Global Trends In Social Impact Bonds: Myths And Realitiesinpms/projects/projectSIB/... · • A...
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Professor Alex Nicholls MBA
Professor of Social Entrepreneurship
Fellow in Management
Harris Manchester College, Oxford
Global Trends In Social Impact Bonds:
Myths And Realities
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Overview
• SIBs represent a key social innovation in the delivery of public services
• Part of a Payment-By-Results/Pay-For-Success revolution
• Major implications for modern welfare services
• Proliferation of SIBs around the world
• BUT relatively little hard analysis of their effects, impacts, pros and cons
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Context: Social Impact Investment
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Agenda
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Context: Policy Change
New Public Management
Rolling back of the state
Dominance of neo-liberal agenda
Free market deregulation/privatisation
Enterprise culture
1980s Reinventing Government
Increasing efficiency
‘Third Way’
Quasi-markets
1990s
Increasing effectiveness
Choice agenda: decentralization
Co-production: prevention not cure
Payment by Results
Pay For Success
2000s
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2015 Manifesto Pledge
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PbR Policy Support (2010-2016)
• Peterborough Pilot SIB
• Social Outcomes Fund (£20 million)
• Commissioning Better Outcomes Fund (£40 million)
• DWP Innovation Fund (£30 million)
• Youth Engagement Fund (£16 million)
• Fair Chances Fund (£15 million)
• Life Chances Fund (£80 million): ‘to grow the number and scale of SIBs’ with a view to ‘generating public sector efficiencies by delivering better outcomes… and building a clear evidence base of what works’ (Cabinet Office, 2016b: 1)
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Funder/Commissioner
Outcomes
Activities
Creating Social Outcomes
Buying
Activities
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£ £
Funder/Commissioner
Outcomes
Creating Social Outcomes
Buying
Outcomes
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Vulnerable cohort identified
Desired outcomes specified
Value of outcomes established
Outcomes contract created
Provider selected
‘Flexible’ delivery of outcomes
Outcomes verified
Risk capital
Delivery support
Commissioner
Outcomes
£ £
Social Impact Bond Model
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Social Impact Bond Model
Investors Public Sector
Delivery Agency
Target Population
Service Providers
Makes Payment Based On Defined Outcomes
Improved Social Outcomes
Reduced Public Sector Costs
Wider Benefits To Society
Financial Returns Dependent On Outcomes
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Social Impact Bond Models
Managed Direct
Intermediated Bridges (2016)
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• A ‘social problem’ for an identifiable population who are poorly served by current services
• There is a measurable social outcome
• There are investors willing to take some or all of the performance risk
• There is an ultimate payer who is prepared to pay for specific, evidenced, social outcomes that are either:
• Cheaper than existing provision • Savings can be demonstrated and captured by the ultimate payer
• Better than existing provision even if more expensive
• Or both
• There are social sector service providers who can deliver effective services
Necessary Conditions For A SIB
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Motivations
Government
Investors
VCSE Organisations
A more cost effective solution Transferring risk Harnessing innovation Measuring outcomes and pursuing evidence based interventions Aligning interest across different levels of government – co-commissioning
Achieving blended returns – social and financial Introducing a metric for impact Enabling mission related investment
Accessing PbR contracts and scaling interventions Receiving a committed, multi-year funding stream Working with consistent goals and support to build evidence base
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USA
Australia
UK
Uganda South Africa
Pakistan
Canada
Colombia
Mozambique
Israel
Swaziland
Mexico
Germany
Ireland
Luxembourg Belgium
South Korea
Sweden Norway Estonia
Netherlands
Kenya
PNG
Ethiopia
Argentina
New Zealand
Palestine
Brazil
Cameroon Morocco
India
SIBs Under Development 2017
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Japan
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DIBs
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Colombia Workforce SIB
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• March 2017 first SIB in a developing country
• Targets skills training and employment support to vulnerable, unemployed individuals in Bogotá, Cali, and Pereira
• Will support a range of employment measures for 514 vulnerable individuals
• Particularly targeted at high school graduates between 18 and 40 years old, who:
• Are not formally employed at the start of the program
• Score below 41.74 on SISBEN (a poverty measure)
• Are registered in Red Unidos (the extreme poor)
• Are victims of displacement due to the armed conflict
• Have not previously participated in Prosperidad Social’s similar employment programs.
