Social impact bond

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SIBs involve “social investors” (which could be charities, commercial investors, local authorities or others) financing a programme to address a clearly defined need in a particular place, on the basis that government will make payments to the investors if the programme achieves the desired outcomes.

A pilot programme has been launched at Peterborough Prison using what has been described as the world’s first Social Impact Bond (or SIB) to finance rehabilitation work with short term prisoners. A SIB uses finance from investors (including charities) to finance a programme in a particular area which is intended to address a clearly defined need. The government will then pay the investors according to the outcomes. In the case of Peterborough Prison, a number of organisations and individuals are together investing £5 million so that voluntary organisations can work with male prisoners serving less than 12 months in order to reduce reoffending. If re-offending drops by more than 7.5% within six years, the investors will receive a payment representing a proportion of the cost of reoffending. The total cost of the project will be capped at £8m. SIBs were developed 2-3 years ago and the project has been supported both by the Labour and the Coalition Governments.

Outcome

World's first social impact bond achieved goals and repaid investors

Liam Kay, Third Sector, 27 July 2017[1]

But experts warn that the success of the One Service in Peterborough does not necessarily mean the SIB model will work elsewhere

HM Prison Peterborough: former inmates helped by the One ServiceHM Prison Peterborough: former inmates helped by the One Service The world’s first social impact bond cut reoffending rates and repaid its investors, according to the social investment not-for-profit Social Finance.

But social finance experts have warned that the success of the One Service in Peterborough did not mean that similar projects could be replicated elsewhere, and the 3 per cent return received by investors could be achieved through less risky methods.

SIBs work by attracting investment to fund projects, often run by charities and social enterprises, and reimbursing and rewarding the investors if the project is successful.

The Peterborough SIB, which was set up in 2010 with £5m from trusts and foundations, helped to fund the One Service in the city, an organisation that works to prevent prisoners from reoffending.

Seven years on, the service has cut reoffending rates by 9 per cent, 1.5 percentage points above the target set by the Ministry of Justice.

The 17 investors in the bond have also been repaid their initial capital plus a 3 per cent return.

David Robinson, chair of the Peterborough SIB Advisory Board, said he was "delighted with the results, both social and financial", and added that the success showed "the transformative power of sustained, personal support for determined people in difficult circumstances".

David Hutchison, chief executive of Social Finance, said: "I am immensely grateful to all our partners for their commitment over the past seven years. We have learnt that impact investment can drive real change and harness communities and action to rethink how we resolve the challenges our societies face."

But social finance experts said the success of the Peterborough SIB should not be interpreted as proof that the SIB model could be replicated elsewhere, especially given the £6.3m funding it received from the Big Lottery Fund.

David Floyd, managing director of the community interest company Social Spider, which provides research and training, said that there were less risky ways of delivering a 3 per cent return on investment, and he would be surprised if the returns were enough to attract institutional investors to similar projects in the future.

He added: "The success of the Peterborough SIB needs to be understood in the context of the £6.3m grant provided by the Big Lottery Fund to support the project, alongside the £5m of social investment. This huge subsidy doesn’t detract from the positive outcomes achieved by providers, but it should lead us to be cautious about regarding One Service as a widely replicable model.

Dan Gregory, an independent adviser, said: "It’s good news to hear of the project’s success in Peterborough. What we need to understand now, I think, is whether the SIB model works just because one SIB did. If a grant-funded programme proves successful, for example, it doesn’t tell us if grants, contracts or payment by results is the best model.

"Even the fiercest of SIB advocates agree they can be complex and expensive, and they have attracted lots of financial support from the government. I hope we can now get a better understanding of when they might make sense and when they don’t."

EIF invests in Epiqus

In June 2017, the European Investment Fund (EIF), Epiqus, a fund manager dedicated to investments with a social impact, and the Finnish Ministry of Economic Affairs and Employment announced a social impact bond scheme, the first of its kind in Europe. The EIF will invest EUR 10 million in an SIB to integrate between 2,500 and 3,700 migrants and refugees into the Finnish labour market through training and job-matching assistance.

https://ec.europa.eu/commission/commissioners/2014-2019/katainen/announcements/investment-plan-europe-first-social-impact-bond-scheme-europe-supports-integration-finland_en

References

  1. http://www.thirdsector.co.uk/worlds-first-social-impact-bond-achieved-goals-repaid-investors/finance/article/1440676

Social Impact Bonds – the Pilot at Peterborough Prison, UK House of Commons Library Standard Note: SN/HA/5758, 12 Nov 2010 http://www.parliament.uk/briefingpapers/commons/lib/research/briefings/SNHA-05758.pdf

Social Finance website: http://www.socialfinance.org.uk/work/sibs

Wikipedia article: http://en.wikipedia.org/wiki/Social_impact_bond

SEN case study of Peterborough SIB: http://socialeconomy.pl/node/290

Will Social Impact Bonds change social policy for the better? - blog article by Valentina Caimi, Social Platform, 20 Apr 15: http://www.socialplatform.org/blog/will-social-impact-bonds-change-social-policy-for-the-better/

https://cooperatoby.wordpress.com/2013/12/03/social-impact-bonds-whats-the-problem/

https://cooperatoby.wordpress.com/2014/06/24/the-strange-death-of-the-peterborough-social-impact-bond/

https://cooperatoby.wordpress.com/2014/04/26/social-impact-bonds-a-wolf-in-sheeps-clothing/