Social impact bonds

A Social impact bond, also known as Pay for Success Financing, a Pay for Success Bond or a Social Benefit Bond or simply a Social Bond, is a contract with the public sector in which a commitment is made to pay for improved social outcomes that result in public sector savings. The term was originally coined by Geoff Mulgan, Chief Executive of the Young Foundation. The first Social Impact Bond was launched by UK-based Social Finance Ltd. in September 2010.

Social Impact Bonds are a type of bond, but not the most common type. While they operate over a fixed period of time, they do not offer a fixed rate of return. Repayment to investors is contingent upon specified social outcomes being achieved. Therefore, in terms of investment risk, Social impact bonds are more similar to that of a structured product or an equity investment.

60 Social Impact Bonds have launched in 15 countries, raising more than $200m in investment to address social challenges. In July 2016 the Social Finance Global Network launched a white paper on the state of the Social Impact Bond market: Social Impact Bonds: The Early Years. Social Finance also released a live global database of Social Impact Bonds. The database can be sorted by country, issue area, investor, payor and service provider, providing a comprehensive overview of Social Impact Bonds launched to date and a snapshot of the many in development.View the database at http://www.socialfinance.org.uk/database/.

In developing countries, a Development impact bond (DIB) is a variation of the SIB model that would provide new sources of financing to achieve improved social outcomes in developing country contexts. As with SIBs, investors would provide external financing and only receive a return if pre-agreed outcomes are achieved. Funds to remunerate investors come from donors, the budget of the host country, or a combination of the two. Financial returns to investors are intended to be commensurate with the level of success. DIBs have the potential to improve aid efficiency and cost-effectiveness by shifting the focus onto implementation quality and the delivery of successful results. In October 2013, Social Finance Ltd. and the Center for Global Development released a report outlining the findings of a high level working group set up to explore the potential of this new mechanism.

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