Colombia Workforce SIB
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• Colombian Government’s Department of Social Prosperity (Prosperidad Social) will provide just under half of the 2.2 billion Colombian pesos (approximately $765,200) in outcome funds
• Government of Switzerland will fund the remaining portion through its State Secretariat for Economic Affairs (SECO)
• Investors are a coalition of foundations including Fundación Corona, Fundación Bolivar Davivienda and Fundación Mario Santo Domingo
• Fundación Corona serves as the contract manager with several service providers
• Instiglio advised on the design
• Deloitte Consulting will verify the outcome metrics
Colombia Workforce SIB
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Colombia Workforce SIB
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DIBs
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• Peru
• Sustainable coffee and cocoa production
• India
• Rajastan girls education
DIBs
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• Launched in 2015 to support 99 farms in indigenous communities in the Peruvian Amazon region to restore their growing plots and improve on yields of coffee and cocoa
• Investor was Schmidt Family Foundation
• Outcome payer was Common Fund for Commodities (up to $110,000)
• Service deliverer was Rainforest Foundation UK
• The independent verifier, KIT, appraised on the field the results achieved by the project
Peru DIB
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• Impact indicator 1: Increase sales by >20%
• 75% achieved
• Impact indicator 2: Increase cocoa productivity to 600 kg/ha or more
• 15% achieved
• Impact indicator 3: Sell > 35 MT of cocoa
• Sold 47.4 MT of cocoa
• Impact indicator 4: >40 farmers installing 0.5 ha of improved coffee varieties
• 62 farmers installed 0.5 ha of improved coffee varieties
Peru DIB
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• Launched in 2015 to finance services in 166 schools provided by Educate Girls
• To improve enrollment, retention, and learning outcomes for girls (and boys)
• Train a team of community volunteers ages 18 to 30 to make door-to-door visits encouraging families to enroll their girls in school and to deliver curriculum enhancement in public school classrooms
• Volunteers were present in over 8,000 villages and 12,500 schools in Rajasthan
Rajastan DIB
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• Investor was UBS Optimus Foundation who provided $238,000 in working capital to fund the service delivery
• The Children’s Investment Fund Foundation serves as the outcome funder
• To pay 43.16 Swiss francs ($44.37) for each unit of improved learning and 910.14 francs ($935.64) for every percentage point increase in the enrollment of girls out of school
• ID Insight evaluated the improvement in learning of girls and boys in the treatment schools in comparison to a control group
• Instiglio provided technical assistance to all parties during the design of the DIB
Rajastan DIB
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Rajastan DIB: Year 1 Results
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DIB Pipeline (2017) 3
0
HIV
Malaria
Child and Maternal
Health Education
Type II Diabetes
SME Productivity
Rhino Conservation
Youth Unemployment
Sleeping Sickness
Dengue
Girls’ Education
Nutrition
Early Childhood Development
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SIB Overview Reports
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SIB Market Scoping Reports
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SIBs Regional Analysis
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SIB Impact Analysis
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SIB Critiques
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SIB Academic Research
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• SIBs deliver superior social outcomes
• SIBs save public money
• SIBs allow social investors to make money
• SIBs establish social impact measurement best practice
Four ‘Myths’
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• Peterborough Pilot SIB
• 7th August 2014 overall reduction for cohort 1 announced:
• - 8.4% (142 reconvictions per 100 prisoners at HMP Peterborough v 155 reconvictions per 100 prisoners in the control group)
• <10% threshold required for investors to receive payment for cohort 1
• But positive contribution towards the average figure of 7.5% across whole SIB required for final payment
Superior Social Outcomes?
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DWP Youth Unemployment
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“It feels an entirely different programme to previous programmes. We focus on how many recruits are needed and the percentage conversion rate to outcomes, but in greater detail and depth and with a higher-quality evidence base. We now have a scaled, more impactful programme, with tools to forward forecast.”
