Friday, 7 October 2011

Social Impact Bonds both sides of the Atlantic

Social entrepreneurs and investors in the UK have been hearing the term social impact bond for a few years now. In case you haven't heard of it, a social impact bond is funded by private investors and the money is used to finance projects run by charities, social enterprises or businesses. Crucially, the investors would only be repaid, or make a profit, if the projects achieve certain results agreed in advance. I think social impact bonds have three main benefits:
  • They make more funds available for early intervention and prevention at no risk to government;
  • Government funding only pays for those services that are effective as the investor bears all the risk of services being potentially ineffective;
  • Investors and deliverers have an incentive to be as effective as possible as  the larger impact they, the larger the repayment.
In the UK, we're already see a Social Impact Bond working at reducing reoffending, launched in September 2010 by the Ministry of Justice and Social Finance and funded by investors including the Big Lottery Fund. The Office for Civil Society has also recently announced four new social impact bonds to aid troubled families.

Now the US are looking at this model - under the American term "Pay for Success Bonds". Barack Obama’s proposed 2012 budget contains a rule change that allows various government agencies to issue social impact/pay for success bonds and he has proposed that up to $100m of federal money be freed up to run pilot schemes to test the idea.

Social Finance, the pioneers of the Social Impact Bond in the UK, have recently launched a US sister organisation, Social Finance US which President Clinton highlighted at his recent Clinton Global Initiative in September.  Social Finance US also announced some new stellar Directors including former Gates Foundation CFO Alexander Friedman, the leading Harvard business professor and thinker Michael Porter, Luther Ragin, head of the Global Impact Investing Network and the excellent Sonal Shah, the former Director of the Office of Social Innovation at the White House. Wow. Exciting times for social impact bonds both sides of the Atlantic and for social innovation scaling internationally.

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