Social Impact Bonds (SIB’s)

Unpacking Social Impact Bonds (SIB's)

Social Impact Bonds are a form of outcomes-based contract in which public sector commissioners commit to pay for significant improvements in social outcomes (such as a reduction in offending rates, or in the number of people being admitted to hospital) for a defined population'.

A social impact bond (“SIB”) is a funding mechanism which enables: A public authority to commission innovative services that attempt new approaches to delivering desirable social outcomes and to share the risk of exploring those new approaches.

Service providers to benefit from increased flexibility in delivering agreed outcomes. It will not bear the cashflow impact of payment being deferred until the outcomes are known, but may (potentially) take a share of the risk and/or reward in respect of whether the services it provides deliver the desired outcomes. 

It is anticipated that the service provider will be a voluntary, community or social enterprise organisation with the technical skills, but not the capital reserves, to deliver a contract on a wholly, or largely, payments for outcomes basis.

Investors to finance activity designed to achieve significant social outcomes by providing working capital to voluntary, community and social enterprise providers to deliver services. Investors assume a large part of the risk that the interventions they fund will be successful. If interventions succeed, the investors will, in addition to enabling these outcomes, receive a financial return on their investment.