America, Australia and Canada in the spotlight today, in another bumper SIB News, happy reading…
Letting Investors Take A Shot At Curing Social Ills (subscription)
John C. Williams – Wall Street Journal
What if there were a way to solve the country’s most intractable social problems—homelessness, crime or inequities in education, for example—without putting taxpayer money at risk? There might be.
Rather than paying upfront for social services, a number of states and local governments are testing initiatives that pay upon completion, based on results. No success, no payday. This “social impact bond” financing, or SIB, is a new approach to contracting that allows government, businesses, nonprofits and investors to find solutions to some of the country’s most deeply rooted social ills.
Consider Massachusetts: This year about 4,000 young men will be considered “high-risk” as they move out of the juvenile justice system. Roughly 55% of them are expected to be re-incarcerated in the following three years, spending an average of 28 months behind bars at an annual cost of $47,000 each. To reduce incarceration and improve employment prospects, the state began an SIB earlier this year, allocating up to $27 million.
The project follows a basic SIB model: An intermediary organization is awarded the contract and functions as project manager. In Massachusetts, the organization is Third Sector Capital Partners, one of two national SIB intermediaries, the other being Social Finance U.S. That organization either hires a social-service provider, manages a provider hired by the state or locality, or delivers the services itself. Massachusetts chose the organization Roca to deliver two years of intensive behavioral and workforce services and two years of follow-up services to 929 at-risk young men. Private investors, such as banks or foundations, provide the working capital—$18 million in Massachusetts.
An independent organization in the Bay State will verify outcomes over the next seven years and evaluate the project based on reduction in incarceration time and increases in work-readiness and employment. If the project is a success, the intermediary and service provider receive deferred services fees and the loan providers are repaid their investment, plus a rate of return: 5% for the senior loan and 2% for the junior loan. Payments begin at a 5% reduction in prison-bed days and lenders are fully repaid at 40%, with bonus payments for further reductions. If the project fails to deliver, the state pays nothing.
Social Impact Bonds: The Opposite Of Private Prisons
Hamilton Nolan – Gawker
One of the reasons that the private prison industry is one of the most disgusting manifestations of capitalism is that it creates an economic incentive to imprison more people. What if we did… the opposite of that?
In the Wall Street Journal today, John C. Williams writes about social impact bonds, a form of government financing that aligns the incentives towards doing things that are good for people (like helping them stay out of prison) rather than doing things that are bad for people (like imprisoning more of them and cutting every last penny from prison budgets so that prisons are even more hellish than usual). What a revolutionary idea!
Investing In Real Change: Global Steps Forward For Australia
Pro Bono Australia
The recent global launch of the Social Impact Investment Taskforce report shows Australia as having the foundations for a thriving, world-leading impact investment sector, writes Australia’s Taskforce representative, Rosemary Addis.
Social Impact Investing: A Primer
The Wanderer – Kristen Pue
For most people, the world of finance, and especially social finance, can seem arcane, possibly even a bit like the famous underpants gnomes business plan from South Park: money is, seemingly, produced from nowhere. But social finance is actually not as complicated as it appears. Moreover, it is an increasingly popular way to fund social programs in Canada and around the world.
In Canada, charities and non-profits deliver many important social goods. Canada has historically had a large voluntary sector, responsible for about 7% of our GDP. This has traditionally been driven by philanthropic giving – which is why we also have a relatively well-developed coordinated giving sector, with over 2000 active grant-making foundations.
However, Canada has recently seen the rapid expansion of social finance in addition to traditional giving. Social finance may already comprise as much as $290 million. This is perhaps why Tim Jackson, one of Canada’s two representatives on the G7 Social Impact Investment Taskforce, said that “Canada is leading the second wave” in social finance.
Canadians that are interested in philanthropy should understand how social finance works. This article is a primer on social impact investment.