Social Impact Investing

VIII. Social Impact Bonds
A Social Impact Bond, also known as Pay for Success Financing, a Pay for
Success Bond or a Social Benefit Bond or simply a Social Bond, is a contract with
the public sector in which a commitment is made to pay for improved social outcomes
that result in public sector savings. The term was originally coined by Geoff Mulgan,
Chief Executive of the Young Foundation. The first Social Impact Bond was launched by
UK-based Social Finance Ltd. in September 2010.
Social Impact Bonds are a type of bond, but not the most common
type. While they operate over a fixed period of time, they do
not offer a fixed rate of return. Repayment to
investors is contingent upon specified
social outcomes being achieved.
Therefore, in terms of investment risk,
Social impact bonds are more similar to
that of a structured product or an equity
investment.
60 Social Impact Bonds
have launched in 15
countries, raising more
than $200m in investment
to address social
challenges. In July 2016
the Social Finance Global
Network launched a white paper on
the state of the Social Impact Bond
market: Social Impact Bonds: The Early
Years. Social Finance also released a
live global database of Social Impact
Bonds. The database can be sorted by country, issue area, investor, payor and service
provider, providing a comprehensive overview of Social Impact Bonds launched to date
and a snapshot of the many in development.View the database at
http://www.socialfinance.org.uk/database/.
In developing countries, a Development impact bond (DIB) is a variation of the SIB
model that would provide new sources of financing to achieve improved social
outcomes in developing country contexts. As with SIBs, investors would provide
external financing and only receive a return if pre-agreed outcomes are achieved.
Funds to remunerate investors come from donors, the budget of the host country, or a
combination of the two. Financial returns to investors are intended to be commensurate
with the level of success. DIBs have the potential to improve aid efficiency and costeffectiveness
by shifting the focus onto implementation quality and the delivery of
successful results. In October 2013, Social Finance Ltd. and the Center for Global
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