Who do you need in government to get a SIB off the ground?

The social impact bonds (SIBs) so far agreed have displayed striking similarities in how they have been resourced. They have, at a minimum, featured two key roles: (1) the worker and (2) the senior champion. After speaking to most of the people responsible for SIBs agreed across the globe, it appears to me that these two roles are essential to driving SIB development all the way to signing a contract. These two roles are by no means sufficient to achieve a SIB contract, but they are necessary.

The worker

Somebody needs to take responsibility for doing the bulk of the work within the commissioning body. This involves briefing and negotiating with internal stakeholders, acting as secretariat for decision-making committees, collecting and analysing data analysis and liaising with external stakeholders. Imagine this person researching, writing and then physically chasing up decision documents and moving them from one desk to the next. They need the flexibility to work in this way, requiring different processes and a broader scope than those in established roles, and they need to be enough of a risk-taker to keep fighting the barriers to change. They need to enjoy the exploration of something unknown and be naturally inclined to include both internal and external stakeholders on the journey. They cannot do this work on top of their normal day job. People who have performed this role say:

  • “I almost created my own job”
  • “I was never part of the wider set-up – I was never a civil servant within the hierarchy.”
  • “I’m a bit of a square peg in a round hole”

The focus of developing a SIB is to get everyone to agree. Working towards an agreement necessarily involves a range of stakeholders as the project progresses in an iterative manner. Sometimes external service delivery providers, data custodians, other government agencies and investors have been involved in discussions before a government decision has been sought to work on development. Sometimes the government decision is made first and then work with stakeholders sets the direction of the development process. A SIB won’t happen because one person worked very hard, alone at their desk for a long time, they need to be saying, “I’m a networker – I connect with people and get things done”.

All successful SIBs have been driven by people who are passionate about the project, who won’t give up on finding solutions to new problems on a daily basis “it was about keeping the energy going – you can’t recreate that in someone that is not interested”. Several SIB development projects have stalled within public agencies due to the nominated SIB producer rationally declaring this mountain too high to climb.

The senior champion

Doing the legwork on a project that breaks new ground every day is too hard a task if the ‘worker’ also has to justify why they are creating work for everyone by pushing through change. A senior champion is crucial to validate the project and its resourcing, as well as compelling the necessary people at all levels across government to participate in discussions. Interviewees said things like, “My boss allowing me to have time to work on it was absolutely key” or “Having them state this was their pet project opened doors.” The senior champion is also responsible for political negotiation and positioning.

Informal connections may lead to successful formal ones

Vital SIB partnerships have been started in unlikely places. These include parties, running groups and corridors. This reflects the cross-sectoral nature of SIBs and that at the moment, they are built by alliances between first-movers, rather than through established communication channels.

Why are SIBs so difficult for government agencies to develop?

SIBs are difficult because they involve change. Public service agencies aren’t set up to change often – they are structured to maintain huge, vital service systems and every public servant is a dedicated cog in this machinery. SIBs ask for a whole lot of changes at once. The first is the measurement of outcomes and the valuation of those outcomes, such that payment may be made on the basis of measurement. That’s pretty new for most public agencies delivering services. SIBs also involve procurement practices that don’t specify ‘how’ services should be delivered, which can be contrary to traditional risk and quality management practices. Social impact bonds require new ways of thinking and decisions from public service units responsible for legal, finance, procurement, service design and data. And then all the external stakeholders are required to change the way they’ve been thinking and operating too!

The Harvard SIB Lab

The Harvard SIB Lab is a clever model because it recognises the difficulty public agencies have with resourcing SIB development. The Lab rewards successful applicants with someone dedicated to working on the project. This person may or may not take on the role of owner of the work, depending on the person and situation.

Department of Work and Pensions Innovation Fund

This suite of programs, which includes several SIBs, was developed differently to other SIBs so far. An allocation of £30m was made for an innovation fund to explore early intervention programs with young people. The next step was to think about how to distribute this funding and a decision made to tender for ten programs financed by social investment, some of which are SIBs. Public servants involved in this project seem to have been able to do so within their existing roles.

Did we already have social impact bonds?

SF SIB diagram(Social Finance, Towards a New Social Economy, 2010)

During a recent lecture on social impact bonds for the Saïd Business School’s Executive Education Impact Investing course, one of the students asked me, “Am I already part of a social impact bond?”

Social impact bonds (SIBs) are a new construct, with the term coined in 2008 and the concept piloted by Social Finance in Peterborough in 2010. But arrangements that fit our current understanding of SIBs already existed and continue to operate. For organisations involved in these arrangements, the benefits and challenges of identifying with the SIB phenomenon will determine whether or not they associate themselves with the term.

The lady who asked the question was running a non-profit organisation that had an outcomes-based contract with the Louisiana State Government to provide a service. A loan from a local finance institution helped to cover their working capital.

In order to examine whether she was indeed part of a SIB, we turned to the Cabinet Office definition.

SIB definition2

In this arrangement, the first two conditions were certainly met.

To determine whether the third was, we examined whether her creditor could be considered an investor. Her organisation existed for the purpose of providing the service and the contract accounted for the entirety of their service provision. The loan was made on the basis of this single contract with government. The lender was a legally separate entity from both the non-profit and the government. So it looked like her creditor could be considered an investor.

The fourth condition relates to the financial risk of the investor. Was the finance institution truly taking on any financial risk? Indeed, there were two distinct types of financial risk taken on in this situation. Firstly, there was the risk of non-performance; that the non-profit would fail to deliver the results that would trigger payment from government. Secondly, there was ‘appropriations risk’, the risk that government doesn’t approve the payment of a previously agreed contract [1]. If the non-profit, for either of these reasons, did not receive sufficient funds from the government to pay the loan, they would become insolvent and the finance institution would not have the loan repaid. So the fourth condition was met.

This non-profit was certainly part of a social impact bond as defined by the UK Cabinet Office, although none of the parties involved were using the term.

Other examples that may meet the definition of a SIB but not identify with the term include charter schools, which are independently run with three year contracts based on outcomes. If they establish a bridge loan fund to cover the cash flow gap, they may meet the four necessary criteria. These bridge loans are often used for capital infrastructure spend and the financial risk for the lender is sometimes rated, so certainly exists.


