Social Impact Bonds: Revealing the Invisible Heart of Markets
April 10, 2014 | 1983 views
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Social impact bonds are a new financial export from the UK. They’ve become a popular financial tool in the US with recent investments escalating to over $10 million for new projects in recidivism, healthcare, and education. Backed by foundations such as Rockefeller and Bloomberg, and with buy-in from corporates such as Bank of America, they’ve created a stir, offering a different way to finance government-backed social programs.
Sir Ronald Cohen is the architect of these so-called “bonds,” a deceiving name, given that they’re not really bonds. He spoke in the opening plenary session at the 2014 Skoll World Forum about revealing the “invisible heart of markets” through this new financial tool.
SIBs have four players: an investor (or group of investors), an intermediary (such as Social Finance US/ UK) who set up the SIB, a social service provider (the local NGO who will be utilizing the funds), and the government. The first SIB was piloted in Peterborough, UK three years ago. A recidivism project, designed to lower the rate of prisoners who are released and become repeat offenders, it aspires to take the financial burden off the Ministry of Justice by using capital from philanthropic and impact investors. Only if the project is successful, that is if recidivism rates fall, will the government be required to pay back the investors.
While Sir Ronald Cohen hit the major points on SIBs as a repackaged financial tool, a few questions remain:
Of course, SIBs are not for all social programs, and Sir Cohen made that clear. They’re only going to be apt for certain projects that are data-driven, proven successful, and in short of government funding. SIBs will not target the root causes of recidivism or early childhood education or maternal care. Rather, they will help local non-profits who are servicing these areas to continue with their efforts. They are not the solution for all social projects but can fuse in capital and help non-profits scale in areas where government resources are limited.
In the US and UK, there are over two dozen SIBs in the works. The results of Peterborough are due out later this year, which will help us determine if SIBs are truly a new financial breakthrough or not.