Social Impact Bonds

Malaysian Innovation: Building a Social Impact Bond (SIB) Pipeline

Emma Tomkinson Social Impact Bonds , , , , , , , , ,

Agensi Inovasi Malaysia, part of the Malaysian Government, has embarked on a journey towards Social Impact Bonds that reflects the Malaysian social and policy context. There are three innovative features of their program, ‘Social Service Delivery’, worth highlighting:

  1. Explaining SIBs as a public-private partnership for social good
  2. Creating a market of new interventions to contract via a SIB
  3. Exploring Islamic finance as a source of SIB funding

Let’s explore each of these innovations in turn.

Explaining SIBs as a public-private partnership for social good

Social Impact Bonds were first implemented by an organisation called Social Finance in the UK in 2010. The idea has since generated interest all over the world. The concept can be overwhelming for stakeholders, who seek to understand how far away this model might be from their current reality. In Malaysia, Social Impact Bonds have been framed as the logical next step after the recent introduction of other long-term partnerships and privately financed initiatives (PFIs) towards new infrastructure such as buildings and roads. The 2010 New Economic Model for Malaysia from the National Economic Advisory Council called for ‘academia, business, the civil service, and civil society’ to ‘work together in partnership for the greater good of the nation as a whole’ (Part 1, p. 68). Social Impact Bonds are one vehicle by which these recommendations will be delivered. They are an arrangement where a non-government organisation delivers an intervention that is first financed by private investors who stand to be repaid with interest from government funding if a social outcome is achieved. There are incentives for each stakeholder to be involved (see the Agensi Inovasi Malaysia diagram below).

Diagram of objectives of program

(Agensi Inovasi Malaysia)

Creating a market of new interventions to contract via a SIB

Most jurisdictions that have developed a SIB have first scanned their market for investors, intermediaries and proven or promising social delivery organisations. And then they’ve thought about how to run a procurement process that brings the best of these players together, along with an intervention to achieve a priority outcome for Government. Although procurement approaches have varied, all have rested on the ability of the market to delivery suitable interventions that can be managed by organisations with sufficient capabilities to produce the desired social outcomes. Agensi Inovasi Malaysia has enhanced their opportunity to engage with capable service providers by holding a competition for new ideas in priority areas, and then incubating and collecting evidence on these new initiatives, with the end goal of a Social Service Delivery contract. This is not only a way to provide services that are suitable for the first Social Impact Bonds in Malaysia, but creates a pipeline of evidenced programs for the future.

Social impact bonds emerged in the UK in 2010, with 23 currently in operation. Development plateaued, however, during 2013 and 2014 (see chart below).

SIBs launched white background

In the latter half of 2013, attention turned to the development of a pipeline of SIBs to bring to market. Big Lottery Fund and the UK Cabinet Office are working together on “a joint mission to support the development of more SIBs” through their social outcomes funds totalling £60 million. Social Finance, in partnership with the Local Government Association, has been commissioned to support applicants to their funds and there is also a program of grants for organisations requiring specialist technical support to apply (Big Lottery Fund).

Agensi Inovasi Malaysia will potentially avoid the problems of the UK, by seeding and supporting a pipeline of interventions up front. This pipeline has been created through the ‘Berbudi Berganda: Social Impact Innovation Challenge’ which called for social organisations to submit their ideas for interventions to tackle the priority issues of:

  • youth unemployment
  • homelessness
  • elderly care.

The top 12 organisations won funds and support to implement their ideas, the impact of which will be the subject of action research over their first four months. This research will form the basis of a framework and delivery model addressing the priority issues. The pilot program timeline is below.

Apr 2014 Feasibility study
Sep 2014 Focus group discussion
Oct – Nov 2014 Social Innovation Challenge
Jan – Apr 2015 Incubation
Jan – Apr 2015 Intervention
Jan – Apr 2015 Action research and impact study
2015 Social Finance Policy Framework
2015-16 Model for ‘Social Service Delivery’

The benefits of the competition and incubation approach include:

  • focusing NGO innovation in government priority issue areas
  • government being able to work with NGOs over a longer period of time, thus gaining a better understanding of the ability of the organisation to deliver effective programs and outcomes
  • creating an evidence base that will inform the design of ‘Social Service Delivery’
  • supporting organisations to build and test interventions suitable for a Social Impact Bond.