  1. When we assess SIBs and compile data or ‘track record’, it may be worth looking at these existing arrangements that fit the SIB definition.
  2. Organisations that are part of arrangements that fit the SIB definition might consider the benefits and challenges associated with the SIB label (e.g. will appropriation and other payment risks be reduced if the contract is ‘announced’ as a SIB).
  3. The Cabinet Office definition came after several SIBs had already been developed and was not written by the Social Finance visionaries responsible for articulating and implementing the original concept. Does it misrepresent the concept? If so, do we need to change the definition?

[1] Appropriations risk is a feature of the US governmental systems and is described by Steve Goldberg in his fourth SIB Trib: “Even if a state signs a valid contract calling for the payment of money, it doesn’t (indeed, can’t) pay what the contract says it owes unless and until the state adopts an appropriation law specifically and affirmatively authorizing the expenditure. What’s more, legislative authority to appropriate funds only lasts as long as the state’s constitution allows budgets to remain in force. In most states that’s one year, in some, two. So not only does a state have to enact budget legislation and then pass separate appropriations bills to legally spend any money, they can only do the latter within the one- to two-year time horizon of the former” (Goldberg, 2013).

Adapting UK Social Investment Policy Initiatives for Australia

In many discussions about social investment in Australia, someone expresses the idea that we are 10 years behind the UK, with the implication that if we do everything they have done, we will catch up. But the landscape for social purpose organisations and investment differs between the two countries, and we need to think clearly about the context behind UK Government policy and adapt, rather than adopt their initiatives in Australia.

social investment - 2 focii

Dan Gregory, in his paper Angels in the Architecture, made a useful distinction between definitions of social investment as that which is (a) about social sector organisations accessing finance, and/or (b) about increasing the social impact of finance. The majority of Cabinet Office policy falls fairly squarely in the first category, but Australian efforts so far heavily involve the second.

Why UK initiatives don’t always fit the Australian context

roo in UK hat

  1. Australian social sector organisations include much larger, more powerful organisations that deliver across a wider range of services in the UK. In the UK, the largest charities are almost fully funded by philanthropic donations, whereas in Australia big charities are largely funded through delivering government contracts.
  2. Australia has avoided the recession and resulting austerity that has gripped the UK and many of their European neighbours since 2008. Thus our investors and investment vehicles are, by comparison, healthy and attractive.
  3. The UK has a large (over 100 staff) Office for Civil Society situated in the Cabinet Office that is responsible for strong, centralised policy for the sector. This is in addition to their Charities Commission and has resulted in a range of policy initiatives that have led to the UK being labelled leaders in this area. Australia’s Office of the Not-for-Profit Sector that was part of the Department of Prime Minister and Cabinet will be disbanded under an order signed on 18 September 2013.
  4. In the UK, the ‘social enterprise’ identity is assumed by far more organisations than in Australia. Many organisations in Australia that fit within definitions of social enterprise do not use the term, although it is becoming more popular.

This does not mean that social investment policy initiatives in the UK will not produce benefits if applied in Australia, but it does mean that we should only attempt a translation of initiatives where the implications, costs and benefits in the Australian context fall in our favour. A replication of initiatives accompanied by the expectation of replicated results will only lead to disappointment.

Summary of recommendations


A blow-by-blow analysis

1.      Investment readiness program (Investment and Contract Readiness Fund + Social Incubator Fund)

icrf example

The Investment and Contract Readiness Fund (ICRF) is a 3-year, £10m fund that provides grants of between £50,000 and £150,000 to ambitious social ventures, with the potential for high growth. These grants are used to purchase tailored capacity building support to help raise social investment or to bid for public service contracts. The ICRF is managed by the Social Investment Business and is arguably the policy initiative valued most by the sector.

The Social Incubator Fund is a 3-year, £10m fund that aims to help drive a robust pipeline of start-up social ventures into the social investment market by increasing focus on incubation support and attracting new incubators into the market. Incubators must raise 1:1 match funding from third-party investors to secure investment from the Social Incubator Fund. The Social Incubator Fund is managed by the BIG Fund (the non-lottery arm of the Big Lottery Fund) and has made two commitments so far.

Applicability to Australia – HIGHLY RECOMMENDED

Of all the initiatives in the UK, the Investment and Contract Readiness Fund is the most transferable and will potentially have the greatest impact. The SEDIF funds have enhanced the supply of social investment, but there have been few initiatives to create demand for this finance. There has been an increase in the number of co-working spaces and other support for start-ups, but there is a gap in support between initial seed-funding and readiness to take on further investment. The Investment and Contract Readiness Fund also supports the growth of social finance intermediaries, organisations that are relatively small and scarce in Australia as compared to the UK.

2.      International events – UK G8 Social Impact Investment Forum to Australia’s G20


In June 2013, the UK hosted the G8 and conducted the first side event on social investment. About 150 attendees from the eight nations joined special guests (such as Australia’s Rosemary Addis) for a day of speeches and interaction. Tweets from the event can be viewed on #G8ImpInv. Outcomes of the event were reported in a policy paper and include a global taskforce led by Sir Ronald Cohen.

Applicability to Australia – HIGHLY RECOMMENDED

Over 90 leading organisations from across the world signed an open letter congratulating the UK Government on bringing social investment to the G8. “We urge the G8 to translate the outputs of the June 6 meeting into bold action and encourage the G20 to take note and follow suit.” Australia is the host of the next G20. The G20 is a far more suitable forum for this discussion than the G8 because it includes all the emerging ‘BRICS’ economies of Brazil, Russia, India, China and South Africa (of these, only Russia attended the G8). The G20 also includes other countries that are doing interesting things in social investment, namely the Republic of Korea, Mexico, and Canada. This would be an opportunity for Australia to shape the international agenda and demonstrate our considerable strengths in this field.

3.      Social impact measurement – the Inspiring Impact program

Inspiring impact 2

Inspiring Impact is a UK-wide collaboration between eight organisations to make high quality impact measurement the norm for charities and social enterprises by 2022. Over the next decade Inspiring Impact will focus on encouraging the adoption of shared approaches to measurement and on developing appropriate, affordable and accessible impact measurement data, tools and systems. The Cabinet Office is providing £100,000 to Inspiring Impact over three years, alongside support from Big Lottery Fund, The City of London, Deutsche Bank and the Diana, Princess of Wales Memorial Foundation.

