Seoul Social Impact Bond (SIB)

On February 18 2014 a press release announced a Social Impact Bond for Seoul. It came from the The Department of Women and Family Policy, Office of Children and Young People, Seoul Metropolitan Government who have signed an MOU with Korea Social Investment. This could be the first Social Impact Bond in Asia, with several other countries also exploring the concept.

The Social Impact Bond will provide child welfare services over three years to a total of 10 billion won (US$9.4 m). The services will work with children and young people in group homes to improve their social outcomes and build capacity for long-term independence and wellbeing. The goal is to increase the efficiency of public welfare and improve social composition. “Through this project, children in children’s group homes can grow into healthy members of society.”

Seoul SIBThe Seoul government is investing in social innovation. Earlier Korean interest in SIBs came from Team Bond Girl in the LG Global Challenge, a program that supports young people to travel internationally to investigate innovation.

The following information was graciously provided by Korea Social Investment in August 2014:

1. Outcomes Rewarding Programme (2013-2014) : Seoul Metropolitan Government started a proof-of-concept project to reduce suicide by elderly people to reduce suicide by elderly, but it only borrowed a concept of compensation for success without any external investment. It also has no clear outcome-related measurement. It is only a pilot test for payment by results.

2. MOU between Seoul Government and KSI (Feb, 2014) : Korea Social Investment signed the MOU with Seoul Government for cooperation in realising SIB for neglected juveniles. (Please see attached file). It is in development and there are plans to launch around January, 2015.

3. Municipal Law for SIB (Mar, 2014) : For a SIB to proceed, there needed to be legislative change to allow government payment to be allocated ahead of time, yet paid when agreed outcomes of the programme were demonstrated. However government budget is normally set on an annual basis and there was no way to legally guarantee contingent payment after multiple accounting years. Therefore, legislation that enables later SIB payments, and the municipal law (ordinance) was established by Seoul Government on March, 2014.

4. MOU for Investment (Jul, 2014) : KDB Daewoo Securities is one of the biggest financial companies in Korea, and has great interest in investing in the SIB. KDB Daewoo has signed a MOU to be the sole investor when the first contract between Seoul and Korea Social Investment is made. This will be similar to Goldman Sachs in New York.

5. Obstacle : The ordinance established on March enables the Government to allocate budget to pay for outcomes after multiple years. However, there is difficulty implementing this law within the government bureaucracy. As the ordinance depends upon budgeting methods, government officials related to the programme will determine every issue and are inclined to avoid any risk. In addition to this, as budget is under the control of assembly, and each project has to be approved by the municipal assembly. The process is not simple and efficient. (However, the SIB for neglected juveniles will be launched on the basis of this law.)

6. Supplementation : Consideration is now being given to an ordinance (municipal law) that will establish a fund to pay for outcomes. This is particularly relevant for programmes that cross the boundaries of government departments. If this ordinance is passed, the two ordinances will be complements and Seoul Government will have two tracks of realising SIBs – (1) projects offered by a single department of government, (2) projects offered by anyone that may be relevant for multiple departments.

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