1. Social impact bonds are an outcome-based financing mechanism where private investors provide upfront capital for social programs and are repaid based on whether target outcomes are achieved. 2. There are three main structures for social impact bonds - direct, intermediated, and managed. Direct involves a social enterprise raising funds, intermediated uses a special purpose vehicle, and managed involves an organization managing the whole process. 3. While social impact bonds aim to increase effectiveness, efficiency, and innovation, questions remain around their transparency, complexity, accountability, and appropriate scope. Measurement of outcomes and determining who benefits are also challenges.

1. Social impact bonds:
promises and pitfalls
OECD LEED with netFWD
Peter Ramsden Freiss Ltd
Wednesday 15th April 2015 Paris

2. The way we were: The simple model, inputs buy
outputs
Total
Cost of
project
National/regional/local
Funds (taxation)
OutputsInputs

3. The EU co-financing model: Two sources of
Inputs buy outputs
Total Cost of
project
EU Funds (ERDF or ESF)
National/regional/local
Funds
OutputsInputs

5. Social Impact Bonds: What are they?
• An enhanced form of payment by results contract with the public sector in which
a commitment is made to pay for improved social results (outcomes) that
(normally) lead to public sector savings
• The bond has a public - private financial circuit
• Investors get a return if they deliver the target social results
• But lose their investment if they do not achieve targets
• The term bond is something of a misnomer
• Also known as Pay for Success bonds (USA)
• Pay for Benefit bonds (Australia)

7. Where?
Country Number Location
Australia 2 New South Wales
Belgium 1 national
Canada 1 Saskatoon
Germany 1 Augsburg, Bavaria
India 1 national
Portugal 1 Lisbon/ national
UK 22+7 National 1, Essex 1, Manchester 3, London 6, Nottingham 1,
Gt Merseyside 2, Birmingham 1, Thames Valley 1, Perthshire
and Kinross 1, Cardiff and Newport 1, Sheffield 1, multiple
sites 7, plus 2
USA 8 Ohio, Chicago, NYC, NY State, Utah, Mass (2)

8. Policy Scope
Topics
Australia 2 Family care and foster care avoidance
Belgium 1 Employment
Canada 1 Vulnerable single mothers
Germany 1 Youth employment
India Education for girls
Portugal 1 Youth computer coding
UK 22+7 DWP R1 youth employment and education (9), and R2 youth
homelessness and NEETS (7) foster care avoidance (2), recidivism
(1) youth engagement (4), health 3
USA 8 Recidivism (3),
Early childhood education (1), employment 1, family and foster
care, 1 homelessness 1

9. Managed SIB: Example Peterborough
• Peterborough Prison Bond 2010 - 2015
• Recidivism on short term sentences is over
60%
• Reduction by 7.5% to achieve return
• ‘Through the door’ services delivered by
two social enterprises (St Giles Trust and
Ormiston Trust)
• Secure funding
• £5million initial investment
• Managed SIB developed by Social Finance

10. Managed
SIB:
example
Peter
borough
One
Service
source Rand Europe

11. Key
actors
Service
Providers
Commissioners
Investors
Evaluators
ClientsCLIENTS

12. Three broad structures of SIB
According to Bridges Ventures three main types of SIB can be identified in
the emerging field.
• Direct SIB: a social enterprise raises finance directly to finance a payment
by results contract
• Intemediated SIB: a special purpose vehicle is set up – either as a joint
venture or owned by a social enterprise and this SPV raises the working
capital and manages the process including relations with the
commissioners
• Managed SIB: an organisation such as Social Finance manages the whole
process

13. Direct SIB
St Mungo’s
owns the SPV
Source evaluation report

14. Intermediated: New Horizons SIB

15. Peterborough One Service: Managed SIB

16. Whose Initiative?
• Social Finance and other intermediaries very active. Laying the
ground by feasibility studies and sector reviews, proposing SIBs
• SIBs have been initiated by parent ministries and departments (e.g.
London homelessness, Essex, New South Wales)
• Some have been proposed by social enterprise service delivery
organisations, some by consultants and individuals

17. Social Innovation
• SIBs do not specify the intervention model referring only to outcomes
• Most of the practices were already known, but often had not been applied
at scale or in combination.
• In Peterborough, complex service delivery model for One Service. Which
was adapted to meet needs.
• Mind brought in to deliver mental health support
• Ormiston commissioned to deliver support services to families of offenders
• Drop in service set upu and course delivered in maintain family ties in prison.
• Much of the innovation is in the packaging, coordination and integration of
services. Role of coach, navigator and relationship based support a
common thread