Inspiring Impact is only at the beginning of its journey, but already the outcomes matrix and accompanying shared measurement frameworks are being used. If anything, their work lacks promotion and presentation, but it is excellent quality and the collaborative way this project is run encourages greater buy-in.

Applicability to Australia – RECOMMENDED INVOLVEMENT

This is an area where we can adopt many of the measurement frameworks almost without adjustment, except perhaps for Aboriginal programs, so a similar initiative would be duplicating work unnecessarily. There may be some benefit from supporting a few individuals to connect with the UK network, to disseminate and publicise materials in Australia and make any adjustments that might be necessary for the Australian context.

4.      The Social Value Act

Social Value Act

The Public Services (Social Value) Act 2012 states:

(1)    If a relevant authority proposes to procure or make arrangements for procuring the provision of services, or the provision of services together with the purchase or hire of goods or the carrying out of works,

(3)    The authority must consider—

(a)   how what is proposed to be procured might improve the economic, social and environmental well-being of the relevant area, and

(b)   how, in conducting the process of procurement, it might act with a view to securing that improvement.

The Social Value Act does not actually change the procurement laws that were in place previously, but it emphasises consideration of impact beyond cost and quality of service delivered. It has been widely supported by the social sector and has empowered and encouraged social sector organisations to demonstrate their social and environmental impact when responding to tenders. It encourages the inclusion of social value in cost-benefit analyses, an area of previous confusion.

Applicability to Australia – RECOMMENDED LEGISLATION

Australia is leading in this field with the emergence of social procurement. Social procurement includes social and environmental requirements as clauses in the tender or as selection criteria and thus is clearer and more proactive in pursuing social outcomes. There is, however, still a benefit in producing an equivalent of the social value act that makes it very clear to public servants and social programs that social value for money is important to government and a real part of economic consideration.

5.      Review of legal and regulatory barriers to social investment


The ‘Red Tape Challenge’ program aims to get rid of unnecessary regulation across government. The Red Tape Challenge on Social Investment was open for four months. It involved sector representatives, encouraging engagement with government and produced achievable actions that made a difference on the ground. Actions are detailed in this letter from the Minister for Civil Society and include simple, but effective steps such as “the FSA has provided a named contact to industry and other interested parties on matters relating to social investment” (p.1).

Applicability to Australia – RECOMMENDED

A similar process could engage the sector in conversations with government about how to improve the social investment opportunity. It is a cost-effective way to identify legal and regulatory barriers and anomalies and make easy, simple changes that produce a real impact.

6.      Tax incentives

The UK Treasury is currently undertaking a consultation on social investment tax relief. The consultation involved the release of a paper and a tax relief consultation working group comprising 22 sector representatives. This initiative was due, in part, to the comparative disadvantages for social investment against tax relief associated with investment in venture capital. The announcement of intention has been well received by the sector, but details of what the relief will involve are not yet decided.

Applicability to Australia – RECOMMENDED AS A REVIEW

Tax incentives for social investment in Australia would encourage growth in this area. There would be benefit in combining this work with a review of the tax implications for social investors, for example the implications of financial returns from social investment by a private ancillary fund (PAF). While the UK tax code is not the same as ours, there are useful ideas in the government’s consultation paper and in responses from the sector (e.g. Social Finance’s response).

7.      Social Impact Bonds and central government contribution to payments

SOF example

There are about 12 social impact bonds (SIBs) operating in the UK and several more in the pipeline. The Cabinet Office has established a £20m Social Outcomes Fund which, in addition to the Big Lottery Fund’s £40m Commissioning Better Outcomes fund, will ‘top up’ payments by government agencies procuring SIBs. Applications to the funds will close mid-2016.

The £60m available will be given to average about 20% of SIB outcome payments. This sets a short term (3 yr) expectation of over £300m worth of social outcomes commitments. At the rate of current applications, there is likely to be a huge shortfall in funding distributed. Significant investment has gone into supporting the pipeline of SIBs towards the funds, including additional support for commissioners from Social Finance and the Local Government Association and the Centre for Social Impact Bonds which has developed some resources, including an encyclopaedia for SIBs, the Social Impact Bond Knowledge Box.


There may be some benefit in some agencies of the Australian Government collaborating with state governments and paying a proportion of outcomes that represents federal benefit or savings. Rather than allocate a large pot of money, an in-principle statement would encourage SIB development, set parameters and allow funding to respond to need as it arises.

8.      Innovation funds for new preventative services

DWP example

The £30m Department of Work and Pensions Innovation Fund is often included in discussions on SIBs, but merits separate attention here. The fund was established to improve long-term employability for disadvantaged young people. DWP did not have a history of delivering preventative programs, so wanted to spur innovation and see what providers could do. They commissioned 10 programs across the UK (there’s one in Wales, one in Scotland and eight in England) with various arrangements for social investing. Unlike other SIBs, payments are made monthly on the basis of evidence presented by program managers and is not compared to a comparison/counterfactual before payment is made. At the end of the three years of funding there will be a large evaluation of 1100 young people who have participated in the programs and about 1700 who haven’t. This evaluation will be able to compare effect sizes of the different programs and also do some sub-group analysis.

The 10 programs funded by the Innovation Fund are diverse and interesting. This a huge achievement in a space where there was previously little government funding. Program managers report that the Innovation Fund is easy to work with and that the outcomes chosen seem to be the right ones. There is some criticism that the measurement related to payments is not based on a measured improvement against a comparison group, but the trade-off is that the transaction costs associated with the set up and administration of this Fund are far less than other SIBs. The final evaluation will also measure effect robustly, however there will be no financial reward or penalty based on this measurement. The strongest criticism of this suite of programs is that there is no commitment or stated intention to implement preventative programs long term based on the evidence collected.

Applicability to Australia – RECOMMENDED IF SITUATION ARISES

The approach taken by the Innovation Fund promotes innovation and evidence-building, but is only applicable in some situations. It is best suited to areas where a bucket of funding is available for services in a new area. It is a great solution when implementing programs in the absence of well-evidenced interventions – it provides strong local evidence and innovative approaches developed in situ for further scaling and development. Impact can be captured and maximised as part of a long-term strategy.

