Social Impact Bonds: Part 1 of 2

Innovations in Social Service Program Funding

At an event being hosted by the Social Enterprise Alliance Chicago Chapter this evening, Harvard Professor Jeffrey Liebman and Mr. Ryan Maley will discuss a promising new approach to government financing of social service programs:  Social Impact Bonds. With funding from the Rockefeller Foundation, Professor Liebman leads the Kennedy School’s social impact bond technical assistance lab. Mr. Maley is a director of the Aurora-based Dunham Fund, which has expressed interest in funding an Illinois social impact bond.  At an event a couple of weeks ago, Jim Lewis, Senior Program Officer at Chicago Community Trust, mentioned that due to the local and federal funding crisis, services funding is likely to take this direction in the somewhat near future.

What are Social Impact Bonds?

In a February 2011 report from the Center for American Progress, social impact bonds are described as a promising new financing model to accelerate social innovation and improve government performance.  The “report analyzes social impact bonds, a promising new approach to the government financing of social service programs or social “interventions.” By combining performance-based payments and market discipline, the approach has the potential to improve results, overcome barriers to social innovation, and encourage investment in cost-saving preventive services.”

Here’s how the social impact bonds are supposed to work.

“[A] government contracts with a private-sector financing intermediary we’ll call a ‘social impact bond-issuing’ organization, or SIBIO, to obtain social services. The government pays the SIBIO entirely or almost entirely based upon achieving performance targets. If the bond-issuing organization fails to achieve the targets, the government does not pay. The bond issuer obtains operating funds by issuing bonds to private investors who provide upfront capital in exchange for a share of the government payments that become available if the performance targets are met. The bond issuer uses these operating funds to contract with service providers to deliver the services necessary to meet the performance targets.”

Why is this new instrument needed?

According to the CAP report, “current approaches to government funding of social services create significant barriers to innovation. Funding streams tend to emphasize inputs rather than program objectives and are often overly prescriptive, requiring grantees to use a particular delivery model. In many cases, program outcomes are not rigorously assessed, allowing unsuccessful initiatives to persist for years.  By combining performance-based payments and market discipline, the approach has the potential to improve results, overcome barriers to social innovation, and encourage investment in cost-saving preventive services.”

Which Initiatives are Most Suited for Social Impact Bonds?

Preventative social program services or “interventions”, particularly in the areas of:

  • Foster care reentry prevention
  • Preventive health care
  • Homelessness prevention
  • Unemployment

Performance Management is Critical

According to Michele Host, organizations are springing up to provide the vital tracking and measuring services that governments and organizations need for social impact bonds to work. One such organization, the Global Impact Investing Network, with the support of USAID, the Rockefeller Foundation, Deloitte, and PricewaterhouseCoopers is developing a common framework for reporting the performance of impact investments.

Part 2 of this article will recount what I learned from the SEA event this evening.

Take Care.

Sherry

Sources:

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Categories: Social

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3 replies

  1. Very interesting. I will have to dig through the source material — but I have a question for you: would this work for something like prison recidivism?

    Our prison inmate population has exploded over the last forty years and so too have the resulting costs — both financial as well as social. As we move down a path of privatizing prisons, we create incentives for corporations to warehouse ever larger numbers of people. Would it not be better to invest in those private prison corporations that do a better job at limiting recidivism, rather than those which encourage it?

    • Hi Derrick. Thanks for your thought ful comment.

      Actually, recidivism is one of the key areas for this type of social innovation. Illinois is about to pilot a social enterprise in this area which will hopefully enable us to close down large portions of our prison buildings. Especially for minor offenses, there has to be another answer. Someone just mentioned it briefly to me but I can try to find out more if you like.

I woud like to hear from you

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