The Agensi Inovasi Malaysia approach might require more up-front government funding than other jurisdictions have been or will be able to provide. But for a government that has limited experience outsourcing social services, it is a collaborative and supportive way to create a market of interventions that might otherwise not exist.

Exploring Islamic Finance as a source of SIB funding

The potential for Islamic finance to become a source of funding for Social Impact Bonds is significant and has not yet been explored. The Islamic religion obliges its followers to give the zakat, a portion of their wealth to ease inequality and suffering. The total given each year is estimated at 15 times that of global humanitarian aid contributions, and in Malaysia the zakat collected by Government is over US $400 million (Irin News).

Islamic finance includes Musharakah (Joint Venture Partnership), Waqaf (charitable donations), Debt Structure, and Sukuk (Islamic Bonds). A Musharakah could be used as the structure that holds the contracts with other parties. Sukuk could be used for investment, although their flexibility in terms of repayments that are dependent on outcomes will need to be determined. Waqaf could be used to fund a specific fixed cost such as legal fees, extra staff for development of a SIB, software, premises, audit, insurance, performance management or evaluation. The way this could fit into a Social Impact Bond structure is shown below.

Malaysia 2

Conclusion

Agensi Inovasi Malaysia has created a unique pathway towards Social Impact Bonds. Their approach mitigates the risks of implementing the model in a country without a history of outsourcing social services. They have framed this new contracting model in the broader policy context of public-private partnerships, which aids wider understanding of both the model and the objectives of government. By seeding and supporting new programs that address priority issues, the Government will be able to understand and evidence the impact of these new programs, before contracting them for ‘Social Service Delivery’. Finally, the exploration of the role Islamic finance can play in a Social Impact Bond has the potential to be applied in other jurisdictions and extends the ability of Islamic finance to achieve social outcomes.

This blog was written as a result of a project Emma is working on with Agensi Inovasi Malaysia. It describes aspects of their programs that she found interesting and relevant. These are Emma’s personal views and should not be taken as representative of Agensi Inovasi Malaysia or any other organisation. 

Procurement precedents for social impact bonds (SIBs)

Emma Tomkinson Procurement , , , , ,

There are many ways to procure for a SIB. The following examples of procurement processes have been chosen to demonstrate variation. The advantages and disadvantages of each are context specific – if you are developing a new procurement process you might want to think about whether each variation promotes or hinders your objectives.

I the word ‘procurement’ to refer to any of the means by which governments might ask external organisations to deliver a service under contract.

Please refer to the source information if you are producing further publications – I have tried to faithfully summarise each procurement process, but my interpretations have not been checked with the parties involved. Happy to accept corrections or suggestions.

Ontario, Canada

Deloitte won the initial RFP is currently in the final stages of that contract, with an Ontario Government decision expected in the next few months. An interesting feature of this process is the parallel ‘internal’ and ‘external’ streams, where public servants are proposing their outcome ideas at the same time as people in the market are also proposing. External ‘registrations’ of interest were called for in the following priority areas:

  • Housing – Improving access to affordable, suitable and adequate housing for individuals and families in need.
  • Youth at Risk – Supporting children and youth with one or more of the following: overcoming mental health challenges, escaping poverty, avoiding conflict with the law, youth leaving care, Aboriginal, racialized youth, and other specific challenges facing children and youth at risk, for example employment.
  • Employment – Improving opportunities for persons facing barriers to employment, including persons with disabilities.

procurement Ontario

New South Wales, Australia

In New South Wales we suffered from locking ourselves out of developing the idea with organisations over the 6 months it took to run RFP and negotiate the contracts for the next stage. We did not agree a maximum budget or referral mechanism until the joint development stage – we asked for organisations to come up with these as well as a full economic and financial model in their RFP. None of us who were involved in designing the procurement process feel we got it quite right, yet given the opportunity, we would all redesign it in different ways! (See NSW Treasury page on ‘Social Benefit Bonds’)

procurement NSW

Procurement timeline:

