Social Impact Bonds

Social Impact Bonds

Social Impact Bonds are a relatively recent innovation, circa 2007. They are financial instruments designed to use private, public, philanthropic funds or a combination of these to finance work to help solve complex social problems. It is important to note that SIBs are rather misnamed as they are not strictly speaking bonds, i.e. debt instruments. They are in fact a form of Outcomes Based Commissioning (OBC) contract where the finance needed to make the contract work comes, in principle at least, not from government or the service provider, but from third party investors (Albertson, Fox, O’Leary and Painter 2020). In practice, this has tended to not be the case and in the UK, home to approximately 50% of the world’s  SIBs, this investment is often subsidised by central government (Huckfield 2020). In this sense SIB-funded provision of public services is analogous to the UK’s Private Finance Initiative (PFI) funded provision of public infrastructure.

Proponents of SIBs distinguished them from other forms of outcome-based payment by emphasising:

  • their alignment of social and financial returns on investment;
  • that service provider costs are covered by investors up-front – in theory minimising risk transfer to smaller, third sector providers; and
  • the potential for SIBs to bring together groups of social investors and portfolios of interventions.

However, to date, it is not clear the potential of SIBs to facilitate social innovation has been realised and there is considerable evidence that their ability to serve as a catalyst for innovation has been oversold (Fox, Olson and Armitage 2020).

At their core, Social Impact Bonds are proposed to have three key constituent elements:

  • commissioner, for example a government department or public agency directly responsible for a specific public policy area), that is willing to pay initial investors a specific amount for a contracted social outcome once it has been achieved;
  • service provider, for example a social enterprise or civil society organisation, that develops a social intervention, directly addressing the contracted social outcome; 
  • social investor that are willing to make the initial investment to provide service providers the working capital for that intervention, assuming the financial risk. 

The underpinning logic is that the commissioner transfers the financial risk of failure of a SIB to the initial social investors, without reducing the overall level of social or welfare services performed (European Commission 2020). Focusing on outcomes, rather than on outputs or the cost of services alone, service providers are supposed to be incentivised to innovate and collaborate on service provisioning. Longer-term SIBs contracts provide them extra investment for service delivery, as well as the stability and time necessary to gain the trust of service beneficiaries. In addition, it is argued that the service provider is immediately provided with a large amount of funding to deliver a social service or intervention. This financial boost affords them the flexibility and means to provide their service according to what achieves the best outcome while also promoting experimentation and innovation. The social investors are meant to be paid by the commissioner if (and only if) the contracted social outcomes are achieved.

To date there is limited evidence that SIBs meet the standards of success proponents set (Huckfield 2020). A critical gap is the absence of social investors and in many cases the state assumes both the role of commissioner and social investor and many reviews have highlighted the lack of a market for such financial instruments (IGEES 2016). As a result many SIBs represent a more convoluted form of Outcomes Based Commissioning contract. In addition, the capacity of many social enterprises or civil society organisations to actively manage their involvement in such complex contractual arrangements is questionable. 

Social Finance and the Future in Ireland Event

Social Finance and the Future in Ireland Event

On Thursday 2nd June 2022, leaders of social enterprises and support organisations, government representatives and social finance experts all met in Buswell’s Hotel, Dublin, to discuss the future of Social Finance in Ireland. 

As part of the ‘Financing Social Enterprise in Ireland: Models of Impact Investing and Readiness’ EU Funded project, social finance instruments were discussed amongst the delegation. The event, co-organised by Community Finance Ireland, Dublin City University and Rethink Ireland, seeks to find new financial instruments that can assist social enterprises in the near future. 

The project which commenced in January 2021 has opened a series of round table workshops and events to explore the existing social finance landscape and to explore new products that can make a meaningful difference to the social enterprise sector. 

Speaking about the event, Donal Traynor, CEO of Community Finance Ireland said, ‘It is important to listen to the lived reality on the ground of social enterprises in Ireland. Getting the correct timely finance solutions to social enterprises so that we might promote sustainability and grow the wider social economy sector is crucial. Today allows expertise and experience challenge our work and offer new hope for financial instruments in the sector.’

If you would like to find out more about the SocialFinance.ie project, please contact us at hello@socialfinance.ie or through our website at www.socialfinance.ie

Social Finance Workshop Invite Thursday 5th May from 4pm to 5.15pm

Social Finance Workshop Invite Thursday 5th May from 4pm to 5.15pm

We are delighted to invite you to participate in a short workshop and follow up on Thursday 5th May from 16:00 until 17:15. 

We have been working hard on our Social Finance project and believe we have something that might be of interest to you. This ‘model social finance product’ requires your input and expertise. If you are able to come along to find out more there are two ways you can sign up.

1/ Please email with confirmation of your attendance (hello@socialfinance.ie). Or…

2/ Register with Eventbrite at this link: https://www.eventbrite.ie/e/a-model-social-finance-product-for-ireland-tickets-329742056367

There is no preparation required in advance of this workshop

Please check out our more detailed invite here.

As ever, if you have any issues, please don’t hesitate to contact us.

Kindest regards

Team @ Social Finance

Join Us For Top Tips on what makes a successful Social Finance Application

Join Us For Top Tips on what makes a successful Social Finance Application

In conjunction with SocialFinance.ie, Community Finance Ireland will host three information workshops to equip your organisation with all the tips necessary to make a successful application for Social Finance with us.

These 45 minute sessions will be hosted virtually on Zoom by our Social Finance experts on the following dates:
Fri 21 January 2022 | 12:30 to 13:15
Thu 27 January 2022 | 12:30 to 13:15
Fri 28 January 2022 | 12:30 to 13:15
To register for one of the sessions or for further details, click the link button with your preferred date above.

We look forward to welcoming you,
Emmett O’Hara
Head of Community Finance (Republic of Ireland)
Community Finance Ireland
Social Finance Workshops are nearly here!

Social Finance Workshops are nearly here!

We are busy lining up some workshops in the coming weeks starting this Friday 5th November with a packed out ‘Organisational structure, form status and potential relationships with group structure’

We still have two workshops coming up on the 12th and 26th November: ‘Nature and extent of relationships with social finance providers and credit unions’ & ‘Social impact reporting and investment readiness’

If you are a social enterprise and interested in giving us your views, don’t hesitate to reach out to hello@socialfinance.ie