Cities and Social Impact Bonds

Best practice urbane di sistemi pay for result per affrontare sfide sociali.

In July Municipality of Madrid promotes the city’s first social impact bond. The aim of this project is to improve assistance for vulnerable people and help them overcome their situation by innovating in the procurement of social services. The European Investment Advisory Hub, funded by the European Commission and the European Investment Bank (EIB), will advise the Municipality of Madrid on the implementation of innovative financing and procurement methodologies.

Social Impact Bonds are an advanced social finance tool that constitute an important opportunity for Public Administrations. The yield for the investor is determined by the positive social impacts generated. The greater the rate of success, the higher the yield. Together with government, several concrete goals are formulated in advance and potential yields are only paid out once these predetermined goals are actually achieved. If performance exceeds the goals set, government pays out higher amounts and the investor earns a higher yield. However, if the predetermined goals are not achieved, the investor suffers a loss on part or the overall investment. Statistical methods are used to measure target group improvements in order to ensure the results are achieved. The mechanism involves different actors: public administration, private investors, service providers, financial intermediary and an evaluator.

The first SIB was in UK, in the in Peterborough prison in 2010 in support of a program aimed at reducing the recidivism rate. The SIB launched by the Ministry of Justice and Social Finance Ltd, had the objective of financing with £ 5 million an intervention program for prisoners sentenced to a sentence of less than 12 months to facilitate their reintegration into society. The program involved public administration, service providers, social investors, Social Finance Ltd as a specialized intermediary, internal evaluators and external evaluators. The financial model: if the number of repeated convictions is reduced by 10% (compared to the control group) the Minister undertakes to pay a fixed value agreed for each conviction avoided.

From 2010 the experiences have multiplied. The sectors involved are different: assistance to vulnerable people, assistance to entrepreneurship and entry into the labour market, education and support to the health sector.

In 2012, New York City and the investment bank Goldman Sachs announced the first American SIB, inspired by the model adopted in Peterborough prison.

In Rotterdam, a Social Bond was launched in 2014 with the aim of helping youths starting their own companies, finding paid employment or a suitable study. Most of the youths do not have any basic qualifications, are often facing debt and come from a troubled past. The program involved 160 youths between 17 and 27 years old. The organisations involved are the Municipality of Rotterdam, the social investor Start Foundation and ABN AMRO, that have invested a total of € 680,000 in the program provided by the Buzinezzclub organization. 60% of the bond’s first cohort find work and get off government benefits. The excellent results made it possible to replicate the program in other cities in the Netherlands (Utrecht in 2015, Eindhoven in 2016) and to launch other pay by results investment programs.

Brussels in 2014 launched a social impact bond to promote the employment of young people, in 2015 in Lisbon the Social Impact Bond was used to facilitate the teaching of coding in elementary schools.

To depeen the Impact Bond worlwide https://sibdatabase.socialfinance.org.uk/