18. Measurement and Results
• Impressive attention to defining results and result indicators
• Use of external evaluators on throughout the contract rather than ex-post.
• SIBs are as robust as Social Experiments in using indicators, measuring
added value and distance travelled, and using Randomised Control Groups
(e.g. Peterborough)
• Evaluators have looked in detail at creaming/cherry picking and parking
issues.
• Peterborough achieved 8.4% reduction in reconviction events at its first
evaluation compared to the matched comparison group (payments would
have been triggered by 10%).

19. Examples of result (outcome) indicators
• Peterborough One service: Reduction in the frequency of reconviction
events within 12 months after discharge. The mean number is compared
with an equivalent matched comparison group.
• They use a propensity scoring method based on regression analysis with
specific predictive variables from the whole prison population
(e.g.demography m/f age etc, historic offences, conviction, sentence etc.)
• Street Impact: five weighted indicators for allocating funding
• Reduced rough sleeping 25%
• Sustained stable accommodation 40%
• Sustained reconnection (out of UK) 25%
• Employability and employment 5%
• Better managed health 5%

20. Investors: mostly from the social investment
community, but some banks
• Peterborough £5million: Barrow Cadbury charitable trust, Esmee Fairbairn
Foundation, Friends Provident Foundation, Henry Smith Charity, Jahansson
Family Foundation, Lankelly Chase Foundation, Monument Trust, Panahpur
Charitable Trust, Tudor Trust
• Rikers Island 9.7m USD raised from Goldman Sachs Urban Investment Fund
with 70% guarantee from Bloomberg Philanthropies
• Massachussets 27m USD of potential success payments (from Fed and
State). Financing SIB:
• Goldman Sachs $9 million in senior loan from Social Impact Fund (part of UIF).
• The Kresge Foundation and Living Cities $1.5 million each in junior loan financing.
• $3.7 million from Laura and John Arnold Foundation, $2 million from New Profit,
and $300,000 from The Boston Foundation in grants

21. Different structures for rates of return
• Peterborough (recidivism) capped interest return of 13% if the
reoffending rate drops beyond 7.5% but capital is lost if target not
achieved.
• Essex 8% for medium performance
• New South Wales 10-12% return and losses capped at 25% of capital
• It’s all about me (adoption SIB) 4% annual rate of return

22. Different perspectives on risk
• Commissioner: procuring the service
• in house, the department carries the risk (e.g. of poor delivery)
• pay a service provider for outputs, risk shared
• pay for outcomes/results – risk transferred to service provider
• Service provider (mostly social enterprises) for a payment by results contract:
• finance from own resources, service provider takes the risk
• via a bank loan, service provider – shared risk
• via an investor who will be repaid if results achieved. Risk can be managed using a SIB
• The investor,
• Direct SIB – the service provider carries the risk if results are not achieved, the investor is
lending and is repaid first with the loan secured against the enterprise’s assets (or unsecured
if SPV)
• Intemerdiated SIB – risk is shared within the SPV among investors. Repayment is dependent
on structure of SIB .
• Managed SIB –investors carry risk but have upside if results are achieved and exceeded

23. What about the social enterprise service
provider?
• The level of risk depends on the model
• In a direct SIB the risk can be high (no payment if results are poor) but
higher returns if results are good.
• In an intermediated SIB the social enterprise is shielded from the risk by
the SPV. But is contracted and can have contract terminated for non-
performance. They are paid for service delivered (similar to input funding
model)
• Ditto for Managed SIB.
• Advantages of SIBs for social enterprises
• Able to bid into larger payment by results contracts
• Disadvantages of SIBs for social enterprises
• Tied to very tight performance targets

24. A Faustian pact?
Effectiveness &
efficiency
(results/outcomes)
Transparency,
complexity &
accountability

25. Some questions on social impact bonds
• Governance: Is it transparent? To whom is it accountable?
• Scope: when are these types of bonds appropriate and when not?
• Social innovation: What types of intervention does it deliver on the
ground? Do they lead to ‘cherry picking’ or ‘parking’
• Measurement: Who benefits (and who loses) and how do we
measure results?
• Finance: Which model and why? How much cost and time to set up
compared to other options? How are the payments triggered? Where
does the money go? Who will invest?