Social impact bonds (SIBs) can be defined as “a mechanism that harnesses private capital for social services and encourages outcome achievement by making repayment contingent upon success.” Since 2010, which marked the advent of the first SIB, 43 have been set up in 11 countries representing an investment of over €200 million.
Public welfare expenditures seek to achieve social impact but not all such expenditures succeed. The enduring nature of many persisting social issues like homelessness and unemployment suggests that varying approaches might be helpful. In this regard, social impact investing seeks to marry social with financial returns.

This report describes their locations and policy emphases. It asks whether SIBs are scaling up social innovations and examines the roles commissioners, investors, service delivery organisations and other participants. It examines the focus SIBs place on outcomes and the use of evaluation, and comments on monitoring systems and where the risk is placed. It also discusses whether the reward mechanism of the contract is able to deepen the focus on results throughout the delivery chain.

No known SIB had been evaluated ex-post at the time the paper was finalised (mid-2015) and it is therefore too early to know whether SIBs have produced performance improvements. One of the conclusions of the paper, however, is that though it is often cheaper to pay for public services directly, SIBS have the potential to be more effective because they entail stronger performance management. They also represent a way to access to vast private sector investment resources in fields where policy failure can have very high costs – the advent of SIBs can lead to better learning and increased value for money on targeted interventions.

SIBs illustrate the need for continued experimentation in financial models for public service delivery. They may not answer all the questions that they raise, but they have succeeded in asking some important questions about how public money is used to achieve social outcomes and what changes when private money is brought into the mix.

With inputs by Antonella Noya and Stellina Galitopoulou