9.      A social investment wholesale bank – Big Society Capital


Big Society Capital draws its funds from unclaimed assets. In the UK, these resided with the banks. In Australia they return to the coffers of the Commonwealth but are not ring-fenced for any particular purpose. For this reason it would be difficult, although not impossible, to ring-fence these assets.

Big Society Capital was set up as a wholesale bank, providing funds to social investment finance intermediaries (SIFIs) that provide affordable finance to social organisations. It does not invest in the front line. Difficulties include:

  • The lack of places to keep the bulk of funds until they are invested i.e. Coop Bank? Capital markets?
  • The difficulty of achieving a 6% return in an emerging market
  • The relationship with and demands of the banks – see Merlin agreement
  • The mismatch between the size of the loan social organisations want and the size of investment it is cost-effective for SIFIs to make
  • That social finance can be more expensive and restrictive than commercial finance
  • The argument that early stage social enterprises need equity, not debt

For more insight see David Floyd’s analysis of Big Society Capital at two years and his February interview with Nick O’Donohoe.

Applicability to Australia – NOT RECOMMENDED

Social organisations in Australia appear to have a smaller appetite for debt and are more easily able to access grant-funding. There are also fewer SIFIs in Australia than in the UK. Loan finance is available through the SEDIF funds, but these suffered due to a lack of demand from investment-ready organisations. Big Society Capital hasn’t provided all debt. It has taken some equity stakes and in some cases has taken over organisations similar to a private equity firm. It has also invested in Social Impact Bonds.

Update June 2014 – the three SEDIF recipients have increased their volume and frequency of loans in 2014, such that demand for funds may soon outstrip supply. This may suggest a role for a wholesale social investment bank in Australia, although the constraints and interest rate required would need to be set appropriately for the Australian context.

10.  Funds for social ventures/enterprises

funds examples

All funds have struggled with a lack of demand for loan finance. The Bridges Fund was launched in August 2009 and has raised £12m. In its first three years of operation, however, it committed only a third of that. An early evaluation of the SEIF fund found that “A large majority of the fund was used as grants, raising questions over the demand for loan finance amongst social enterprises and charities in the health and social care sector.” A National Audit Office report states that the fund faced considerable underspend and had committed the majority of its funds as grants, rather than loans.

Applicability to Australia – NOT RECOMMENDED AT THIS STAGE

The major Australian Government initiative in the social investment space has been the establishment and matched funding of the Social Enterprise Development and Investment Funds (SEDIF). These have been well-received by the sector and have attracted international attention. However, each of these three funds has had some difficulty making loans due to a lack of demand. This seems to be consistent with experience in the UK and does not suggest a demand for further loan finance.


Cabinet Office (2012) Growing the social investment market: HMG social investment initiatives.

Social procurement: purchasing social value too

A better way of doing business

unemployed boySocial procurement involves additional social value being purchased alongside goods or services, such as the employment of long-term unemployed people. The concept of social procurement has been around in Australia for a few years, but it’s really gathered momentum in recent months and is fast becoming the standard, rather than alternative, way of purchasing. The September 2013 launch of Social Procurement Australasia marks a significant milestone, creating an umbrella-body over several organisations working in this area and provides support and resources to the wider community.

Three examples of social procurement are below:

Western Sydney Parklands

  1. When the Western Sydney Parklands Trust tendered for a contractor to help control the spread of weeds, they included a selection criterion for social program.  This was worth 20% of the total score. The Trust didn’t specify what the social program had to be, offering providers flexibility and ingenuity in what they suggested. The successful contractor was an indigenous employment social enterprise. The Trust understood and accepted that including social benefits may cost them more than a standard contract and had budgeted for this possibility. In a presentation to local procurement officers, they stated that they were pleasantly surprised by the final result and estimated that they were within 10% of a standard contract price. They’ve made a great video about this contract – watch it here.human services
  2. The Department of Human Service (DHS) uses social procurement to drive change. In one tender to clean the common areas of a social housing estate, the Department of Human Services included a specific clause in the tender, requiring the respondent employ 35% of the contract workforce from unemployed social housing tenants living on the estate. This, along with other contracts including security services for the estate, makes a significant difference to the proportion of people that are employed in the estate, increasing confidence, skill and employability of residents and providing more role models for children in the estate. Tendering this way does not preclude commercial organisations, but does influence them to enhance the social benefit of what they do.City of Sydney
  3. Another way social procurement can be achieved is by purchasing from social enterprises (businesses that trade for a social and/or environmental purpose). For example, City of Sydney purchases catering from Yaama Dhiyaan [highly recommended – delicious and generous!] which offers hospitality training to Indigenous and non-Indigenous unemployed people. While this is an example of direct tendering, selective tenders can also be let to a range of social enterprises and not-for-profit providers. The Social Enterprise Finder from Social Traders will help find social enterprises in Australia, in a similar way to the directory for the Buy Social campaign by Social Enterprise UK. Buying fairtrade will ensure a fair price is paid to overseas suppliers, as the National Australia Bank demonstrated with its nationwide switch to fairtrade coffee, tea, sugar and hot chocolate.

Promoting social value through legislation

“There is nothing in any of the Local, State or Federal laws, or the common law, which prevents or limits the ability of either Local or State Government to consider the social outcomes / benefits which might be gained from a particular tender as part of Government’s procurement processes. In fact, in a very real sense both Local and State procurement regulations require these types of outcomes / benefits to be considered in order to achieve the best value for money when assessing tenders.” (Social Procurement in NSW, p.24)

European procurement law is similarly open to the consideration of social outcomes in the assessment of value for money, however in practice non-financial outcomes were overlooked. In an effort to encourage commissioners to more consistently value social value, the Social Value Act has been introduced in the UK.

Social Value Act

The Social Value Act

In 2012, the UK Government passed the Public Services (Social Value) Act 2012 which directs public authorities procuring goods or services to consider how their decision “might improve the economic, social and environmental well-being of the relevant area”.

