An innovative financial tool, Social Impact Bonds (SIBs), have the potential to be a game changer for the delivery and outcomes of government social programs.
SIBs are created through the collaboration of government, private investors, and the non-profit sector. SIBs work in the following way: 1) The government sets a desired social outcome, for instance, lower prisoner recidivism; 2) The government creates a pay-for-performance contract with an intermediary (investors). Using this contract, the intermediary raises the required capital to carry out the terms of the contract; 3) A non-profit/social service delivery organization specializing in prevention of prisoner recidivism is provided with the required capital to carry out programs that deliver on this goal from the intermediary; 4) The program is delivered and success is monitored over the course of the term set in the contract. If the social outcome is achieved, the government pays the investors the principal plus a rate of return. If the social outcome is not achieved, the investors receive nothing.
To date, no SIB has been launched in Canada despite being promoted by the federal government in 2012 and more recently in 2013 through a stakeholder consultation process. Some early Canadian players in the field of social impact investing such as Finance for Good, MaRS Centre for Impact Investing, and RBC will be well positioned to take advantage of this new marketplace when it actually launches.
By Peter Smalley, email@example.com