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What are Social Impact Bonds and how can we get involved?

  • The likelihood is that you have heard of Social Impact Bonds (SIBS) at some time over the last couple of years. Some hail SIBs as an innovative, even revolutionary way to bring together the distinct expertise of different sectors - improving government efficiency while better addressing complex social issues. Others are more cautious, highlighting the potential risks of giving financial incentives to investors for achieving public goods. As is often the case with these things, the majority of us quickly become mired in jargon and leave it for later.

    The reality is that, wherever you stand, SIBS are a rapidly growing source of funding for not-for-profits. For this reason we felt it would be useful for you to have an outline of SIBs, enabling you (small, local charities and community groups) to decide whether, and if so how, you may be able to participate.

    What exactly are Social Impact Bonds?

    Social Impact Bonds are Pay-by-Performance contracts in which the financial risks (and potential profits) lie entirely with private investors, rather than with the government or civil society.

    A private investor initially pays for a commissioned project (Commissioners are public sector organisation’s such as local authorities or government departments). The investor then works alongside their chosen partner civil society organisations to achieve specific, measurable outcomes that are agreed upon at the start of the bond.

    The investors are only repaid by the commissioner if the outcomes are attained. If the agreed outcomes are achieved the investors are repaid by the commissioner and are also given a return for the financial risks they took.


    What is the idea behind SIBS?

    The idea is to bring in private investment to tackle complex and expensive social challenges. The theory is that well-funded early intervention will prevent greater long-term problems and will, ultimately, reduce the public sector’s costs. For example, the first ever SIB, The Peterborough Social Impact Bond, was intended to reduce reoffending. Another ongoing SIB commissioned by Manchester Council is aimed at supporting young people transitioning between residential care to foster care (young people in Residential Care are statistically more likely to have low school attendance, substance abuse problems,  enter the criminal justice system and  become NEET- Not in Education, Employment or Training)

    Accountability and transparency - SIBs have clearly defined outcomes that must be achieved if investors are to ensure a return on their investment. Consequently, it is in the interests of all parties to ensure that the impact of the project is accurately monitored and evaluated. In the long term, this would mean a shift towards a more evidence based approach to government spending.

    How do SIBS work in practice?

    SIBS are still in their infancy and as a result there are relatively few case studies to draw upon. Moreover, those that do exist differ considerably in structure and practice.  The most frequently cited case study is the Peterborough Pilot.

    • The Peterborough SIB, launched in March 2010, was aimed at reducing reoffending by prisoners released from Peterborough prison. Re-offending is an area where prevention has been proven to save the taxpayer money.

    • The Ministry of Justice (MOJ) worked in collaboration with 17 investors - mostly charitable trusts and foundations. As this was a “proof of concept” pilot,  this contract was not put out for competitive tender. However, competitive tendering is expected to become the norm for SIBs.  

    • Service providers, together known as the One Service included: St Giles Trust; Ormiston Children and Families Trust (Ormiston); SOVA; YMCA, Peterborough and Fenland Mind (Mind)

    • The contract agreed that the MOJ would make payments to investors if re-offending was reduced by at least 7.5%.  The greater the drop in reoffending beyond this threshold, the more the investors would receive

    • The SIB offered support to 3,000 prisoners both inside prison and after release. The One Service offered a range of support including help with accommodation, low-level mental health needs and training and employment opportunities.

    • In August 2014 the results for the first group of 1,000 prisoners on the Peterborough  SIB were announced - these showed an 8.4% reduction in reconviction rates relative to the national baseline.

    • Peterborough SIB was cut short due after the MoJ announced they would be restructuring the probation service in April 2014.

    Are small/local charities  able to become service providers in Social Impact bonds?

    Unlike other pay-by-performance contracts, small charities are more likely to be able to participate in SIBS because the financial risk does not lie with them but with the investor. The government have been keen to highlight this point, claiming that SIBs enable service providers with a ‘deep understanding of the target group that they are trying to support and expertise in the types of intervention that are effective’ but that ‘lack both working capital and evaluation expertise’ to participate in interventions.

    Strictly speaking, any charity or social enterprise with a proven track record of delivering high social impact  is eligible to become a service provider - plenty of small, local charities meet this definition. However, since investors are carrying the initial financial burden, they are unlikely to be willing to take big risks when choosing which civil society organisations to work with. In practice, most service providers have been working with recognised,  medium to large, charities. Service providers involved in SIBS at present include: Action for children, Thames Reach, St Mungo’s and YMCA. For smaller charities considering participating in a SIB, one potential option would be to work collaboratively with a larger, lead charity.

    Flexibility, Monitoring and Evaluation

    One key point for smaller charities to consider when looking at whether they want to become involved in SIBs is whether they have (or see themselves as being able to gain) the capacity for wide scale data-collection and the flexibility to change their methods if goals are not being met.

    In order for investors to ensure a return on their investment they must provide solid evidence that they have achieved their outcomes. This involves rigorously monitoring and evaluating their programmes. A lot of the feedback  from charities involved in SIBS so far has directly referenced the high volume of data-collection required. For example, Teens and Toddlers, who have recently been supported by a SIB to deliver an educational and social training programme for 14-15 year olds in Manchester, have stated:

    “We had to be ready for the data demands that come weekly, monthly, quarterly, yearly…This can be tough. I report monthly to our board of investors. Every bit of data is reported on and scrutinised, and although our investors are a great bunch, I still get a tad nervous. A bit like first night nerves on a monthly basis!

    Whilst monitoring and evaluation demands are particularly high for SIBS, in truth this is reflective of a general trend towards demanding accountability for funds. For some charities, involvement with a SIB may give them the impetus and resources to better survive in this new era of funding conditionality.


    As SIBS are still a relatively new initiative they continue to attract a comparatively high level of media attention. If involved in a SIB, this attention may be used to increase public awareness of your charity and cause, potentially driving up demand for services and even bringing in opportunities for further investment. Teens and Toddlers claimed that they gained “fantastic media coverage” that has “ensured (their) name is recognised much more widely”. Of course, increased attention will always come with reputational risks as well as rewards.

    Can charities propose SIBS themselves?

    Theoretically anyone, be it a commissioner, investor, politician or service provider can propose a SIB. There is nothing preventing charities and community organisations developing SIB proposals. In fact, in many cases local charities are likely to have the best understanding of both the needs of their communities and the type of intervention that may be required to address them.

    However, the difficulty for smaller charities, with limited resources –  or, importantly, contacts – may come in approaching other actors (potential commissioners and investors) about implementation. For smaller charities interested in developing a SIB proposal, the best option would almost certainly be to work in partnership with other potential service providers and sound-out potential investors (using the contacts they have in businesses, trusts or foundations)as early as possible.

    To find out more about Social Impact Bonds you can visit: