Realistic expectations make Social Impact Bonds look worthwhile

17 Aug 2017 Ryan Miller    Last updated: 30 Jul 2018

Social Impact Bonds, from
Social Impact Bonds, from

Social Impact Bonds have yet to come to Northern Ireland. Scope looks at this new funding model and decides their use is probably narrow – but they still have a use.

Funding, or lack of it, dominates the social policy landscape.

Good ideas are more abundant than cash. This applies to the community and voluntary sector and the public sector (and, it should be noted, the same issues can plague private firms with solid plans for expansion but not the means to take any risks).

Without funding, good ideas tend to go nowhere.

The effect on the third sector does not stop with a lack of funding for potential projects: organisations devote significant time and effort to chasing every penny of support available; in doing so they cannibalise each other; long-term planning is an aspiration rather than a reality; an over-reliance on the public purse can undermine some groups’ core mission, making them too pliant, unwilling to put a foot down if it is required.

More funding from a wider variety of sources would go some way to easing each of those issues.

One area where Northern Ireland has so far missed out is in Social Impact Bonds (SIBs).


SIBs are relatively new, with the first such arrangement coming into being in 2010. SIBs attract private investment for social projects, leveraging the risk onto investors, but with commissioners (government) paying back costs plus a dividend if the project in question hit its agreed-upon targets – and, if not, the investors lose their cash.

So, funding for providers, an opportunity for a return for private investors in the usual way but in an unusual setting and sector, and a situation whereby government can pursue schemes that will only cost money if they work.

If the dividend paid is sensible – i.e. it is a percentage of the equivalent savings made through the success of the scheme – then everybody wins.

For more information check out this information from Social Finance, an organisation that looks for innovative ways to tackle social problems.

Local stumbling blocks

SIBs were in the pipeline for Northern Ireland. Before the collapse of Stormont over the Christmas period last year, then-Finance Minister Máirtín Ó Muilleoir said he wanted to introduce them locally.

In a response to a question from party colleague John O’Dowd, answered on 23 November 2016, he told the Assembly that officials in his department had been liaising with other jurisdictions – including RoI and Scotland - and also with organisations such as Roca in the USA, adding:

“We still have to work through a range of matters, such as what area is most suited to piloting a Social Impact Bond, as well as who the potential investors might be and how best to procure a Social Impact Bond, and I am still reflecting on the financial implications of introducing a Social Impact Bond.

“However, there is a new readiness among departments to consider the use of Social Impact Bonds and I plan to meet with Ministerial colleagues in the coming weeks to identify areas to pilot this approach. This is a very important part in the process for introducing a Social Impact Bond.”

Those coming weeks instead saw the collapse of the Assembly.

And local support

However, NI interest in SIBs was not just a matter for Mr Ó Muilleoir, or the Department of Finance.

The Building Change Trust highlighted the potential of SIBs in this article from last June while the Big Lottery Fund – which is a UK-wide organisation but, nonetheless, a major local funder – offers qualified praise for SIBs:

“We’ve learnt, through our research and evaluation of Commissioning Better Outcomes, that SIBs have several advantages. For example, commissioners, investors and service providers report that SIBs:

  • lead to more innovative and flexible service delivery
  • lead to better contract management, creating more efficient delivery
  • help align interests between commissioners, service providers and investors.

“We’ve also identified some challenges, such as SIB development can be slow and relatively complex. Breaking down barriers and relationship building between the government, investors and service providers within the SIB model will be crucial to developing and launching more SIBs.

Commissioning Better Outcomes aims to support the development of more SIBs and related models in England. You can read more about the programme and the evaluation we have commissioned on the Social Investment publications page. These documents also contain detailed examples of SIBs currently operating.”


The world’s first ever SIB funded a desistance programme for adult males leaving HMP Peterborough after a short sentence. At the time, such offenders were not entitled to statutory support.

Prisons cost a lot of money so the savings that can be made from reducing reoffending are significant, which created room for a possible dividend for investors who supported an initiative that worked.

This blog from Rob Owen, CEO of the St Giles Trust, responsible for supporting prison leavers, outlines the ultimate success of the programme and, therefore, of the SIB itself.

As well as the Big Lottery Fund tracking the success (or not) of SIBs, the OECD produced a report last year on SIBs, Social Impact Bonds: State of Play & Lessons Learnt, which echoes some of the qualified, cautious praise of what SIBs can achieve, based on the few years that have been extant.