November 2010 NSW Government commissions a feasibility study from Centre for Social Impact
February 2011 SIB Feasibility Study report submitted  and published
March 2011 State government elections and change of government (left to right)
September 2011 (due Nov) SBB Trial Request for Proposal released
March 2012 3 consortia announced joint development phase begins
March 2013 Newpin Social Benefit Bond contracts agreed
June 2013 Benevolent Society + 2 banks Social Benefit Bond contracts agreed

New York City, USA

An interesting feature of the New York City SIB development process was that service delivery partners were procured for first, and started delivering services while being involved in developing a SIB for future financing of the service.

procurement New York City

New Zealand

The New Zealand process appears to be the only one where the government procured for the intermediaries and service providers separately. It is not yet clear what the benefits of this might have been or how they will be matched up.

procurement New Zealand

Massachusetts

Several US states have followed a similar procurement process to Massachusetts, which first involved a Request for Information from organisations external to government. This approach allows the market to shape government thinking and recognises that there may be social issues and intervention types that government hasn’t previously considered. Some jurisdictions have accomplished this with less formal consultations e.g. Queensland Government’s cross-sector payment-by-outcomes design forum and Nova Scotia Government’s cross-sector SIB Working Group.

procurement Massachusetts

Massachusetts Selection Criteria:

  1. Government leadership to address and spearhead a public/private innovation.
  2. Social needs that are unmet, high-priority and large-scale.
  3. Target populations that are well-defined and can be measured with scientific rigor.
  4. Proven outcomes from administrative data that is credible and readily available in a cost effective means.
  5. Interventions that are highly likely to achieve targeted impact goals.
  6. Proven service providers that are prepared to scale with quality.
  7. Safeguards to protect the well-being of populations served.
  8. Cost effective programs that can demonstrate fiscal savings for Government.

Department of WOrk and Pensions UK

The Department of Work and Pensions developed a ‘rate card’ for payment per individual outcome for their procurement. They asked organisations to choose a subset of outcomes to deliver, nominate a price per outcome and the intervention that would achieve them. A social impact bond structure was not mandated – seven out of the ten chosen programs involved external investors. The following process occurred twice in 2012:

procurement DWP

DWP Rate Card: DWP pays for one or more outcomes per participant which can be linked to improved employability. A definitive list of outcomes and maximum prices DWP was willing to pay for Round 2 is:

DWP rate card

Saskatchewan, Canada

This process may be followed if an unsolicited proposal is received. An interesting feature of the Saskatchewan SIB is that the investor has also signed the contract with government.

procurement Saskatoon

Essex, UK

The process of developing the Essex social impact bond is described in Social Finance’s Technical Guide to Developing Social Impact Bonds. Social Finance worked closely with Essex County Council to research and develop a SIB, with the final step being procuring for a service provider.

procurement Essex

Conclusion

Governments need to think about which information need to be included in a procurement document. For example, if it is desired that organisations external to government come up with completely new service areas, then a procurement process that does not state the social issue to be addressed or contracting department might be suitable. But information and constraints that are known should be included in a tender document. It’s simply irresponsible to have a criminal justice organisation spend time working on a response offering intensive services for 30 female offenders if there was never any possibility the SIB was going to be in justice, or with female offenders, or with a small group of people.

Key questions when procuring for a social impact bond (SIB)

Emma Tomkinson Procurement , ,

While SIBs can be brought to government through unsolicited proposals (in jurisdictions that allow this), most governments will procure for a SIB by going to market and asking for organisations to respond. (This approach to market is usually called a tender or Expression of Interest or Request for Proposals or something else with a different name but similar meaning.)

The question is, what to procure for?

  • an outcome?
  • an intermediary?
  • a service provider?
  • ideas for procurement?
  • ideas for SIBs that could be constructed in the future, should procurement proceed?
  • an organisation to tell government what to procure for?

