SIBs have been considered one of the most promising financial innovations created by the social impact space since the development of the UK's Peterborough SIB. However, the pioneering SIB will converted into a fee for service model during it's third and final cohort, making way for the Ministry of Justice's Transforming Rehabilitation programme.
If you're not already a social finance aficionado, SIBs are outcome-based contracts which act as a catalyst to align the goals of three key stakeholders: (1) ethical investors, interested in financial returns plus social outcomes; (2) local governments, interested in tackling endemic social issues but unwilling to bear the risk of funding innovative programs; and (3) social enterprises, who possess the skills, understanding and intention to develop effective solutions but lack the financial resources to implement and scale initiatives. Through a SIB, private investment is used to pay for interventions delivered by service providers with a proven track record (social enterprises). Financial returns to investors are made by the public sector on the basis of improved social outcomes. If outcomes are not achieved as per contractual terms, investors do not recover their investment - thereby ensuring the government's commitment is essentially risk-free. Thus, SIBs are termed 'pay for success' models.
So, what's the future for SIBs? In my opinion, in an era where we witness blurring lines between the triad of government, private sector and society, SIBs hold the key to unlock social change. Not only do they rigorously focus on outcomes, they offer sustainable solutions to disrupt the current paradigm on how social services are funded. Although overtaken by political developments, the Peterborough SIB's purpose was to enable social innovation, demonstrate the value of flexibility and emphasize commitment to metrics. Against these objectives, it remains iconic of successful investment in social change and continues to act as a blueprint for myriad social finance intermediaries to design their own pay-for-success instruments.
The UK's first social impact bond (Sib) lost its footing last week. Hailed as the future of funding social change, through unlocking private investment in social outcomes, Sibs have received plenty of attention in the last few years. But despite its success so far, the £5m Peterborough Sib, which is designed to reduce reoffending among short-sentence male prisoners, is now hanging in the balance as the government brings in its Transforming Rehabilitation programme.