The Social Value Act has been widely supported by the social sector and has empowered and encouraged social sector organisations to demonstrate their social and environmental impact when responding to tenders. It encourages the inclusion of social value in cost-benefit analyses, an area of confusion previously. Part of the implementation of this Act has been through social enterprises clearly articulating their social value in tender responses, thus educating procurement officers as to the type of evidence they could be considering.

What’s better? Both together!

The Social Value Act relies on respondents including and demonstrating social value, and leaves it to procurement officers to decide how to value this as they assess bids. Social procurement is more proactive and prescriptive in pursuing social outcomes. There is, however, a greater benefit to be realised by having both the legislation and the practice working together.

*For the purpose of this article, no distinction is drawn between procurement and commissioning, with both assumed to describe the entire purchasing process

*For anyone interested in what we can learn from the US, check out AbilityOne

Social Impact Bonds (SIBs): Who are the investors?


Commercial investors – are they what we’re after?

The Social Market Foundation recently produced a paper titled “Risky Business: Social Impact Bonds and public services” that looked at how to attract commercial investment into Social Impact Bonds. This assumption that commercial/mainstream investors are the ultimate goal for social investment is common, but is made without justification or exploration. Do we need investors who do not value social returns investing in welfare services? A good SIB should be structured so that anyone seeking to maximise their financial return will do so by maximising their social return, but let’s start by having a look at social investors we might have missed out on.

Job applicants and employees are increasingly valuing the corporate social responsibility policies of an organisation. Products that are produced in an ethical and sustainable manner are increasingly in demand, a demand which has not lessened in financial downturn like other premium products. Self-managed superannuation/pension funds are growing in size and number. Are there already a sufficient number of investors who are beginning to say “this is the way I want to invest my money”? Is there scope for allowing these social investors access SIB investments? Can we explore the potential of individual ‘person on the street’ or ‘mum and dad’ investors, often referred to as retail, investors?

Let’s take a look at how SIBs have been sold to investors so far…

Closed, private investments

The 17 investors in the Peterborough SIB and the majority of the other SIB investors in the UK have been found by intermediaries privately, rather than through a public call for investment. Most investors have been philanthropic foundations or individuals. The average investment for Peterborough is around £300,000.

In the US, Goldman Sachs has invested in both SIBs agreed so far. In the New York SIB, the $9.6m investment is part-guaranteed by Bloomberg Philanthropies. In the Salt Lake City SIB their $4.6m ‘loan’ is supported by a $2.4m subordinate ‘loan’ from J.B. Pritzker. (If the intervention fails, the loans will not be repaid.)

Open to wholesale investors

The two Social Benefit Bonds (SBBs) in Australia have raised funds on the open market, resulting in a greater number and range of investors. They have, however, restricted investment to ‘wholesale’ investors. A wholesale investor is a finance professional or a person who has an income of over AU$250,000 per annum for the last two years or assets in excess of AU$2.5 million. An offer restricted to wholesale investors is subject to lower regulatory requirements as it safeguards retail investors from buying products they do not sufficiently understand. The minimum investment for both SBBs was AU$50,000.

The Newpin SBB was launched first and raised AU$7m from 59 investors. When Social Ventures Australia surveyed investors, 80% of those who responded said they would have invested the money elsewhere if they hadn’t invested in the SBB. Investors included NG Super and Christian Super.

The Benevolent Society SBB raised AU$10m in two tranches. The $2.5m (no guarantee with up to 30% return) tranch involves 17 investors and the $7.5m (capital guaranteed with up to 10% return) tranch involves 40 investors including NRMA Motoring & Services, Australian Ethical Investments and Commonwealth Bank of Australia. Both NRMA and Australian Ethical expressed that while they thought it was a sound investment, this was not a purely commercial investment and the social return was important to them (Australian Financial Review, 5 October).

Smaller, involved investors

The investors in the SIB in Perth, Scotland have contributed between £5000 and £50,000 and are involved in the intervention. Perth YMCA recruited “12 investors – all local businesses or individuals – who were keen to be engaged directly in the delivery of the project, offering their own skills and resources as well as their investment” (Community Links, 2013). This idea of an involved investor in a SIB was unprecedented, but there are many aspects of it that are very attractive. Involved investors have the incentive and the ability to make a real effort to bring about successful outcomes for the young people they’re investing in. It would be interesting to see this model explored in further SIBs.

Service providers as investors

Service providers have invested in their own outcomes in the London Homelessness SIB and in the NSW Benevolent Society SBB. ROCA is also proposing that they invest in the SIB they’re developing in Massachusetts.

Retail investment through a financial advisor

The Allia ‘Future for Children Bond’ was the first opportunity for retail investors to become involved in a SIB. The Future for Children Bond was constructed of 78% loan to a social housing provider, 20% investment in the Essex SIB and 2% management fees. In order to safeguard against ill-informed investor mistakes, the Bond was an ‘advised’ product, which meant that financial advisors had to apply on behalf of investors. The minimum subscription was £15,000. The Bond failed to attract sufficient investment and was closed (NPC, 2013). The Essex SIB is fully funded and operating, with Social Finance, an intermediary, having raised sufficient private investment.

SIBs for the retail social investor?

There is understandable reluctance and legislation against making complex investment products open to individual, retail investors. But the safeguards are not always logical:

  1. Anyone can give as much as they like to any charity that will accept their donation without scrutiny. And yet if they stand a chance of getting this money back, it becomes an investment and they are subject to heavy regulatory barriers.
  2. To safeguard investors from making an investment mistake, we set them a minimum amount that they can risk. So they are not allowed to risk $100, but they are allowed to risk $100,000. Might it not be more sensible to safeguard retail investors by setting a maximum amount?
  3. Commercial investors find SIBs “a difficult investment because it is a small, illiquid product with no credit rating”  (Australian Financial Review, 5 October). They understand the way a certain number of products in the market work and to them a SIB is very new. But to retail investors, all investments are to some extent a minefield. Most people will never read all the fine print, but will learn new products and systems as they go. Very few who enter into a mortgage understand all the terms and conditions – a fact exploited and revealed in the sub-prime mortgage collapse of 2008. Crowdfunding is taking off. Retail investors may actually find the SIB less alien and confronting than their commercial counterparts.

Retail investment involves the writing of prospectus documents, which may involve higher transaction costs, but this cost should decrease as more are produced.

