Through a social impact bond (SIB), an “impact investor “ provides the program funding for a social program over a period of years (typically 5- 7). If the “service delivery agent”, (the nonprofit) achieves the agreed upon results, then the “payor” (typically a government) pays the investor their capital outlay plus a profit (5- 20%, depending on risk).
A SIB is designed to reduce demand on other government services, thereby “saving” the government money they can pay to the SIB investor. In some cases, the investor risks losing the entire investment if SIB targets results are not met; in others, only the profit is at risk with some or most of the capital guaranteed.
Why the ONN is proposing SIB Principles
The Ontario Nonprofit Network (ONN) has been watching the development of social impact bonds (SIBs) and the interest surrounding them for some time. Here in Canada, we know governments are exploring what they might offer. Saskatchewan has one underway aimed at mothers at risk of losing their children into government care. In Ontario, the Office of Social Enterprise, Ministry of Economic Development, Employment and Infrastructure is in the process of developing a SIB, but the focus is not yet public. The MaRS Centre for Impact Investing is working to put together five social impact bonds, including one to house homeless individuals with mental illnesses. Elsewhere in the world, governments are experimenting with various models and pilots. Social impact bonds are still very much in the experimental stage.
As they progress here in Ontario, we are proposing some key terms and conditions we believe are required for SIB success in the short term. It is important that the voices of service providers are heard at this formative stage. The SIB model is in early development and nonprofits have a unique perspective to bring to the table. We also propose a SIB Evaluation Panel to address the longer-term questions about the role of SIBs. Will SIBs help or hinder governments and their service provider partners provide better outcomes for the people of Ontario? It’s an issue that warrants further examination.
SIB Design Elements
- The well-being and continuity of service to the participants in a SIB need to be negotiated into the SIB project up front.
- Government needs to improve its capacity to shift and adopt proven programs.
- Transparency is an essential element implementing SIBS. All RFPs, contracts, progress reports and evaluations must be publically available.
- Proactive accountability and evaluation – Government needs to demonstrate to the public why the added cost of having private capital pay for public services is justified.
- Service providers need to be principals in the SIB, determining service outcomes and contract terms along with the payee, impact investors and intermediary.
- Shared Returns.
- Service providers need to ensure the SIB program budgets cover their full costs.
- Service providers need to ensure they provide value added and do no harm with the project design.
- An Expert Panel to monitor and track SIB development and learning.