Where next with social impact bonds? Will they redefine how governments provide highly effective social services, spur outcome-based innovation among service providers, and provide financial returns for investors willing to take risks; or will social impact bonds join the graveyard of overhyped innovations that couldn't scale beyond a few demonstrations? That was the question a group of leading practitioners gathered to discuss on Monday, July 8th at the White House – a group that I was honored to address and from whom I was eager to learn.
Will social impact bonds join the graveyard of overhyped innovations that couldn't scale beyond a few demonstrations?
Social impact bonds (SIBs) – or "pay for success" financing – are a recent innovation in the general field of innovative finance for social and environmental impact, a field which The Rockefeller Foundation has long been committed to supporting and bolstering. Several years ago, the Foundation began building the necessary infrastructure to robustly test social impact bonds in the United States. Beyond recognizing interest from investors and the feasible materialization of investments received by enterprises, we had another motivator: as philanthropy and government no longer have the funds or resources to make a dent in our largest foreign and domestic challenges, we have an interest in unlocking more capital from the private sector.
We supported the very first social impact bond, a concept realized by Social Finance UK, in Peterborough, UK in 2010 to reduce prisoner recidivism – and three years later, that reduction, as well as promising returns at market rates, are evident. In the U.S., bonds are already at work here in New York City to address homelessness and recidivism, as well as in Fresno, California to address asthma. As a result of our recent competition with Harvard's SIB Lab, six state governments are beginning to develop bonds as well. The 28 states that applied to the competition reflected a diverse geography, focused on a wide range of social issues, and spanned the political spectrum.
Philanthropy and government no longer have the funds or resources to make a dent in our largest foreign and domestic challenges.
We know that philanthropy can play a critical role in developing innovations like the social impact bond by enabling the environment and utilizing both our risk capital and our experience to influence commercial investments – as well as to encourage others to explore these opportunities. What we saw at Monday's White House convening is that interest in and momentum around SIBs is growing at a greater rate that we could have imagined in such a short amount of time. Stakeholders from all different sectors – private investment, government, nonprofit, philanthropy – are energized by the promise of SIBs, and committed to putting in the time and effort to test them.
Yet SIBs are still an early-stage innovation, and as is often the case, there will be a degree of fluidity as the different actors in the space determine how they are best utilized. As we move into future stages we know, as with all innovations, that sometimes the people and sectors who play one part in one stage, will take on an entirely different role in the next. We wrestle with this dilemma ourselves as a philanthropy, to find the balance between catalyzing the field to support SIBs in becoming a self-sustaining innovation, while being careful to not distort the market to achieve this leverage. As we enter this next stage of SIBs we may well all see our roles continue to evolve as needs change and the model is refined.
That's why these meetings are absolutely necessary to encourage conversation among the different actors in order to spur collaboration, answer tough questions, and ultimately drive innovations like SIBs to the next level. This dialogue is an exciting one, and we are happy to be a part of it as we stand ready to help push SIBs from this state of early adoption to nationwide implementation.
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