To SIB or not to SIB: how Social Impact Bonds could help

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Are Social Impact Bonds (SIBs) a new and useful way to finance development of solutions to social problems, or a dubious scheme to privatize public services while enabling investors to make a profit from helping the poor?

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Opinion

Hey there, time traveller!
This article was published 26/09/2018 (1533 days ago), so information in it may no longer be current.

Are Social Impact Bonds (SIBs) a new and useful way to finance development of solutions to social problems, or a dubious scheme to privatize public services while enabling investors to make a profit from helping the poor?

SIBs bring together governments, investors and service-delivery organizations to test the effectiveness of prevention-focused solutions to pressing social challenges. Since their introduction in 2010 in Britain, 120 SIBs have been launched in 15 countries, addressing such issues as homelessness, youth unemployment and chronic disease prevention.

They work like this: government identifies a problem and a desired outcome and selects a service provider to achieve targeted improvement in outcome and apply innovative approaches to delivering that result. Foundations or private investors provide the capital for the service provider to carry out the work, and if targets are met, government repays their investment, plus interest; if targets are not met, interest and part of the capital are forfeited.

The first SIB in Canada was launched in Saskatchewan in 2014, to improve outcomes for 22 children and their single-parent mothers by providing safe shelter, along with parenting skills and assistance in securing employment. By enabling the children to stay with their mothers and out of foster care, the province expects to save between $540,000 and $1.5 million over five years. When improved health, lower costs to the justice system and reduced social assistance payments are factored in, potential savings are even greater. Early results indicate that the project is on track.

Soon, the government of Manitoba will be announcing details about its first SIB in the area of child welfare.

But are SIBs so straightforward? A new Canadian feature documentary, The Invisible Heart, which runs until Sept. 30 at Winnipeg Film Group’s Cinematheque, identifies several pitfalls. First, they can be expensive and time-consuming to structure and administer — not surprising for early efforts, and something that should be addressed as governments and intermediaries gain experience with assembling SIB portfolios.

Second, don’t governments have the capacity and responsibility to respond to these problems on their own? In fact, government deficits limit the public sector’s ability to finance large-scale shifts in social service provision, and bureaucratic oversight is contrary to the spirit of experimentation and innovation. Situating a SIB demonstration project outside of government enables failure and learning at lower cost and with less political risk.

Another objection to SIBs is that investors can pressure service providers to "hand-pick" the easy-to-achieve interventions, and "park" the more difficult outcomes in order to reach performance targets, and thus financial returns. This highlights the need for transparency. Collaborating across three sectors — private, public and civil society — is not something we do a lot of, and so some training and practice guidelines might be useful as the SIB market matures.

The most concerning argument against SIBs is that by turning civic needs into investable products, they are privatizing the social policy process. If, in fact, they were designed to remove responsibility for governance and public accountability from elected officials and hand it to private investors, we would share the concern. However, compared to the magnitude of the problems they are designed to help solve, SIBs are tiny experiments.

In the Saskatchewan example cited above, a carefully evaluated innovation will provide policy makers with viable policy options, not a mandate to turn child and family services over to private providers. Successful SIBs provide government with proven pathways to liberating people trapped in cycles of dependency, and in time, freeing up large amounts of its own capital for redeployment to other priority areas.

Growing interest in SIBs points to the fact that Canada’s social sector is starved of R&D funding. Pinched between declining donation levels and rigid government grants and contribution regimes, our capacity for social innovation lags behind that of other countries. The federal government, recognizing that current regulation and funding of the charitable sector constitute impediments to inclusive economic growth, is developing a Social Innovation and Social Finance Strategy, with input from the community, philanthropic, academic and financial advisors across Canada.

While not recommending SIBs per se, the strategy will address the need for more flexible and diverse funding, capacity building for cross-sector innovation and better use of data for evidence-based decision making.

Like any tool, SIBs can be used well or poorly, for ends that are positive or not. The discussion we should be having is how they are best governed and applied to improving outcomes for people and communities.

Stephen Huddart is president and CEO of the McConnell Foundation and a member of the federal Social Innovation and Social Finance Co-creation Steering Committee. His views on SIBs are his own.

The Invisible Heart runs at Winnipeg Film Group’s Cinematheque until Sept. 30. A special screening on Sept. 26 is followed by a panel discussion moderated by the film’s director/producer Nadine Pequeneza with panelists: Dennis Burnside, Government of Manitoba; Stephen Huddart, McConnell Foundation; Sandra Oakley, Manitoba Federation of Non-Profit Organizations; and Tara Petti, Southern First Nations Network of Care. Tickets/Info: https://www.winnipegfilmgroup.com/event/the-invisible-heart/2018-09-23/.

History

Updated on Wednesday, September 26, 2018 2:08 PM CDT: corrects affiliation of panel members

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