Social Innovation
Introduction to Social Impact Bonds
Social Impact Bonds (SIBs) are one type of social or
impact investment; that is a type of investment that is
intended to deliver a positive social outcome as well as
financial return. SIBs use two key mechanisms—
contracts and finance—to enable more of what works
to deliver better outcomes and promote innovation.
Essentially, a SIB involves contract(s) between parties
that share an intention to improve outcomes for a
particular population group. Investors provide the
working capital, and if targeted outcomes are achieved,
and within certain timeframes, the party that
commissioned the bond (usually government) repays
the investors their capital and an agreed financial
return. In concept they work like this:
providers and sectors, and scale what works. However,
SIBs are not a silver bullet. It is still early days in their
development and implementation.
What’s in a name?
A SIB is not a ‘bond’ in the traditional financial sense. A
traditional bond is similar to a loan in that the capital
and interest are usually not at risk. In a SIB, the
repayment of some or all of the capital is contingent on
achieving the agreed outcomes.
The term SIB has been in popular use since the launch
of the first SIB in the UK in 2010. Different names have
since come into use: North America, calls them ‘Payfor-Success’ bonds; New South Wales adopted the
term ‘Social Benefit Bonds’; and a recent Australian
report suggests the name ‘Social Impact Partnerships’.
A new way of financing and partnering
Traditionally, government contracts with providers of
social services have largely defined the nature of
services to be delivered and performance is most
commonly measured on inputs and outputs. Service
provision is usually funded through either grant
funding or a fee for service.
A SIB offers a new way of partnering to finance and
deliver services for a particular target group and social
issue. They can offer:

cross-sector collaboration that can harness
specialist expertise;

a better spend of limited financial resources with
greater clarity on agreed milestones and outcomes
measures, and accountability for results;

new capital allowing providers to focus on
innovation and impact rather than ‘go where the
money is’;
SIBS: A way of structuring contracts and flow of
funding for better outcome.

greater flexibility to respond to social needs
instead of programme constraints; and
SIBs have attracted significant interest recently. This is
due to their potential to finance approaches that focus
on issues rather than programmes, enable early
intervention, harness the collective action of different

greater focus on evidence-based service delivery
and data on what works.
A new way of contracting
At a minimum, a feasible SIB proposition requires:
1.
a clear focus on the social issue and target
group for the initiative;
2.
measureable outcomes and available baseline
data; and
3.
a party (usually government) willing to
commission and pay on the ‘bond’, interested
and qualified service provider(s) and investors
prepared to finance the work on the terms
offered.
There can be benefits for all parties.

Governments utilise expertise and knowledge
from the community about what works to
improve people’s lives, at lower risk to the tax
payer.
return safely to their families. Social Ventures Australia
(the intermediary) is marketing the bond to impact
investors with a targeted financial return of 10% to
12% per annum (capped at 15%) over seven years
dependent upon rates of restoration of children to
their families.
See below for more information on the approach,
terms and structures.
There is still a lot to learn
SIBs have the potential to bring significant new capital
and efficiencies to social service delivery when the
interests of key partners are aligned.
There are a number of potential challenges to be
understood and worked through, including:

lack of track record—there are only a handful of
SIBs in operation so available ‘lessons learned’ may
not be sufficient to guide design and
implementation in different contexts;

investor appetite is yet to be fully tested at this
early stage of the market; although the NSW
experience will provide valuable insights;
In some situations, other parties may be required to
facilitate delivery and ensure veracity for the process
and outcomes. Most commonly, there is a focus on an
intermediary to coordinate service provision and/or
engage the investment community, or an independent
evaluator to verify outcomes.

reliance on appropriate, accurate measurement of
social outcomes. The ability to attribute these
outcomes to the SIB funded initiatives may be
difficult in some situations;

SIBs are not suitable for all social issues,
populations or service providers; and
Where have SIBs been used?

this approach takes time to develop and deploy—
SIBs may involve complex, multi-party negotiations
and collaboration to bring to fruition, and may
involve different types of costs.

Service providers have greater flexibility and
creativity in how they work and deliver
programmes.

Investors can invest in issues they care about,
and drive improvements in service delivery
and greater accountability for results.
The first and most developed example is the
One*Service - Peterborough Social Impact Bond (UK).
The Ministry of Justice UK (the payor) contracted with
Social Finance Ltd (the intermediary) to reduce the
reoffending behaviour of 3 000 prisoners leaving
Peterborough Prison over a six-year period (the target
population). Social Finance Ltd then raised the
investment. The Ministry of Justice, in combination
with Big Lottery Fund, will pay Social Finance Ltd
outcome payments if re-offending is reduced by 7.5%
or more. The amount increases if re-offending drops
even further.
New South Wales is the first Australian jurisdiction to
undertake a SIB pilot. The UnitingCare Newpin Social
Benefit Bond (NSW) is the first to market there. The
New South Wales Government (the payor) has
partnered with UnitingCare Burnside (the service
provider) to implement a $7 million Social Benefit Bond
that will fund the New Parent and Infant Network
(Newpin) program. The Newpin program works
intensively with struggling families to keep them safely
together and assist children in out-of-home care to
Further reading
Peterborough Social Impact Bond (UK)
<http://www.socialfinance.org.uk/sites/default/files/S
F_Peterborough_SIB.pdf>
UnitingCare Newpin Social Benefit Bond (NSW)
<http://www.socialventures.com.au/socialfinance/newpin-social-benefit-bond>
Goldman Sachs ‘Pay for Success’ (USA)
<http://www.goldmansachs.com/what-wedo/investing-and-lending/urban-investments/casestudies/social-impact-bonds.html>