Guaranteed Social Impact Bond

Innovative risk-sharing mechanisms for Social Impact Bonds


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About the project Edit

Social Impact Bonds (SIBs) are financial instruments which promise returns to private investors if social objectives are met. Under a certain threshold for social outcomes, the investors do not recoup their investment.

Guaranteed Social Impact Bonds are more like a debt instrument taking out the equity risk. It consists in having third parties guaranteeing all or part of the risk.

In what ways is this project unique and creative? Edit

If SIBs are to attract large amounts of money, they need to protect the returns to investors. One of the very first SIBs launched in the UK (the Peterborough SIB) offers an annualised return of up to 13% if reoffending rates within a prisoner-rehabilitation programme go down by enough. But investors lose everything if recidivism does not fall by at least 7.5%.
In order to attract money less prone to such an equity risk, a New York City SIB supported by Goldman Sachs, an investment bank, invented a third-party guarantee system: a financial guarantee from Bloomberg Philanthopies, a foundation, caps the amount of money the bank can lose if recidivism targets are not met.

Some think this model, with philanthropists ensuring that a portion of investor's principal is returned, is the way to bring in more capital.

Another way is to blend the returns from SIBs with other assets. Allia, a British charity devoted to social investment, made a SIB available to retail investors. Of every British Pound 1,000 invested, 780 goes to a fixed rate loan to a social-housing provider, which when repaid with interest will give investors their money back. Another 200 will go into an SIB providing therapeutic support to troubled children in Essex, which offers investors the potential for a return.

What is the social value of this project? Edit

What is the potential of this project to expand and develop? Edit

SIBs are best suited to service providers that have a track record of successfully delivering interventions within a target population. Some of the the characteristics shared by these providers include:
•In-house ability to collect data, track outputs and measure outcomes over a period of time.
•Focus on prevention measures in a given issue area.
•Ability to provide programs in collaboration with other providers, or have the ability to adapt quickly to meet the needs of a complex population.
•Existing capacity and expertise for multi-year and forward-looking planning, budgeting and financial management that is necessary for the efficient utilization of upfront SIBs capital
•Key indicators of financial health reflect levels of durability and sustainability reasonably required for participating in longer term contracts
•Operate in an intervention area where significant cost savings and downstream value creation opportunities exist.

What was the triggering factor of this project? Edit

A first £5m pilot project, run by the non-profit enterprise Social Finance with the offender rehabilitation charity St Giles Trust in the UK, aimed to reduce reoffending following release among inmates at Peterborough prison sentenced to less than a year. It was the first SIB.

What is the business model of this project? Edit

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