Joe Linnane, Programme Manager
Career Connect
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• Essex MST SIB • Exceeding pre-defined targets and national average
• Difficulty in comparison and attribution
• Merseyside New Horizons • Achieved at least 4,700 positive outcomes for service users
• Exceeding educational attainment target • Only absence of service against which to compare SIB
• The London Homelessness SIB • Exceeded in securing stable accommodation and full-time
employment
• Under-performed in: reducing rough sleeping (against baseline); reconnection; qualifications; volunteering and part-time work
Superior Social Outcomes?
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• Economic underpinnings of SIBs require social outcomes achieved to be better or greater than those secured through existing service interventions
• Service delivery innovation
• Often aimed at failing or non-existent service provision
• Capacity to produce improved social outcomes remains largely speculative (Ronicle et al., 2014)
• Rigour of evidence?
Superior Social Outcomes?
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Saving Public Money
Social Finance (2013)
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• Fundamental assumption under austerity
• Is it really just postponing costs?
• NPV may still mean a saving
• Realizing savings is difficult
• Social Outcomes Fund
• Some SIBs increase costs
• GLA homelessness SIB
• Very high transaction costs
• Who pays?
Save Public Money?
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• Some evidence of real returns
• Timings of draw-down and payback critical
• Risk and return models vary
• Losses too
Making Money For Investors?
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Example Investors
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Investment Types
Source: Gustafsson-Wright et al., 2015
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Who Are The Investors?
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Who Are The Investors?
UK IF: Teens and Toddlers
US: Utah High
Quality
Preschool
Program
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1
Return of capital dependent upon outcomes
100% capital at risk – £5m
Max. outcome payment – £8m
Capital at risk on
outcomes
Guaranteed segment
Capital at risk on outputs
Anticipated return
dependent on outcomes
17 investors
No capital protection
One tier
Total investment
£5m from
17 investors
Maximum upside £3m
Risk: Peterborough
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2
Part capital guarantee
25% capital at risk – $2.4m
75% capital protected – $7.2m
Max. outcome payment – $11.7m
Capital at risk on
outcomes
Guaranteed segment
Capital at risk on outputs
Anticipated return
dependent on outcomes
Total investment
$9.6m from
1 investor
(Goldman Sachs)
1 investor
25% capital at risk ($2.4m)
75% capital protection ($7.2m)
One tier
Maximum upside $2.1m
+ CRA credits
Risk: Rikers Island
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3
Two Tiers of investors, different level of capital protection
High-risk tier 100% capital at risk – AU$2.5m
Lower-risk tier 100% capital protected – AU$7.5m
Capital at risk on
outcomes
Guaranteed segment
Capital at risk on outputs
Anticipated return
dependent on outcomes
Total investment
AU$10m from
57 investors
17 investors high-risk tier provide
25% total investment (AU$2.5m)
No capital protection
40 investors low-risk tier provide
75% total investment (AU $7.5m)
100% capital protection
High
risk tier
Low risk
tier
Annual coupon up to 10%
Annual coupon up to 30%
Risk: NSW
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May 2014
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Best Social Impact Metrics?
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• The number of reconviction events compared to similar control group of short-sentenced male prisoners from across the UK drawn from the Police National Computer database
• 10:1 control group established to measure deadweight effects
Peterborough Pilot RCT
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• Metrics vary
• Rigour varies
• Qualitative analysis is stronger than quantitative to date
• Emergent metrics and data sets may have value as externalities of SIBs
Best Social Impact Metrics?
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• Additional private funding for welfare programmes
• Transfer from public to private funding?
• Exploit Net Present Social Value
• Focus resources towards prevention/early interventions
• Co-operation across sectors
• Align interests of beneficiaries, service providers, statutory bodies and private capital
• Help build social finance market
• But too small a market currently
Four SIB ‘Realities’ (+ Caveats)
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• Allocate risk and return unfairly • Do not provide exit models for service providers • Undermine the role of the state
• Privatizing social outcomes
• Profiteer on the backs of the most vulnerable • DIBs and a new colonialism?
Four Persistent SIB Critiques
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NAO Report 2015
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Centre for SIBs
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Oxford BSG GO Lab
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