And social impact bonds?
Arguably the best known form of social impact investment, social impact bonds1
are
multi-stakeholder arrangements between a public authority, investors, a service provider
and an intermediary organisation. A bond is sold to private investors who are paid a
return only if the associated social
project succeeds in attaining a
certain level of social result within a
given period of time.
More specifically, capital provided by
private investors is used by one or
more service providers to set up or
finance activities that will both bring
about positive social outcomes for
the beneficiaries and reduce future
public costs. These cost savings are
then shared by public authorities
(sometimes referred to as the
commissioner of the bond) with the
original investors, who receive
payment in the form of a return on
their original capital investment.
Usually an intermediary or advisor
brings together these three players
and helps to set up the necessary structures in return for a fee. In principle, both the
investors and the public benefit from this 'win-win situation'. Best of all, no public funds
need to be raised or committed2
during the set-up and operation of the service, i.e.
until the desired results are achieved.