The first step for government is clarifying its objectives in pursuing a SIB. SIBs are a catalyst for change, but different governments use them to change different things. (See analysis of stated objectives for the first few SIBs.) The objectives of government will make a big difference to how procurement is approached. For example, if a key objective is rigorous measurement of attribution, then a large population and randomised control trial might be required. If a key objective is to adequately fund small providers in remote locations to work together to help their communities, then ‘roadshows’ for awareness, accessible information and additional resources for capacity building might be part of the procurement process. If long-term funding for outsourced social programs is a big change for government, then it may require legislative change or significant work with internal government stakeholders to understand and manage perceived risks.

The main decisions government will need to make in deciding a SIB are:

  • Social issue area / Contracting department
  • Payment metric e.g. number of reconviction events or number of days happily employed
  • Maximum budget OR value per payment metric
  • Period of time over which budget will be deployed
  • Cohort / Referral mechanism

These decisions can be made before an approach to market, or after responses have been received. Some jurisdictions have asked their markets to suggest responses to almost all the above decisions, and some have made almost all of them internally before approaching the market.

The final decision is which organisation to contract with, which is usually (but not always e.g. Peterborough, Saskatoon) the result of a procurement process.

I haven’t spoken to anyone so far who thinks their procurement process was perfect, so let me know if you find one where all stakeholders agree it’s good!

Governments going to market with as much of the draft contract as possible may help speed and clarify the process. A lot of the contract will be relevant to most situations, so provision of basic clauses provides clarity and allows negotiation time to be focused on the issues that are new.

The following questions might be useful for governments to ask themselves when approaching procurement:

  • What are we trying to achieve or test?
  • Does it matter how much investors stand to return?
  • Does it matter how many organisations are involved in delivering the SIB and what their relationship is?
  • Does it matter how money flows?
  • What really matters to us?
    • service improvements in difficult areas?
    • innovation in services for populations of service failure?
    • a service model that can be used in other locations or service areas?
    • savings?
    • a shift of focus into preventative services?

The Peterborough Social Impact Bond (SIB) conspiracy

Emma Tomkinson Peterborough SIB, Social Impact Bonds , , , , , , , , , ,

If you think Social Impact Bonds are the biggest thing to hit public policy EVER, then you were probably horrified at the cancellation of the final cohort of the flagship Peterborough SIB. How is it possible? What does it mean?

Since the news was broken in April this year (2014), I’ve had questions from as far afield as Japan and Israel trying to discover the UK Government’s TRUE agenda. More recently, at the SOCAP Conference in San Francisco in August, it was raised again. Eileen Neely from Living Cities, which has provided $1.5 million in loan financing for the Massachusetts Social Impact Bond was discussing “shut down risk: what happens if one of the parties decide they don’t want to play.”

She said, “In the Peterborough deal in the UK, the government decided that they weren’t going to play any more… so there’s some who say ‘Oh it’s because it wasn’t going well’ and others are saying ‘It was cos it was going too well’ so whichever it is, they decided that they weren’t going to do it, that they weren’t going to go into the next cohort, so what does that mean to the investors?” Eileen made it quite clear “I haven’t talked to any of the participants there, I’m just outside, reading the articles and the blogs …”

I thought it was about time we summarised the evidence for those who continue to ask these questions. Continue reading →

Rotterdam experiments with social impact bond

Emma Tomkinson Rotterdam SIB, Social Impact Bonds

The first social impact bond (SIB) in the Netherlands got off the ground recently in Rotterdam. It takes the shape of a new financing instrument, with private investors providing municipal capital to help vulnerable groups in the labour market find employment. The greater the rate of success, the higher the yield. Els Sol gives us a local perspective on this development and warns against investors looking for quick returns.

els sol 035Els Sol works at the Amsterdam Institute for Advanced Labour Studies (AIAS), an institute for multidisciplinary research and teaching at the University of Amsterdam, The Netherlands and as scientific member of the investment committee of Start Foundation (www.startfoundation.nl). This article is a translation of a publication in Dutch in the 2014 September Issue of the Journal Zeggenschap, 2014, 32-34.

