This evaluation documents the planning and development of Australia’s first social benefit bonds and considers what has been achieved and what can be learnt so far. Social benefit bonds are a form of payment by results (PBR) scheme in which private investors provide up-front funding to service providers to deliver improved social outcomes, with the rate of return to investors dependent on program outcomes.

Social benefit bonds are concerned with better outcomes and more effective service models. The evaluation of the planning and development of the bonds has found:

• Social benefit bonds are viable in New South Wales: Two bonds have been successfully developed, showing that the financial instrument can be used in the Australian context. Although the bonds are viable it is recommended that other PBR contracting schemes and impact investment options are also explored.

• The development of the bonds has produced positive outcomes: There have been positive gains for both NGOs and government from involvement in the bonds including an improved understanding of what the bonds can offer. In particular, there has been increased attention and understanding of program outcomes and measurement of them.

• If future bonds are to be developed, capacity building is vital: Capacity needs to be developed within government, in NGOs and within financial intermediaries, to develop future bonds, improve data and contracting capacity, and develop and catalyse the social impact market. Central government could develop a social benefit bond unit to capitalise on the experience of the trial, drive future bonds, and develop resources.

The trial has led to an improved understanding of research and evidence but improved capacity for data capture and analysis in both government and NGOs is vital for future bonds. The NSW Government’s recent mandate for program evaluation and the establishment of a Program Evaluation Unit within NSW Treasury will assist in this regard.

Building on the experience of the trial, NGO capacity to be able to contract for outcomes can be developed further, and financial intermediaries, can build the understanding and knowledge of impact investing in the financial sector. It is expected that future transaction costs of bonds will decrease as capacity is built and the field matures.