In August 2014, I became a retail investor in the Newpin SBB. An original wholesale investor transferred a parcel of investment to me. Australian restrictions around advertising investment opportunities to the open market cease to apply to later, private transfers. I hope that other retail investors will be able to join me in this and other SIB investments soon!

Social Impact Bonds: The relationship between investment size and government payouts

Two common misconceptions about social impact bonds are:

  1. That the amount the commissioner (Government) will need to payout can be calculated by taking the amount initially invested and adding a return.
  2. That the total cost of operations (running the intervention services) is the amount required from investors

Investors pay the entire cost of operations

The diagram below might spring to mind when we hear the word ‘bond’ (amounts below are illustrative only):

cost of operations

In this diagram, the investors pay £8m before the start of £8m worth of operations. After services finish there is a short delay for measurement after which the commissioner (Government) pays back the £8m + interest for investors + performance bonuses for providers of services, so let’s say £11m.

Now this is roughly what happens and some social impact bonds might be set up exactly like this. But it’s not very efficient and that much investment isn’t always necessary.

Investors provide working capital until commissioner payments flow

We need to remember that the role of investors in social impact bonds is to cover the working capital required until payments from the commissioner kick in. Social impact bonds use outcomes based contracts, a model of payment-by-results or pay-for-success. It may be that results or success are measured, and payments are made, well before operations finish.

Consider the situation shown below, where payments from the commissioner begin to be made halfway through operations.

cost of working capital

How much working capital do investors need to provide before the commissioner payments begin and are able to cover the cost of operations? Our £8m has become £4m. The shorter measurement period means earlier commissioner payments and lower investor capital requirements. It may also result in lower cost to the commissioner, although this it not portrayed in the diagram. On the other hand, it is important to note that a longer measurement period allows for a larger sample size and greater statistical confidence.


Social impact bonds can be structured in many different ways. Always assume that the timing and conditions of cash flows are deliberately constructed to balance the needs of stakeholders. Good design will simultaneously attempt to reduce investor risk and capital, reduce cost to the commissioner, minimise complexity and increase measurement confidence.

Local Currency: ‘A Direct Assault on Global Trade’

lemonade stand

While HSBC (advertising campaign featured on the right) tells us ‘In the future, even the smallest business will be multinational’, local currencies and the communities that use them are deliberately bucking the trend.

The idea of the local currency is that it can only be spent in local businesses, signalling a commitment to buy locally by the customer, the business and the supplier.

The local currency concept is not new, in fact the WIR bank in Switzerland has been operating since 1934 as a way of providing Swiss businesses with credit and stability, using each other to increase sales and buying power. Annual sales in WIR Francs are now worth billions of pounds a year.

While not of the same scale, local currencies in the US and Europe are continuing to emerge with the belief that social, environmental and economic benefits will ensue.

Who has a local currency?

  • Prien am Chiemsee ‘Chiemgauer’, Bavaria, Germany ‘Chiemgauer’ 2003 begun by an economics teacher and his students, it is growing at 100% per year – expires every three months to encourage circulation.
  • Berkshire ‘Berkshares’, Massachusetts, 2006 ‘envisions a diverse and resilient regional economy that supports and prioritizes responsible production and consumption’
  • Totnes Pound, UK, 2006 ‘Local money helps us think about our local economy, enquiring where our money goes once we spend it and finding ways to keep it from leaking out.’
  • Lewes Pound, UK, 2008 ‘Making Money work for Lewes’
  • Brixton Pound, UK, 2009 now available in electronic form with the ability to pay by text
  • Villeneuve ‘Abeille‘, France, 2010 declines in value over time to encourage spending
  • Pézenas ‘Occitan‘, Languedoc-Roussillon, France, 2010 ‘resiliance’
  • Bristol Pound, UK, 2012 ‘Bristol Pounds stick to Bristol’
  • Oxford Pound, UK, announced in 2013 to support local independent shops

This is not an exhaustive list, there are many more examples from across the world and throughout history!

Buy local

Local currencies are a concrete way of implementing ‘Buy Local’ ideology, which has seen increasing interest. Plymouth Council was one of a group of local organisations that committed to the procurement of local goods and services and reported boosting the local economy by millions of pounds. Across a network of 29 UK communities, Totally Locally emphasises the social benefits of their work: ‘Totally Locally is about people. Great people. People who care about what they do, what they grow, what they make. And people like you who care about what they buy and where they shop.’

San Fran local suppliers croppedLast week I was at an event where the digital currency bitcoins, was discussed. Bitcoins have a transaction log and are controlled by the bitcoin community. It is seeing advantages for particular purposes emerge, such as having evidence of a patent transaction for use if challenged in court. Someone in the audience lamented that electronic payments have removed the social aspect of financial transactions, with some pensioners really missing the physical collection of their pension cheque. Buying locally embraces social, environmental and economic goals in unison. This photo (taken by planwise founder Vincent Turner) from San Francisco shows what has become common in cafés there – a proud list of local suppliers on the wall. These suppliers are not only local but committed to their community and sustainable practices.

Where’s it heading?

Wider recognition and uptake of local currencies are reflected in:

Perhaps in the future all business won’t be multinational. Perhaps in the future we will see a strengthening of this emerging trend to reconnect finance to people and communities.

The Justice Data Lab – an overview

MoJ Data LabWhat is the Justice Data Lab?

The Justice Data Lab allows non-government organisations to compare the reoffending of the participants in their programmes with the reoffending of other similar ex-offenders. It “will allow them to understand their specific impact in reducing re-offending… providing easy access to high-quality re-offending information” (Ministry of Justice, Justice Data Lab User Journey p.10). There is no charge to organisations that use the Justice Data Lab.

The Justice Data Lab is a pilot run by the Ministry of Justice. The pilot began in April 2013. Each month, summaries of results and data are published, including Forest plots of all results so far.

Who might use it?

The Justice Data Lab can be used by “organisations that genuinely work with offenders” (Justice Data Lab User Journey p.11). One request will provide evidence of a programme’s effect on its service users’ reoffending. Several requests could compare services within an organisation or over time to answer more sophisticated questions about what is more effective.