Dutch municipalities have been assigned responsibility for resolving a multitude of social problems including those related to healthcare and benefits. In many cases, the people concerned face multiple problems. The solution requires money and knowledge, neither of which are sufficiently available to the municipality. Take work reintegration for example. Municipalities find themselves facing harsh budget cutbacks in this field. Re-employment programmes, especially those for the unemployed facing multiple problems, are expensive and often require an approach that spans clearly defined municipal budget years. Not surprisingly, driven by budgetary discipline and deep cutbacks, municipalities have shifted their focus to reintegrating unemployed people who can find jobs relatively cheaply and easily. Consequently, more people at a greater distance from the labour market are being left out in the cold. Additionally, municipalities – especially the smaller ones – suffer from a lack of knowledge as to which labour market interventions actually succeed best in guiding their citizens into paid employment. This also ties in with budgetary disciplines that hamstring programmes spanning several years or requiring scaling-up, therefore generating insufficient information to adequately test whether the interventions are successful. Continue reading →

Social impact bond (SIB) in Augsburg, Germany

Emma Tomkinson Augsberg Germany SIB, Social Impact Bonds

juvat SIBSource: juvat.org

Services

In September 2013, the Benckiser Foundation Future launched the first German Social Impact Bond (SIB). Services have begun to be delivered under an innovative service model that brings together a range of organisations and interventions with a track record. The services works with young people who have disengaged from education and employment, to help them enter training or employment.

The targeted outcomes are placement of at least 20 members of the target group into work or apprenticeship for more than 9 months during the timeline of the project. To achieve this goal the service delivery organisations will have to work with approximately 100 young people.

The target group is defined as unemployed people less than 25 years old in the Augsburg district with

  • no ongoing or successfully completed apprenticeship;
  • no current school attendance;
  • no current occupation; and
  • no contact with an employment agency over the last two years or no participation in agency programs over the last two years.

Augsburg Eleven

The services are being delivered from the shared workspace project Eleven Augsburg, through the collaboration of four service delivery organisations:

Funders

The Bavarian State Ministry of Labour and Social Affairs, Family and Integration (StMAS) will pay for outcomes once they have been achieved. The Ministry holds a contract with special purpose vehicle called Juvat. Juvat, derived from the Latin juvare, translates the central hypothesis of the program: It works. This is a pilot project for the Ministry, which they are referring to as “JuMP – youth with perspective”.

There are four foundations investing in the SIB:BHF-BANK Foundation,BonVenture (a social venture capital fund),BMW Foundation Herbert Quandt , and Eberhard von Kuenheim Foundation – the Foundation of BMW AG. The investment total is not public information.

Evaluators

The law firm Dr. Mohren & Partner  will independently evaluate whether targets have been reached and payments should be made.

Additionally, the Faculty of Economic and Social Sciences at the University of Hamburg will perform a process evaluation.

Resources

Juvat.org has released an overview of the SIB in English as a PDF.

Seoul Social Impact Bond (SIB)

Emma Tomkinson Social Impact Bonds, Social Innovation

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. Continue reading →

Social Impact Bonds in the UK: an overview

Emma Tomkinson Social Impact Bonds

This is an updated version of the article first published in the 2014 Charity Finance Yearbook. Download the PDF here.

Introduction

The first Social Impact Bond was developed by Social Finance, agreed with the Ministry of Justice and Big Lottery Fund and began to offer services in 2010. Since then, much interest has been generated from public bodies, investors and social sector delivery organisations at all levels in the UK and overseas. Continue reading →

Social Impact Bonds and Pay for Success – are they synonyms?

Emma Tomkinson Social Impact Bonds, Social Impact Measurement , , , , , , , ,

On a recent trip to the US, I noticed that the discussions around ‘Pay for Success’ were a little different to those I’d been having on ‘Social Impact Bonds (SIBs)’ with other countries. Particularly in the measurement community, there was an idea that Pay for Success took measurement of social programs to a new level: that ‘Pay for Success’ meant paying for an effect size (by comparison to a control group), rather than ‘Pay for Performance’ which paid for the number of times something occurred. Continue reading →