Social impact bond

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The Social Impact Bond model is a method of financing welfare and other social services, with investment returns being linked with achieving specified social objectives.

It aims to improve a social outcome through the collaboration of government, service providers and external investors.

Put simply, a SIB involves a set of contracts, the basis of which is an agreement by government to pay investors for an improvement in a specific social outcome once it has been achieved.

Service providers address the social outcome by delivering an intervention to a group within a target community. Investors provide working capital for service providers to deliver the intervention.

If greater improvements in the social outcome are made, government payments are larger and thus, investor returns are higher.

Effectively, the SIB acts a social futures contract rather than a debt instrument (Nicholls and Tomkinson, 2013, p.3).

Social impact bonds involve external investors financing a project with a social purpose and getting a return dependent on meeting certain performance criteria. They are a subset of payment by results mechanisms whereby governments contract with external parties to provide public services with payment according to the results they achieve.

Social impact bonds are also sometimes known as social outcomes partnerships.

(Source - Introduction to social outcomes partnerships (social impact bonds) - UK Government.)

See also

Other resources