Vibeka Mair raises an interesting question about the UK where many charities steadfastly believe money grows on trees and are finding the notion of accountability abstract – which seems to render them unable to actually do as their mission suggests in making a better world. Elsewhere the future of cities is dependent upon innovative financing and that includes SIBs, of course! – two interesting stories today in SIB News, happy reading:
Why Is The Charity & Social Enterprise Sector Wary Of SIBs?
Vibeka Mair – Responsible Investor
There was a sense of palpable irritation last year when Chancellor of the Exchequer George Osborne announced the UK government would commit an extra £80m (€113.2m) over four years to create more social impact bonds, taking its total spending on SIBs to £105m across government over the course of this parliament.
The extra £80m will come from the Office for Civil Society (OCS), a government department focused on the charity and social enterprise sector. The OCS is one of many UK government departments that has been under pressure to cut annual spending by as much as 40% by 2020, as the Conservative-led government seeks fiscal austerity, while protecting the budgets of a handful of departments like health.
So some people are unhappy that tens of millions will come from the OCS budget to fund SIBs, while other forms of funding for the charity and social enterprise sector such as grants and contracts decline.
The Future Of Cities Depends On Innovative Financing
John D. Macomber – Harvard Business Review
Today’s mega-cities have a footprint problem. They are developing horizontally, not vertically, with vast areas of low sprawl reaching out for miles from Sao Paolo, Lagos, New Delhi, Guangzhou, Jakarta, and many others. A central question our civilization must address is how we can avoid becoming a planet of informal slums.
This is where a new financial product, social impact bonds (also known as pay-for-success contracts), can play a role. These financial products create a risk-bearing financial arrangement between public, private, and nonprofit organizations. In 2014, for example, the state of Massachusetts, the nonprofit Roca, the financial intermediary Third Sector Capital Partners, and a group of investors entered into a contract under which Roca was paid by the investors to operate a program aimed at reducing criminal recidivism. If Roca meets certain goals related to preventing released prisoners from ending up back in jail, the state will repay the investors their principal, with a sliding scale of profit tied to degree of success. (The state is willing to do this because keeping people out of prison saves the state money.) If Roca is unsuccessful, the investors could lose some or all of their money. (The investors have to believe that the developers can deliver the results, and that the state can fulfill its agreements.)