Social impact bonds: a wolf in sheep’s clothing?

Social impact bonds: a wolf in sheep’s clothing?
Journal of Poverty and Social Justice
October 2013


The financial crisis has created fertile soil for new, innovative funding mechanisms
and delivery agreements for social services. A willingness to embrace innovation is
most apparent in the field of so-called ‘social investment’. SIBs have emerged as one
instrument combining PbR and social investment that has garnered support, notably
among former investment bankers seeking to bring their experience in harnessing
finance from the capital markets to the third sector (Social Finance, 2012).

However, support for this nascent area should be tempered by critique and an
evidence base that informs policy development. While this review piece has sought to
offer the former, there is a clear need for further research which will expound on the
implications and outcomes, both negative and positive, of embracing this burgeoning
funding approach. Comparative work particularly around parallel SIB developments
in other countries, such as the provision of therapeutic services to inmates in Rikers
Island, USA (Olson and Phillips, 2012), the trials of social benefit bonds in New South
Wales, Australia (Centre for Social Impact, 2012) and even in Scotland, where the
sole SIB has adopted ‘a more localised community model’ (SENSCOT, 2013) in an
attempt to foster the relationships of those parties involved and engage investors in
the local need of the project, is required. Further analysis of the HMP Peterborough
SIB which so far suggests positive signs (Pudelek, 2013) will also shed light on how
this field will develop.

It may well be that SIBs bring new and additional resources to finance social and
welfare services, and may be welcomed by cash-strapped local authorities struggling
with difficult and politically contentious decisions about cutting services. However,
it is striking that alternative forms of social investment, such as community banks,
community shares, Change Funds and PSPs which are less influenced by the models
of private capital markets, have not received the same level of promotion and financial
backing as SIBs (Community Shares, 2012; Ainsworth, 2012). The withdrawal of Allia’s
Future for Children’s Bond due to insufficient interest highlights the potential need
for the ‘development of simpler social investment products’ (Rotheroe et al, 2013,
26).Debates over innovative funding sources should reflect on citizens’ rights and
the entitlements which social services deliver, and not merely whether they generate
additional resources in difficult times. SIBs represent more than a merely technical
reform in how social services are funded. Their impact will be felt beyond the services
they finance, and what they imply for the control and accountability of services and
the role of the third sector merits careful monitoring.

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