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Social Finance is exploring how Social Impact Bonds could be used to improve patients’ health at the same time as reducing expenditure on health services. In this webinar Ben Jupp and Eleanor Stringer will discuss the need for Social Impact Bonds in the health field, and suggest the ways social investment could be used to improve outcomes.

23 June 4.00 - 5.00pm GMT Ben Jupp and Eleanor Stringer, “Could SIBs lead to better health outcomes?

Late last week, Governor Deval Patrick and the Commonwealth of Massachusetts quietly released a Request-for-Information (RFI) on an esoteric new public financing concept. The state cautiously issued its RFI without much fanfare. No trumpets or flags, just an understated press release announcing its interest in the issuance of a Social Impact Bond.

Let's be clear: SIBs are not a silver bullet. The very nature of a capped return probably means that SIBs will need to be kick-started by philanthropists and other "impact-first" investors with PRIs before they gain mainstream acceptance. Unlike conventional fiduciaries, philanthropists more easily can square SIBs with their investment priorities. Nonetheless, if this model is proven to work, such experimental philanthropy might be viewed as the venture capital of an era of social innovation.

As the field evolves, we should expect to see a flurry of new groups seeking to design such public-private partnerships. Today the field is sparse. Social Finance, a US group launched by Sir Ronald and Mr. Blood, presently appears to be the only significant player in the field. But, many more will come as impact investors, social entrepreneurs and new intermediaries spring up to scale SIBs and launch new innovations.

The human capital performance bond proposal differs from the more familiar social impact bond in three important ways: It is truly a bond.  The social impact bonds -- as used in the UK, explored by the Rockefeller Foundation and Nonprofit Finance Fund in the U.S., and profiled here on SocialFinance.ca -- are really equity investments where the investor’s capital is at risk. Consequently, rates of return can run as high as 14%. Not the case in Minnesota. Rather, investors are essentially guaranteed their money back and the rate of return is expected to be around 4%. The anticipated upside of this model is that a lower required rate of return means more organizations will be able to demonstrate economic value that beats that rate and thus allows them to compete for these new funds. The payment timeline is different. In the social impact bond model, organizations receive the cash upfront and must hit pre-determined benchmarks in order for investors to get their money back. With human capital performance bonds, the organizations (mostly nonprofits) carry most of the risk and are only paid if and when they achieve their goal. They would need to secure PRIs or patient capital to meet their interim cash flow needs. The incentives are different. Social impact bonds depend on investors engaging in a due diligence process to evaluate the likely effectiveness of particular social interventions. The model thus uses investors to create the market forces that purportedly will enhance the efficiency of resource flows. The human capital performance bond proposal, in contrast, does not give investors that role.  An intermediary (details yet to be worked out) would fill this gap.

Unlike charities community interest companies can't use tax relief to raise capital through social impact bonds, and it may not happen anytime soon, say experts

Lodhir offers social impact bonds, developed in partnership with law specialists Clifford Chance – acting on a pro bono basis – to a handful of investors that cost between £2,000 and £3,000 each, from which he hopes to raise enough capital to run the pilot.Lodhir says his organisation's own research suggests the scheme could reduce re-offending rates by up to 60%. And, he says, it could result not only in multiple returns to investors, but also in multiple savings to the taxpayer, through reduced healthcare and re-offending costs and in tax and national insurance contributions from those ex-offenders whose businesses take off."The savings come almost immediately," he says. "But when I contact potential investors, they say, 'oh we only donate to charity'. But building an enterprise culture won't happen with donations – more innovative solutions are needed."John Mulkerrin, chief executive of the CIC Association, thinks the sector is unlikely to win tax reliefs outright from government. "That will come after we've raised £1bn [as a sector] and we offer to turn it into £100bn," he says. "A tax break would be fantastic, but it's not likely to happen because I doubt the sector is mature enough yet."

He believes if government is serious about social enterprise, it must make the social investment market just as attractive to investors as charitable donations: "I think CSR is a corporate tax savings initiative. If so, let's include social impact bonds. Why not?"