The ‘payment by outcomes’ approach to funding social programs is continuing to attract strong interest globally, with various developments around social impact bonds.

Social impact bonds (SIBs), also called social benefit bonds, are a new 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, used to repay the upfront investment along with a financial return.

The pay for success approach helps governments get more from their budgets, incentivises innovation, and brings together governments, service providers, investors and communities to tackle diverse social issues ranging from recividism to homelessness.

Here’s a roundup of some recent activity:

UK

In March, the UK Cabinet Office launched seven new social impact bonds which will help disadvantaged young people, children in care and those with long term health conditions and mental illness.

The Youth Engagement Fund will fund four new SIBs, supporting up to 8,000 disadvantaged young people to improve educational qualifications and secure employment. It includes £10 million from the UK Cabinet Office, £5 million from the Department of Work and Pensions and £1 million from the Ministry of Justice.

The Social Outcomes Fund will provide £2.5 million to support three additional SIBs to help people with long term health conditions, mental illness and children in care. The Cabinet Office set up the £20 million Social Outcomes Fund to provide a ‘top-up’ contribution to outcomes based commissions (social impact bonds or payment by results) that aim to deal with complex and expensive social issues.

This new announcement brings the total number of UK social impact bonds to 31.

US

A bipartisan bill was introduced in the US House of Representatives last month to establish a US$300 million Treasury fund for state and local initiatives initiatives that base their payments on outcomes.

The Social Impact Partnership Act, aims to utilise social impact partnerships in order to improve social and public health outcomes, save taxpayer resources, and unleash non-governmental investment capital to help at-risk Americans.

Australia

In February, the NSW Government launched Australia’s first Social Impact Investment Policy. Building on the success of the state’s two ‘social benefit bonds’, the Government has committed to delivering two impact investment transactions each year such as benefit bonds.  Market sounding sessions have recently been held for stakeholders interested in developing a social impact investment proposals for the Government.

In South Australia, the Government has been exploring impact investing opportunities and is reportedly about to launch the state’s first social impact bond trial.

More information

For an introductory overview about social impact bonds, watch this video from McKinsey.  For more information about Australia’s first two social benefit bonds visit the NSW government website.