Wednesday, 24 August 2011

Social Impact Bonds - Thinking Outside the Box

Sinéad Pentony: At a time when public and private investment is badly needed it’s important to think outside the box and look at different investment vehicles and the outcomes we want to achieve.

Investment tends to be equated with upgrading and improving our physical infrastructure - such as better roads, school buildings, health centres, and energy and communications infrastructure. Investment in human capital is also essential because economic growth in the 21st century is likely to be built on the exploitation of new knowledge and technology.

While investment in physical and human capital is essential for a sustainable and job-rich recovery, it’s important that investment which is ring-fenced for better social outcomes also forms part of the mix of investment. Social impact bonds (SIBs) have the potential to provide much needed investment in the areas of unemployment, health, housing, etc.

A SIB is a defined as “a contract with the public sector in which the public sector entity commits to pay when significant improvements in social outcomes for a defined population are achieved.” Private capital is raised to fund interventions that aim to deliver these improved social outcomes. Financial returns to investors are dependent on the degree to which these interventions improve the target social outcomes. If the interventions fail, the investors may lose their money. If the intervention succeeds, the public sector pays the investors a return financed from a share of the public sector benefit and/or exchequer savings made as a result of the improved social outcomes.

Further details on how the SIB works is provided by Clann Credo, which is a social investment fund and they have recently put out a call for ideas to identify social issues and interventions that may fit the criteria for SIBs in Ireland. The UK has taken the lead in this area and Social Finance, a non-profit organisation, launched the first SIB in 2010, to reduce re-offending among short-sentence offenders. Social Finance is developing SIBs across a number of other areas including children’s services, drug rehabilitation and health. SIBs are also being developed in the USA and Australia.

At a time when the community and voluntary sector has been decimated by cuts and our public services are being starved of investment, creative responses to financing initiatives that focus on social outcomes are more important than ever.

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