Washington-based policy think tank, the Brookings Institution, has released the first impartial and independent report on the potential and limitations of social impact bonds (SIBs).

Published in July 2015, the report critically analyses social impact bonds as a means to address financing and social service delivery issues.

According to the report, as at 1 March 2015, there were 38 SIBs in existence worldwide. The 38 SIBs included in the study each related to one of four broad social issues: education, employment, criminal justice and social welfare.

SIBs are a type of ‘payment by outcomes’ funding mechanism which engages private capital.  Typically, instead of a government paying directly for the provision of a social service, private investors provide capital to a service provider to achieve agreed-upon social outcomes. If these outcomes are achieved, there are cost savings to government, which are used to repay the upfront investment along with a financial return.

The report provides useful information about:

  • the global social impact bond landscape
  • the development process for an impact bond transaction, including four major stages and the various entities involved in the process
  • 10 common claims about what SIBs are able to achieve compared with the report findings

In addition to detailing the findings on the above issues, the report makes a number of conclusions around the future of the impact bond market, such as:

  • So far, SIBs have focused on a handful of sectors and problems with certain characteristics (government is already contracting to nongovernmental agencies to deliver the service, outcomes are measurable and the areas are not core services under government responsibility);
  • There is enormous variation in the deals with respect to the structure, mechanics and stakeholder roles, demonstrating a great flexibility in how a deal can be structured;
  • Of the 38 SIBs studied, the four main factors that were critical to getting a deal together included measurable outcomes, evidence of intervention impact, government support, and dedication and collaboration of stakeholders.

The report is optimistic about the future for the development of more impact bonds, although acknowledges the need for substantial effort on stakeholders’ behalf. Whilst it comprehensively covers the existing landscape up to 1 March 2015, the report does note that some information will become more certain as impact bonds continue to mature.