September 5, 2013

SOCAP13 Session Recap: Social Impact Bond Workshop: Dissecting SIB Contracts

SOCAP Global Post Author

A choice panel of impact asset managers, researchers, and government reps laid out the latest, greatest, and not-so-greatest about the innovative Social Impact Bonds (SIBs) financial vehicle. In the United States, SIBs are new, complex, and multi-stakeholder structured deals being used to finance new recidivism, education, and health projects around the country.
 
Food for thought from this session: 
1) SIBs are quite green and novel. Early pioneers have not yet reported results, and many projects are still in development. Since SIBs involve state or county governments, it often takes years to fully engage with and process through government procurement processes.
2) Each SIBs is structured differently dependent on the mix of stakeholders. Some SIBs enable the government to take the savings generated from the social program funded by the investment to pay back the lenders. REDF’s SIB with the Department of Labor, however, is unique in that it uses revenue generated from the social program as payment.
3) SIBs are truly new, multi-sector financial vehicles requiring all stakeholders at the table. To date, SIB stakeholders have involved: the nonprofits and prisons themselves as well as programmatic intermediaries, government as payer, philanthropic as well as market investors as payees, private researchers, and technical assistance from universities.
4) Creating the capital stack of SIBs is an implementation challenge. Though many investors are interested in pay-for-success, risk-minimized capital, philanthropic or first-loss investors interested in developing the transaction are harder to secure.
 
Special SOCAP13 Volunteer Post by Grace Chang
 

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