Social Impact Bonds
To date, investors in SIBs have been financial institutions, development funds, impact investors, high net worth individuals, philanthropists, and foundations that are interested in achieving both financial and social returns.
Social Finance is a financial intermediary. We work closely with all stakeholders — governments, service providers, and investors — to develop a financing solution that will provide mutual benefit to all. This is a highly intimate and interactive process. We specialize in balancing complex, at times divergent, priorities, structuring transactions that create an incentive around achieving social change. Our services include transaction support; performance management, and advisory services, such as feasibility studies, strategic consulting and market building through education, research, and analysis.
SIB are based on mutual benefit to all participants and beneficiaries. Governments are offered greater flexibility in administering social services, by virtue of the financial risk being placed on investors. Taxpayers benefit from an increased efficiency in the use of their contributions, as SIBs shift government spending from funding social services to paying for verified outcomes. Service providers benefit from greater funding stability, enabling them to focus on delivering proven, outcomes-driven services, and scaling those effective programs. Investors benefit from the opportunity to generate financial returns while simultaneously benefiting society. Ultimately, beneficiaries of social services are offered more effective, outcomes-driven services.
SIBs are suited for issue areas where existing public policy is not achieving the desired, social outcomes. SIBs have been implemented across various issue areas, such as education, criminal justice, recidivism, employment, homelessness, and early childhood education. These are issue areas where target groups can be easily identified, there are measurable outcomes, and investors can familiarize themselves with existing nonprofits, social enterprises and social policies.
Prior to launch, the contracting partners select quantifiable metrics that will serve as indicators of the project´s social impact. For example, rates of employment, recidivism, or matriculation can be measured to evaluate the success of SIB activities. These indicators inform the SIB payout schedule, which is structured based on a minimum performance threshold and capped with a maximum payout.
SFI works closely with service providers and performance evaluators throughout the project, to implement changes as needed, increasing the likelihood of positive outcomes. Nevertheless, investors stand to lose their investment if outcomes are not achieved. In some cases, partial payments may be made according to a predetermined schedule of outcome payments.