What are some ways to use social impact bonds for innovative solutions?

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Social impact bonds (SIBs) are a type of outcome-based contract that involves three main parties: a public sector commissioner, a private or social investor, and a service provider. The idea is that the investor funds the service provider to deliver a social intervention, and the commissioner pays the investor a return based on the results achieved. SIBs can be used to finance innovative solutions that address complex social challenges, such as homelessness, recidivism, or health inequalities. Here are some ways to use SIBs for innovative solutions.

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1 Identify a clear outcome

The first step to use SIBs for innovative solutions is to identify a clear and measurable outcome that can be attributed to the intervention. The outcome should be relevant to the social problem, aligned with the commissioner's objectives, and verifiable by an independent evaluator. For example, a SIB for reducing homelessness could use the outcome of sustained housing stability for a target population.

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2 Design a feasible intervention

The next step is to design a feasible and effective intervention that can deliver the desired outcome. The intervention should be based on evidence, best practices, and local context. It should also be flexible enough to adapt to changing needs and circumstances. For example, a SIB for preventing recidivism could use a combination of cognitive-behavioral therapy, mentoring, and employment support for ex-offenders.

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3 Engage the stakeholders

The third step is to engage the stakeholders who are involved or affected by the intervention. This includes the commissioner, the investor, the service provider, the beneficiaries, and the wider community. The stakeholder engagement process should be transparent, inclusive, and collaborative. It should also address the potential risks, challenges, and benefits of the SIB. For example, a SIB for improving health outcomes could involve consultations with health professionals, patients, and local authorities.

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Michael Sheldrick

Co-Founder, Global Citizen | Author of “From Ideas to Impact” (Wiley: April 2024) | Speaker, Board Member and Forbes.com Contributor
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I learnt from experience that the hardest part of launching a SIB is securing philanthropic funds from the donor. These funds are only released if the impact outcome the SIB is set up to realize is actually achieved. Yet, much of philanthropic capital remains risk adverse even when it is only deployed if the impact occurs. Appreciate others insights here. I’ve been advised that perhaps the model is better suited for driving innovative government piloting of programs rather than unlocking more philanthropy.

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4 Structure the contract

The fourth step is to structure the contract that defines the roles, responsibilities, and payments of the parties. The contract should specify the outcome metrics, the payment mechanism, the evaluation method, and the risk-sharing arrangements. The contract should also be fair, realistic, and aligned with the incentives of the parties. For example, a SIB for enhancing education quality could set the payment based on the improvement of student performance, attendance, and retention.

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5 Implement and monitor the intervention

The final step is to implement and monitor the intervention according to the contract. The service provider should deliver the intervention with fidelity, quality, and efficiency. The investor should provide financial and non-financial support to the service provider. The commissioner should oversee the progress and performance of the intervention. The evaluator should collect and analyze the data and report the results. For example, a SIB for increasing social inclusion could monitor the indicators of social capital, well-being, and participation of the beneficiaries.

SIBs are a promising tool to use for innovative solutions that can create positive social impact. By following these steps, you can design and deliver a SIB that can address a social challenge in a cost-effective and sustainable way.

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6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Jayant Sharma

United Nations Officer ● Innovation and Technology for Sustainable Development ● Global Program Leader for Humanitarian and Social Impact Initiatives ● LinkedIn Top Voice
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The two biggest and most impactful ways to use social impact bonds are creating long-term public-private partnerships and having long-term financing. The former is very much needed for cross-pollination of expertise as well as implementing innovative solutions that are sustainable. The latter is one of the biggest pain points in general in social impact work leading to stalling or premature end of effective programs that are unable to find enough funding on a sustainable basis.

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What are some ways to use social impact bonds for innovative solutions?

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1 Identify a clear outcome

2 Design a feasible intervention

3 Engage the stakeholders

4 Structure the contract

5 Implement and monitor the intervention

6 Here’s what else to consider

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