Social Impact Bonds(SIB)


Meaning: The SIB is not a bond in the traditional sense. It is a financial contract that aligns government, philanthropic and private sector interests with those of both nonprofit organizations and profit-with-purpose businesses. It is designed to prevent a social challenge from arising (such as recidivism, dropouts, youth unemployment, or diabetes). They are used as tools to shift the financial burden of tackling vicious social problems, away from the Government.

Mechanics: Government contracts an intermediary to broker the SIB who in turn raises capital from impact investors, the capital thus raised is funneled into non-profits (implementing organizations) as service providers who scale their operations and delivers the desired results. An evaluation advisor monitors the progress of the project. In the end, an independent assessor (independent outcome evaluator) ascertains the success of the project, on the basis of which the Government pays the investors only if the desired impact results are achieved.

Image Source: Dalberg

History: The arrival of the first SIB in 2010 — the UK’s Peterborough SIB showed for the first time that one can directly link return to the achievement of impact. The SIB was able to tackle in a more effective way the high reoffending rates among young released prisoners in the UK, which are costly both to society and the government. Within 5 years, the number of convictions reduced by 9.7% paying out 3.1% a year to investors as a result — and an utterly new way of thinking and speaking was gained. Praised by Gordon Brown — the experiment since then became the guiding light for hundreds of millions of dollars in investment in social reform.

Current SIBs in the works: There are around 116 Development Impact Bonds (with 70+ in development), across 26 countries, tackling more than a dozen different social issues, and many more in the pipeline.

Some examples of SIBs include:

  • Educate Girls in Rajasthan
    The Educate Girls Development Impact Bond was a joint project between the Children’s Investment Fund Foundation, Educate Girls, the UBS Optimus Foundation, IDinsight, and Instiglio to provide and improve education for girls in rural India. At the heart of the program, was Educate Girls’ intervention to increase enrollment for girls and learning for girls and boys in the district of Bhilwara in rural Rajasthan, India. The project ran for three years from 2015 until 2018. UBS Optimus acted as the investor, financing the project implementation, while CIFF paid for enrollment and learning outcomes as ascertained by IDinsight, an independent evaluator. Instiglio managed the project and provided performance management services to Educate Girls.
  • South Carolina Nurse-Family Partnership Pay for Success Project:
    In South Carolina, the $30 million South Carolina Nurse-Family Partnership Pay for Success Project is working to improve maternal and child health outcomes among low-income families in the state by pairing an additional thirty-two hundred first-time mothers and their babies with registered nurses over the next four years. Funders of the effort include the Duke Endowment ($8 million), the BlueCross BlueShield of South Carolina Foundation ($3.5 million), the Boeing Company ($800,000), Greenville First Steps ($700,000), and the Laura and John Arnold Foundation ($491,000) that provided $17 million of the upfront capital, with Medicaid providing an additional $13 million. J-PAL North America, a research center based at the Massachusetts Institute of Technology, will evaluate the health outcomes for participants in the program, and the state will reimburse funders only if the program meets its goals, which include reducing preterm births, reducing child hospitalization and emergency department visits due to injury, improving healthy spacing between births, and increasing the number of first-time mothers served in the poorest communities.
  • Tomorrow’s People SIB — Unemployed youth in UK:
    An independent analysis of the economic value delivered by welfare-to-work charity Tomorrow’s People has estimated that for every pound spent by the charity, at least £2.40 worth of value is created for society. The figure was arrived at by calculating the welfare benefits saved, the additional tax receipts created, and the estimated reductions in government expenditure on health and criminal justice services for all the people that the charity helped to find sustainable work over the last five years. The report by FTI Consulting analyzed the work of Tomorrow’s People’s two main employment programmes — Welfare to Work and Working It Out, from 2007 to 2011. It was built on an earlier study by Oxford Economic Forecasting in 2004, which at the time suggested that the charity’s return on investment was 1.6:1. The latest findings suggest that the value of the charity’s work has increased during the economic downturn, and FTI emphasized that its new calculations are conservative — if various assumptions are relaxed, the value of the charity’s work rises to as much as £7.10 for every £1 invested.
  • The Pathways SIB:
    The Massachusetts Pathways to Economic Advancement Project is a Pay for Success (PFS) initiative that increases employment opportunities for limited English speakers and helps them progress up the economic ladder by providing workforce development services. Launched in 2017, the project was developed through a partnership between the Commonwealth of Massachusetts, Jewish Vocational Service (JVS Boston), and Social Finance. The Massachusetts Pathways to Economic Advancement Project delivered services to approximately 2,000 immigrants and refugees in Greater Boston. Vocational English language classes, integrated with job search assistance and coaching, assisted limited English speakers in making successful transitions to employment, higher-wage jobs, and higher education.
  • Diabetes Prevention SIB in Israel:
    In March 2016, a new SIB was launched in Israel to prevent Type 2 diabetes. This involved 2250 pre-diabetic adults who were at risk to develop Type 2 diabetes and will be identified by their Health Maintenance Organizations (HMOs, Clalit and Leumit) through blood tests. The participants took part in an intensive intervention wellness program during 3 years. This SIB aimed to prevent the onset of diabetes. If successful, and a significant reduction in Type 2 diabetes is found, there will be substantial savings for the HMOs and the National Insurance Institute, which will, in turn, repay the investors for their expenses, according to the signed contract. This SIB will serve as a pilot project for diabetes prevention and if successful, this model can be adapted for other projects in preventive medicine and health promotion. Thereby, we may be facing a dramatic change in the paradigm of funding national health services in Israel.

Advantages of this instrument:

  • SIBs may yield financial returns in the form of savings to the government authorities as well as social returns by scaling-up social programs and services
  • SIBs may foster social innovation and, in particular, in the ways services are provided

Disadvantages of this instrument:

  • SIBs may be a risky endeavour due to lack of precedent and may entail “failures” in financial and social terms.
  • The government also carries risk as it may need to step in and ensure the continuity of social services in case of a SIB failure. Therefore, it may be more appropriate to view SIBs as complementary rather than a core mechanism for social services delivery


  • In times of budgetary constraints combined with aggravating social challenges, SIBs have emerged as an innovative financing mechanism representing a complementary approach to traditional social policy interventions, notably in areas where there are government and market failures. SIBs are an example of experimentation in financial models for public service delivery and have raised a number of questions regarding the use of public funds, transparency, accountability, as well as challenges brought by the use of private funds for social services.
  • Although less complicated and less costly means of financing social services already exist, SIBs may prove to yield specific advantages. For example, they can represent a more effective way to deliver social services due to their focus on monitoring and measuring social outcomes.