Social Impact Bonds

Social Impact Bonds have been developed by Social Finance, a new organisation that managed to capture not just the sector’s name, but also its Wikipedia listing – smart work, guys.   Its Chief Executive was previously Head of UK Investment Banking at Dresdner Kleinwort; other Directors have worked at Credit Suisse, ABN AMBRO Rothschild, Morgan Stanley, Deutsche Bank, HSBC, JP Morgan and UBS Warburg.  It is good to see that they recently recruited a Reducing Re-offending Director, who actually has serious experience in the statutory and voluntary sectors. 

Social Impact Bonds attract new, private investment to fund social projects designed to deliver specified social outcomes, such as a reduction in offending rates or a decrease in infant mortality.  If the project delivers on its social outcomes, government will cough up.  If not, the investors lose their money.  The first bond was launched in October 2010 and aims to reduce recidivism. 

Here’s what I don’t understand.  Investors want to be sure that the project managers have the experience and expertise to deliver the promised social impact. Obviously, if the project is high risk, they won’t invest their money.  However, if we’re really pretty sure that, barring external shocks, these people know what they are doing and can deliver the goods, why not cut out the costly middleman and give the money directly from government to the charity concerned? 

Oh, of course, silly me.  That would mean that the investment bankers are made redundant all over again.  Missed the point there, didn’t I?

PS While the first social impact bonds are being delivered by charities, how long do you think we will have to wait for the private sector to arrive in the market?  And if this approach really takes off, who is going to ensure that impact targets are honestly and genuinely met – in both the private and the third sector?

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