Social Impact Bonds - in depth explanation

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


  • 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”

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