We’re often asked our view of social impact bonds, by both charities and investors. Social impact bonds offer an exciting and innovative model, in specific situations.
Exciting, because it could (it is still early days in a long-term pilot) serve to focus commissioners, providers and investors alike on actual evidence-based results.
Innovative, because they may unlock new sources of capital for programmes of social change.
But however successful the pilot may prove, bonds will not be the solution to financing civil society, just as social investment is not the solution to the sector’s funding challenges. They may in time prove to be part of a healthy funding mix for a sector whose funding has been decidedly one-dimensional to date.
Adrian Brown of The Institute for Government neatly explains how it works and also some limitations in his recent blog posts. Those charities wondering how it might help them should read the handy overview provided by Social Finance (the organisation running the social impact bond launched last year). The key questions to ask yourself are:
- Have you identified a potential commissioner of services who would be open to paying investors by results?
- Is your financing need of sufficient scale? For finance needs of under £5m Social Impact Bonds may not be the most appropriate structure.
- Are the interventions that could deliver the target outcome well understood (and evidenced)?
- Is the cost of delivering the set of interventions lower than the resulting savings to the potential commissioner?