Social Impact Bonds - in depth explanation

Here you can find the basic definition of Social Impact Bonds Social Impact Bonds - ELI5

Overview

  • first SIB created in 2010
  • not securities sold in capital markets (vs traded traditional bonds)
  • fixed term
  • variable return rate
  • multiparty contracts between governments seeking financial support for innovative programs and policies and funders with money to lend them
  • whether investors are repaid – and to what degree – depends on how much progress the underlying program makes toward achieving its goals
  • best-case scenario: full repayment + a small profit
  • scale: in the eight years since the first social impact bonds were launched, a total of 108 have raised about US$392 million, impacting more than 700,000 people in 25 countries.
  • growing fast: 1st SIB was in 2010, now in 2019 a £200m budget was announced by the UK (a leading country in that field)
  • getting interest from wealthy philanthropists
  • gaining popularity in the UK, USA & Australia
  • enabling public-private partnerships

Why (pros) ?

  • potential to bring needed financing to support innovative ways of delivering social services
  • save taxpayer dollars by reducing the need for government services at no additional cost to the public
  • rather than pocketing the proceeds, the backers are encouraged to recycle this capital to back other projects
  • stimulating innovation

Why not (cons)?

  • some argue that funding projects this way will probably cost more due to the additional coordination and evaluation required (10% maybe)
  • adds complexity to public sector commissioning
  • most suited to innovations in the delivery of social services that save money, something that not all improvements in social services can do
  • mixed track record so far
  • no evidence that SIBs encourage innovation
  • some critics say it’s wrong to put a financial value on improving the lives of vulnerable people
  • “most impact bonds to-date have had to be large-enough to provide some economies of scale, but not too big to cause massive financial losses or opportunity costs, if they fail”

Feeling lost? you might want to start reading here Finance & Token Engineering category - START HERE