Social Impact Bonds at a Glance – compliments of the Ontario Nonprofit Network

 

Introduced in the UK as part of the Big Society transformation in 2010, Social Impact

Bonds (SIBs) are a financial instrument that has recently been given public profile by the

Federal government and is slated to become part of the social finance/social innovation

landscape in Canada. Other jurisdictions in the United States and Australia are also

experimenting with this tool.

What are Social Impact Bonds?

In brief, they are a form of performance-based contract: governments commit to pay for a

measurable improvement in social outcomes (such as reduction in offender rates) related

to a defined population, according to an agreed-upon metric. Private investment is used to

pay for interventions, which are delivered by nonprofit service providers. Financial

returns to private investors are made by the government on the basis of improved

outcomes, including a set amount or percentage of profit. If outcomes do not improve

according to the standard set for a specific bond, then investors do not recover their

original investment or profit. (Read more here)

What SIB activity is happening in Canada right now?

In the 2011 federal budget, the Canadian government mentioned exploring social finance

in relation to “social partnerships.” In the 2012 budget, the federal government

introduced the idea of social impact bonds as an example of social finance reforms,

noting that “the Government will continue to explore social finance instruments as a way

to further encourage the development of government community partnerships.”

Public attention was renewed by a recent speech from the Minister of Human Resources

and Skill Development, Diane Finley. She announced that the federal government had

opened a process for organizations (of any type) to submit concepts related to social

finance, primarily for SIB-related initiatives, by December 31, 2012. (Details here)

Do SIBs work?

Are they Important for the Communities that Nonprofits Serve?

This opportunity has incited some curiosity, interest and debate both within and outside

of the nonprofit sector, regarding the details and implications of using SIBs. As an

emergent social finance instrument, there is very little proof to date of their potential

success, failure, or specific outcomes. As the possibilities are discussed, SIBs are serving

as a touch-point to launch conversations about broader social policy issues and strategies

currently at play, as well as the medium-term policy intentions of the federal government

and perhaps other jurisdictions, including Ontario.

Given that, it is unsurprising that there are many perspectives on the issue, some of them

quite polarized. Considering a Canadian context, CBC’s “The Current” is one place to

get a sense of the conversation. It includes an interview with Minister Finley and some

others to answer the question: “ Are social impact bonds a good way to invest in public

services?

 ” There are also some articles collected at socialfinance.ca, and a thoughtful reflection from the

Caledon Institute here.

Could the use of SIBs improve social outcomes? How might SIBs interact with or

alter existing strategies? How might they alter the overall roles and responsibilities of

government and the nonprofit sector? Whether or not SIBs themselves become an

important part of Ontario’s landscape, the broader questions about social policy

remain. How Ontarians answer these questions will shape aspects of the nonprofit

sector, and the communities it serves, in the decades to come.

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