The OECD also had this observation: “One issue that has been insufficiently addressed in the existing literature on SIBs is the high cost of policy failure of existing approaches in many policy fields, including some of those covered by the first generation of SIBs. Whether we look at recidivism, fostering and adoption, homelessness or NEETS, it is apparent that the status quo is often both expensive and ineffective.

“These policy failures do not mean that SIBs will perform better. Still, there needs to be a better understanding of why these policies are failing and, in particular, whether it is a systemic failure or a problem of poor design and short- term funding.

“The entry of SIBs into these policy environments may help to focus attention on what really works and why funding has not been directed towards those mechanisms that show promise and instead is captured by incumbent organisations that may be better at financing themselves than turning around the lives of their clients.”

What is clear is that SIBs are not some magical solution to funding shortfalls everywhere. However, in specific circumstances it looks, so far, as if they can be very productive.

Necessary aspects include clear, measurable outcomes that can be improved, where these improvements can be given a financial value in terms of savings made, and where any improvements that do occur can be linked directly to a given, planned intervention.

Ultimately, SIBs might have a narrow range of effectiveness, and they have not attracted universal praise. The Lords Select Committee on Charities was told they are “incomprehensible to most investors and irrelevant to most charities.”


The above piece in Civil Society gathers together some of the downsides to SIBs in pointed criticism from experts in the area. Per that piece:

Geoff Burnand, chief executive of Investing for Good, which helps charities access the bond market, was giving evidence to the Lords Select Committee on Charities, which is taking evidence on the state of the charitable sector.

“It’s a mystery to me why you would look to develop a new market with a very complicated product,” he said. It’s incomprehensible to mainstream investors and broadly irrelevant to front-line smaller organisations

 “I don’t think they were designed by market practitioners. I think they were designed at a policy level. I’m sure they have their place but it’s a very narrow place.”

Peter Holbrook, chief executive of Social Enterprise UK, also said he had reservations about social impact bonds.

“The challenge has been the hyperbole around social impact bonds, which have got a disproportionate amount of resources,” he said. “It’s a single tool which have served certain markets very well. Not all social investment roads lead to the social impact bonds. There are many other forms of finance which can be more useful.

“The government has developed this totem, the social impact bond, and is dedicated to achieving success with it.”

Caroline Mason, chief executive of Esmée Fairbairn, also told the committee that SIBs carried with them an expectation that philanthropic investors would underwrite private or public sector risk.

“I don’t think that’s a good use of charitable money,” she said. When asked why government had dedicated so much resource to SIBs, panel members suggested that it was because they were new and interesting.

“We all tend to like new shiny things especially if they’re not well understood,” Holbrook said. He said more attention should be given to investment in other areas, such as retail investment and community shares, instead. The comments echo those made in written evidence by the Social Investment Business, which said the government's target of £1bn of social impact bonds was unrealistic.


The Big Lottery Fund/Social Investment points on what makes a good SIB has some similarities with Westminster’s own advice about when a SIB is a feasible option.

It is understandable, for instance, that SIBs can allow for more innovation in projects. Public officials and elected representatives tend to be risk averse because throwing money at an unproven scheme can backfire spectacularly if the scheme fails and the money has been wasted.

SIBs are a matter for private investment and as long as the backers think it is worth the risk they should be able to bet on delivery of the social project in question.

One thing the government leaves out – perhaps understandably – is that SIBs also allow for the funding of projects that might not be initially supported by the public.

Both the St Giles Trust and Roca in the US, for instance, are tailored towards desistance. There is huge scope for gains in this area and our prison system almost undermines itself when it comes to reducing reoffending – but, by and large, spending public money on helping prisoners in a positive way is deeply unpopular.

By supporting these initiatives through bonds, the public money only comes in to play after the gains have been made, so reoffending has been reduced, and this might make it more palatable.

So far, SIBs have received cautious praise for their successes, while an apparent overexcitement amongst policymakers at Westminster has been heavily criticised.

Setting up a SIB requires a lot of work and pre-planning. Anyone thinking about doing so should approach them with caution. But, when you look at Social Impact Bonds with realistic expectations, they are nothing but a positive.

They may only work when proposals fit a number of different criteria but, nonetheless, they are another way good ideas can find funding.

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