Three different and equally interesting perspectives today on the SIB industry…

The Outlook on Pay for Success / Social Impact Bonds
Leilani Barnett – Public CEO

Pay for Success is an approach to funding social service programs designed to improve outcomes and ultimately reduce the costs of addressing these issues. In a Pay for Success contract, private investors provide funding for preventative or interventional services up-front, and government reimburses these investors with a return on their investment, only if results are achieved.

In doing so, private investors take on the initial risk, governments pay based on outcomes, and cost-saving programs with demonstrated effectiveness gain access to new and additional funding sources. Pay for Success projects are underway in several states in the U.S., including California.

The Housing California conference, an annual conference held in April with more than 1,000 participants involved in housing, included an informative session on the outlook on Pay for Success, or Social Impact Bonds, with LeSar Development Consultants, Corporation for Supportive Housing, Third Sector Capital Partners, Santa Clara County, and California State Assemblymember Toni Atkins’ office.

The audience, a mix of affordable housing developers, local government staff, and lenders, were receptive to Pay for Success, interested in learning how it could be applied to their programs, particularly around affordable housing.

Doing Better: NC Should Explore Alternative Financing Strategies For Social Services
Christopher Gergen & Stephen Martin – news observer

As we head into the legislative short session and gain greater visibility into the proposed budget for the state, it is apparent that we are going to be operating in a resource-constrained environment for a while to come.

This means we have to make hard choices about what gets funded (such as much needed relief for our teachers) and what gets cut. Within this context, innovative programs to address some of our toughest social challenges often get left behind.

So we would be wise to start exploring alternative investment strategies.

One such strategy is Social Impact Bonds – also known as Pay for Success Bonds. Government identifies a problem it wants to address but can’t pay for through traditional channels. It then sets clear milestones for addressing this problem and a potential payout, generated by cost savings, if these outcomes are achieved. It then works with an independent financial organization to create an opportunity for private investors, and often foundations, to invest. The money raised then gets channeled into programmatic solutions, such as prevention or early intervention initiatives, which ultimately improve social outcomes and save the state money. These savings are then used to repay the upfront investment with interest.

The Looming Disruption Of Civil Society
Arthur Wang – Pro Bono Australia

Access to sufficient capital has always been a major barrier for most non-government organisations (NGOs). The challenge has been exacerbated in the aftermath of the Global Financial Crisis and European Debt Crisis, as governments around the world face significant budgetary constraints.

Alongside this situation, there is increasing pressure for social intervention in areas of criminal justice, unemployment, medical care and homelessness, and insufficient program delivery to meet these needs. This has created a two-way dilemma. Governments are hesitant to spend on preventative services and Not for Profits are constrained to compete for limited short-term funding.

However, in 2010, significant inroads were made by Social Finance UK in the deployment of a new type of social instrument – the Social Impact Bond (SIB). The SIB is a public sector agreement in which a government commits to pay for improved social outcomes that result in public sector savings.

Under the arrangement, the government identifies a list of host Non-Government Organisations (NGOs) to issue bonds to. Investment can be raised from the private sector, high net-worth investors, superfunds and other charitable trusts to pay for a range of projects and social interventions. The investors are entitled to a return contingent upon the risk involved and agreed social outcomes being met.

Despite being in the early stages, the SIB presents enormous opportunities for different stakeholders.