This information could be used by non-government organisation for internal programme improvements, to report impact to stakeholders or to bid for contracts. It was set up at the time the Ministry of Justice’s Transforming Rehabilitation Programme was encouraging bids from voluntary and community sector organisations to deliver services to reduce reoffending.

What are the inputs?

Input data are required to identify the service users from a specific program and match them with a comparison group. Information on at least 60 service users is required and the organisation must have worked with the offender between 2002 and 2010.


  • Surname
  • Forename
  • Date of Birth
  • Gender

At least one of the following:

  • Index Date
  • Conviction Date
  • Intervention Start Date [note: feedback from applicants is that this is required]
  • Intervention End Date [note:feedback from applicants is that this is required]

Highly Desirable: PNC ID and/or Prison Number

Optional: User Reference Fields

What are the outputs?

The one year proven re‐offending rate –  defined as the proportion of offenders in a cohort who commit an offence in a one year follow‐up period which received a court conviction, caution, reprimand or warning during the one year follow‐up or in a further six month waiting period. The one year follow‐up period begins when offenders leave custody or start their probation sentence. A fictional example of the output provided by the Ministry of Justice is quoted below:

The analysis assessed the impact of the Granville Literacy Project (GLP) on re‐ offending. The one year proven re‐offending rate for 72 offenders on the GLP was 35%, compared with 41% for a matched control group of similar offenders. The best estimate for the reduction in re‐offending is 6 percentage points, and we can be confident that the reduction in re‐offending is between 2 and 10 percentage points.
What you can say: The evidence indicates that the GLP reduced re‐offending by between 2 and 10 percentage points.

Applicants should note the following requirement: “an organisation requesting data through the Justice Data Lab must publish the final report, in full, on the organisation’s website within four months of receiving the final report.”

I’d be very interested in the opinions of applicants on this requirement. Is it an issue? Does it create perverse incentives?

What are the implications?

The implications are huge. Prior to the Justice Data Lab it was very difficult for non-government organisations to establish a comparison group against which to measure their effect. Evaluations of effect are expensive and thus prohibitive, particularly for smaller organisations. In addition, the differences in their methods and definitions meant that evidence was more difficult to interpret and compare.

This is exactly the type of evidence that developers of social impact bonds find so difficult to establish and will be essential to constructing social impact bonds to deliver  Transforming Rehabilitation services. It is a measure of outcome, which is desirable, but often more difficult to quantify than input (e.g. how much money went into the programme), activity (e.g. what services were delivered) or output (e.g. how many people completed the programme).

New Philanthropy Capital (NPC) were involved in designing the Justice Data Lab and their Data for Impact Manager, Tracey Gyateng, is specifically thinking about applications to other policy areas.

How is it going?

See my November 2014 post on information coming out of the Justice Data Lab.

Also note the announcement of an Employment Data Lab by NPC and the Department of Work and Pensions.

More information

Information on the Justice Data Lab home page includes links to a series of useful documents:

  • User journey document – information on what the justice data lab is, and how to use its services.
  • Data upload template – use this template to supply data to the justice data lab. Further descriptions of the variables requested are given, and there are key areas which must be filled in on the specific activities of the organisation in relation to offenders.
  • Methodology paper – this document gives details of the specific methodology used by justice data lab to generate the analysis
  • Privacy impact assessment – this is a detailed analysis of how an organisations’ data will be protected at all stages of a request to the justice data lab
  • Example report template – two examples of a standard report, completed for two fictional organisations showing what will be provided.

Criminal justice service providers might also benefit from getting involved in the Improving Your Evidence project, a partnership between Clinks, NPC and Project Oracle. The project will produce resources and support, so follow the link and let them know what would be of most use. The page also links to an introduction to the Justice Data Lab – a useful explanation of the service.

The bulk of this post has been copied directly from the Ministry of Justice documents listed above. It is intended to act as a summary of these documents for quick digestion by potential users of the Justice Data Lab. The author is not affiliated with the Ministry of Justice and does not claim to represent them.

Mapping the needs of a community

Australian update: Community Insight Australia is working to shape and translate the Community Insight tool for Australia. Please get in touch if you share our vision and would like to take the journey with us.

Policy-makers know that social programmes are more effective if they are provided in the areas of greatest need. But, historically, it has been resource intensive to identify either areas of need or the range of needs of a particular community. This task would either involve weeks of combing through the latest data from all reliable sources or painstakingly interviewing a large enough sample to make assumptions about the populations. As a public servant, I’ve spent hours on the computer painting maps of social disadvantage, a new map for each indicator.

This problem is also faced by Housing Associations and other social housing landlords, who provide homes to over 4.5m households across England, and operate in an environment in which accurate data about communities they work within has become increasingly important to policy and delivery decisions. Their ability to access relevant data has been limited by poor quality data systems and a reliance on a limited pool of research analysts to interpret the data that was available.

In response to this, new housing think-do tank HACT and social policy data experts OCSI recently launched Community Insight, a web-based tool which allows non-expert staff at all levels to explore geographically social indicators of need quickly and easily for the first time, using constantly-updated, reliable data.

I was lucky enough to have Matt Leach, from HACT, take me through Community Insight and I couldn’t have been more impressed. The key to the tool is its simplicity.

  1. You choose the geographic area you are interested in on a map of England and Wales.
  2. The tool will give you the demographic and social indicators of the area.

Screenshot of Community Insight showing a selected area, specific houses by housing type, social indicator categories on the left and colours on the map showing the density of the chosen indicator, mental health issues.

Community Insight area screen grab


  • the social indicators are also presented in comparison to the national average
  • information about a geographical area can be interacted with online or exported in seconds as a detailed report
  • you can drill down by area or statistical collection for more information
  • the statistical collections behind the tool are automatically updated as their sources are updated
  • geographical areas can be defined specifically by a spreadsheet of housing stock or drawn with your finger or a mouse onto a map as a suburb, county or region.

