates are known as counterfactual estimates). Finally, we use these estimates to form benefit-cost ratios, which assign a dollar figure to the amount of philanthropic good that a grant does per dollar of cost.

The benefit-cost ratios can be used to compare the impact of one grant against any other, no matter how those grants differ in form and purpose. Robin Hood has put principles to practical use across a large array of poverty-fighting interventions. Health clinics diagnose and treat asthma. How much better off are patients who receive these interventions? Schools help at-risk students earn their high school diplomas. How much does graduation boost future earnings? Micro loans to help immigrant women set up home businesses. By how much do these loans boost family incomes (above what they would have been without the loans)? What is the value of emergency food, shelters for abused women or high quality pre-kindergarten programs. Beyond the purpose of helping staff to decide among rival uses of philanthropic money, Robin Hood’s metrics system provides a powerful diagnostic tool by which to isolate the specific factors that make anti-poverty programs succeed or fail.

We base grant decisions on more than arithmetic. Program officers add to the decision mix detailed knowledge about the programs they are asked to fund. Most important, staff recognizes the imprecision and incompleteness of our numerical estimates. They are under constant review and revision. We still have a lot of work to do.

For an in-depth look at metrics and how they’re calculated, read 2009 Measuring Success: How Robin Hood Estimates the Impact of Grants.

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