Why We Are Proposing Social Impact Bond Principles
We’ve been watching the development of social impact bonds (SIBs) and the interest surrounding them for some time. As they progress here in Ontario, we are proposing some key terms and conditions we believe are required for SIB success in the short term. It is important that the voices of service providers are heard at this formative stage. The SIB model is in early development and nonprofits have a unique perspective to bring to the table. We also propose a SIB Evaluation Panel to address the longer-term questions about the role of SIBs. Will SIBs help or hinder governments and their service provider partners provide better outcomes for the people of Ontario? It’s an issue that warrants further examination.
What Is a Social Impact Bond?
A social impact bond (SIB) is designed to reduce demand on other government services, thereby “saving” the government money they can pay to the SIB investor. In some cases, the investor risks losing the entire investment if SIB targets results are not met; in others, only the profit is at risk with some or most of the capital guaranteed.
Through a social impact bond (SIB), an “impact investor “ provides the program funding for a social program over a period of years (typically 5- 7). If the “service delivery agent”, (the nonprofit) achieves the agreed upon results, then the “payor” (typically a government) pays the investor their capital outlay plus a profit (5- 20%, depending on risk).
SIBs as currently designed are not sustainable for the nonprofit sector unless they include the delivery organization in contract negotiation, program and evaluation design, ensure full cost recovery and include revenue sharing for the nonprofit.
In addition, participants in programs need to be treated with respect and good faith. They cannot be harmed by their participation in a SIB program or left without needed supports. Government needs to do more than pay a premium for testing a program model. They need to commit to incorporating successful programs and the participants into their service systems at the end of the SIB. If these design features are present in social impact bonds, this financing method may have a place in the spectrum of program financing.
We look forward to working with government and others to incorporate these important design features into the SIBs model and as SIBs move forward to evaluate its efficacy as a funding model.
SIB Design Elements
What’s missing in the current SIB design is the perspective and interests of the community service provider. Ontario SIBs need to incorporate these design elements:
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