Some of the ways housing providers are using Community Insight could transfer to policy makers and programme designers:

  • comparing between different areas in order to target community investment programmes to areas of greatest ‘need’
  • assessing change over time in different areas, as a starting point for evaluation of programme impact
  • combining with more detailed data from administrative data sets, to develop ‘at-risk models’ to identify areas and properties (and indeed individuals) that might be at risk e.g. of rent arrears

The tool is notable for a number of reasons:

  • it is one of the first large scale commercial approaches to accessing and interpreting open data launched by a UK-based social enterprise in a major public service area
  • it was designed from the bottom up as a tool for practitioners (one of the design principles that drove the team was “democratising data”)
  • it has had instant, mainstream success, with over 60 landlords with a total stock in management of nearly 1m households subscribing to the service within 4 months of its launch
  • it’s incredibly easy to use and the data produced is fit for purpose.

Easy to use

The tool was developed with its users involved at every step of the way. Rather than start with the data sets and try to make them interactive, the development of Community Insight was driven by the needs and intentions of the user. The intended users are housing providers – they can upload their housing stock and ascertain the social characteristics of the people they house. However, even a quick play with the tool suggests that a much wider range of unintended users – policy-makers and programme designers across government and other public service areas – might be beneficiaries. A number of local authorities, for example, facing significant cuts to their in house capacity to collect and analyse data have expressed interest in embedding Community Insight in order to retain the ability to access information on the communities they work within.

Business model

Community Insight is sold on a subscription basis, with subscribing organisations having unlimited staff access to the tool across their business. They are able quickly to produce comparable reports on different geographical areas as the need arises. OCSI and HACT ensure the data is constantly updated and will continue to develop and improve the resource over time. Subscribers report an immediate reduction in the costs of community profiling consultancies (for some housing associations paying back the annual subscription in a matter of weeks), little to no installation or maintenance overhead (as all data is updated centrally) and minimal training requirements for new users.

Selection of headline indicators from the  Community Insight Report on Emmaville (a fictitious village).

Emmaville overview

 Statistics for each selected geographical area

  • population by number, age, gender, dependency ratio, population size over the last 10 years, ethnicity and country of birth, migration statistics, household composition, religion
  • number of types of houses e.g. flats by local median price of each, renting and ownership proportions, trends in house price over the last 6 years, central heating, overcrowding and dwelling size, local communal residential establishments
  • vulnerable groups by types of benefits claimed and number of claimants
  • crime by type recorded and 10 year trend
  • health by life expectancy and long-term illnesses, healthy eating, smoking and binge drinking
  • education by qualifications, pupil scores at key stage tests
  • economy by income, employment status and sector, job vacancies, local businesses, index of multiple deprivation, child wellbeing index
  • transport by car ownership, distance to key services
  • community by classification of type, feeling of neighbourhood satisfaction, active charities, air pollution

Potential uses

Following their roll-out in the housing sector, HACT and OCSI are considering where Community Insight might be applicable or adaptable to other sectors.  After my brief trial of the tool, my immediate thoughts for additional applications by potential non-housing provider users are:

  • designers of social impact bonds and other payment by results programmes might use the Community Insight tool to select an intervention cohort of appropriate size and need
  • researchers might use the tool to scan areas where they might focus their on-the-ground investigations
  • journalists might use the tool to describe the community a particular event has taken place in
  • local authorities might use the tool to educate their staff about the diversity and differences within their communities
  • social investors interested in place-based investing

What might you use it for?

Fewer criminals or less crime? Frequency v binary measures in criminal justice

The June 2013 interim results released by the Ministry of Justice gave us a chance to examine the relationship between the number of criminals and the number of crimes they commit. The number of criminals is referred to as a binary measure, since offenders can be in only one of two categories: those who reoffend and those who don’t. The number of crimes is referred to as a frequency measure, as it focuses on how many crimes a reoffender commits.

The payments for the Peterborough SIB are based on the frequency measure. Please note that the interim results are not calculated in precisely the same way as the payments for the SIB will be made. [update: the results from the first cohort of the Peterborough SIB were released in August 2014 showing a reduction in offending of 8.4% compared to the matched national comparison group.]

In the period the Peterborough SIB delivered services to the first cohort (9 Sept 2010-1July 2012), the proportion of crimes committed over the six months following each prisoner’s release reduced by 6.9% and the proportion of criminals by 5.8%. In the same period, there was a national increase in continuing criminals of 5.4%, but an even larger increase of 14.5% in the number of crimes they commit. The current burning issue is not that there are more reoffenders, it is that those who reoffend are reoffending more frequently.

Criminals or crime 1Criminals (binary measure) in this instance are defined as the “Proportion of offenders who commit one or more proven reoffences”. A proven reoffence means “proven by conviction at court or a caution either in those 12 months or in a further 6 months”, rather than simply being arrested or charged.

Crime (frequency measure) in this instance is defined as “Any re-conviction event (sentencing occasion) relating to offences committed in the 12 months following release from prison, and resulting in conviction at court either in those 12 months or in a further 6 months (Note: excludes cautions).”

The two measures are related – you would generally expect more criminals to commit more crimes. But the way reoffending results are measured creates incentives for service providers. If our purpose is to reduce crime and really help those who impose the greatest costs on our society and justice system, we would choose a frequency measure of the number of crimes. If our purpose is to help those who might commit one or two more crimes to abstain from committing any at all, then we would choose a binary measure.Criminals or crime 2Source of data: NSW Bureau of Crime Statistics and Research

The effect of the binary measure in practice: Doncaster Prison

A Payment by Results (PbR) pilot was launched in October 2011 at Doncaster Prison to test the impact of a PbR model on reducing reconvictions. The pilot is being delivered by Serco and Catch22 (‘the Alliance’). The impact of the pilot is being assessed using a binary outcome measure, which is the proportion of prison leavers who are convicted of one or more offences in the 12 months following their release. The Alliance chose to withdraw community support for offenders who are reconvicted within the 12 month period post-release as they feel that this does not represent the best use of their resources. Some delivery staff reported frustration that support is withdrawn, undermining the interventions previously undertaken. (Ministry of Justice, Process Evaluation of the HMP Doncaster Payment by Results Pilot: Phase 2 findings.)

I have heard politicians and policy makers argue that the public are more interested in reducing or ‘fixing’ criminals than helping them offend less, and thus the success of our programmes needs to be based on a binary measure. I don’t think it’s that hard to make a case for reducing crime. People can relate to a reduction in aggravated burglaries. Let’s get intentional with the measures we use.