The first SIB in the state of Victoria, Australia is welcomed as is the launch of an interesting new form of impact security…
Lucille Keen – AFR
The Victorian government’s first use of social impact bonds will ask investors to finance programs to get young people out of drug and alcohol addiction.
After weeks of consultations with the community sector, Treasurer Tim Pallas told The Australian Financial Review the government was looking to potential social service providers, partners and investors to fund and deliver the two projects, worth an estimated $10 million.
Governments are looking to capital markets to ease pressure from strained budgets and increasing demand for social services.
Social impact bonds mean investors fund the project and bear the financial risk, with contracts requiring the delivery of specified social outcomes over an agreed period. If the outcomes are achieved, the government will make payments to the investors.
Up until now the NSW government has led the charge in the use of social bonds.
Its first social impact bond, developed in 2014, was a $7 million project to reduce the number of children in foster care. It has so far delivered a yield of 7.5 per cent.
State governments in Queensland and South Australia have also announced programs, and the Western Australian and federal government are also considering adopting the funding regime.
Mr Pallas said after much discussion it was decided the two programs were best suited to social bonds.
NPX, an innovative company that is transforming how impact is financed in the nonprofit sector, today announced the launch of the Impact Security, a novel financial product that explicitly links financial returns with social and environmental impact. NPX released today a detailed white paper on the Impact Security as well as a summary infographic.
The Impact Security is a debt security issued by a non-profit organization, foundation, government or supranational entity, featuring variable returns that are contingent on the achievement of predetermined impact metrics. The performance incentives, standardization, accountability and transparency inherent in the Impact Security structure aim to foster integrity and promote broader participation in the emerging impact investing and pay-for-success sectors.