Social Impact Bonds: A promising new financing model to accelerate social innovation and improve government performance

By Jeffery B. Liebman, Center for American Progress, February 2011

Social impact bonds (SIBs), also referred to as pay-for-success bonds, have been the subject of much discussion in Australia and elsewhere around the world since the launch of the first SIB pilot in the United Kingdom designed to reduce prisoner recidivism at a prison in Peterborough, England. Liebman presents an analysis of SIBs, an instrument that he considers provides ‘a promising new financing model to accelerate social innovation and improve government performance’.

 

The report commences by highlighting that existing government approaches to funding social programs pose six significant barriers to innovation. More often than not traditional approaches are overly prescriptive in regards to the use of a certain delivery model rather than the social objective to be met.  Little attention is placed on results and performance and so ineffective programs are allowed to persist to taxpayers’ cost. Wary of failure, governments are reticent of upfront investment in innovation.

 

A detailed overview of how SIBs work, the parties involved and the relationships between the parties is presented including a summary of the pioneering SIB for the Peterborough prison in the UK.  In turn the key challenges for implementing a SIB in the United States are discussed paralleled against a set of five criteria that determine which social interventions make good candidates for pilot programs. These criteria are, not surprisingly, similar to those determined by the work on SIBs undertaken by Social Finance UK, Young Foundation and the Centre of Social Impact – namely:

 

  1. The interventions must have sufficiently high net benefits
  2. The interventions must have measurable outcomes
  3. The treatment population must be well-defined up front
  4. Impact assessments must be credible
  5. Unsuccessful performance must not result in excessive harm

In its concluding pages the report sets out the next steps to enable several active pilots of the SIB model to be up and running in the U.S. within the next 12 to 24 months. In part these steps mirror work undertaken by the Centre of Social Impact as part of its report on the NSW Government SIB Pilot. The steps include: identifying promising pilot applications; establishing the first U.S. pilot tests at the local level; identifying program areas most in need of social innovation; assessing the potential investor market; and seeking congressional authority for the use of performance-based payments.

To read the full article see: www.americanprogress.org/issues/2011/02/pdf/social_impact_bonds.pdf

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