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Profiting from the new social impact bonds

by The NonProfit Times - January 27, 2014

Among the many innovations that have sprung up in the philanthropic sector is the Social Impact Bond (SIB). These are a way for government and investors to provide funding by focusing on approaches that work rather than just handing out money up front.

They are not a panacea, and they are still in the formative stages, but at the AICPA Not-For-Profit Financial Executive Forum, Jitinder Kohli, a senior fellow with the Doing What Works Project at the Center for American Progress, Douglas J. Besharov, a professor at the University of Maryland School of Public Policy, and Kristina Costa, a research assistant at the Center for American Progress, outlined aspects of SIBs that should be remembered by government funders and nonprofits seeking funding.

  • It is both difficult and essential to define a meaningful, measurable outcome.
  • Payments must be based on what achieving the outcome is worth to government in potential savings and to society in potential benefits, not on how much achieving the outcome will cost the external organization.
  • Agencies must cede decisions about how to achieve the outcome to the external organization.
  • Agencies must find ways to offer the organization firm guarantees that they will be paid if they achieve the outcome.
  • Agencies must carefully negotiate mechanisms for an orderly termination of an SIB arrangement.
  • Payments should ideally be funded by a combination of agencies that benefit from the outcome being achieved.
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