Matt MillerWashington Post
Laura CallananMcKinsey & Company
Tracy PalandjianSocial Finance, Inc.
Jeffrey LiebmanHarvard University

Social Impact Bonds Q&A

Our expert panelists answer questions submitted by the audience during our May 15 webinar.

« Click to return to the Report and Webinar page
Pin It

 

Questions from the Webinar Q&A
Click a question to jump down the page to the answer.

  1. New: Do you believe that the contractual complexities of SIBs constitute an obstacle for their mainstream adoption?
  2. The investment model you have described seems to require fairly sophisticated capacities on the part of intermediaries, investors and evaluators. So, it seems best suited to countries like the U.K., U.S., etc. Do you think that this model can be exported to developing economies and if so, what additional elements would need to be put in place?
  3. How broadly applicable do you think SIBs will be? The examples of recidivism and homelessness have been brought up, but how applicable will SIBs be beyond issues such as these?
  4. Do you envision SIBs being used by for-profit companies, or just governments?
  5. Is it likely that intermediaries will get cut out of social impact bonds? What prevents government from working directly with nonprofits?
  6. How much will success of the intervention depend on the political environment, specifically with reference to the criminal justice arena?
  7. How do you envision community development venture capital funds acting as an intermediary for SIBs?
  8. How will you define ‘success’?

New Q: Do you believe that the contractual complexities of SIBs constitute an obstacle for their mainstream adoption?

A: The contractual complexities indicate that only specific situations are amenable to a SIB-based solution namely efforts aimed at implementing preventative measures to complex social problems that are not easily addressed by market solutions or indicators of impact. “Mainstream adoption” is really not the endgoal of SIBs, although we do hope that the principles of impact assessment, investing in what works etc. will become standard practice across the social and public sectors. That said, we have seen a rapid growth in SIB activity across the US since our report launched last year. You can view the latest activity map via the Nonprofit Finance Fund’s interactive map.

> back to the top

Q: The investment model you have described seems to require fairly sophisticated capacities on the part of intermediaries, investors and evaluators. So, it seems best suited to countries like the U.K., U.S., etc. Do you think that this model can be exported to developing economies and if so, what additional elements would need to be put in place?

A: There are some early conversations underway about how SIBs might work in the international development arena, with multilaterals or bilaterals playing the role of government. We agree that the first SIBs in developing countries might require capacity transfer or skill building by the diaspora or others. We see this as a real opportunity for strengthening local actors especially in areas such as delivery of evidence-based programs, assessment, and project management.

> back to the top

Q: How broadly applicable do you think SIBs will be? The examples of recidivism and homelessness have been brought up, but how applicable will SIBs be beyond issues such as these?

A: Social impact bonds are a good approach for scaling behavior change interventions. Anti-drunk driving, smoking cessation, exercise and health eating efforts are all trying to change behavior. Because behavior change interventions use information and incentives to shift mindsets and action, case management and wrap around services are a big part of the approach. In addition to juvenile & criminal justice and homelessness, social impact bonds are being considered to scale programs for youth aging out of foster care, low income seniors who want to age in place, an in the areas of health like smoking and obesity, and workforce since successful employment programs are about more than just job skills.

> back to the top

Q: Do you envision SIBs being used by for-profit companies not just governments?

A: Social impact bonds could certainly be structured with for profit companies in the role of payor instead of government. Preventive interventions definitely offer value to employers who want to keep their workforce healthy, as well as the private health insurers which benefit if those with insurance engaged in more healthful practices resulting in lower long term health costs. There is nothing to keep a private company — or even a very large foundation — from paying for results for a limited community or set of constituents. But what’s special about SIBs is that this is a way for government to bring proven programs to scale as only government has the resources to do for everyone who needs them.

> back to the top

Q: Is it likely that intermediaries will get cut out of social impact bonds? What prevents government from working directly with nonprofits?

A: Government already enters into a range of contracts with nonprofit and for-profit service providers. That will continue even if social impact bonds take off. But sufficient progress has not been made against addressing our society’s needs under the current system; that’s why SIBs were developed as a new alternative. SIBs require a number of elements which are best accomplished by an intermediary. For example, SIBs are likely to support a portfolio of multiple, complementary providers rather than a single provider — this means that coordination and project management is necessary. Based on what ongoing project assessment reveals, midcourse corrections may be required and underperforming providers may need to be let go during the life of the SIB; another responsibility an intermediary is best-placed to fulfill. Selecting and working with the independent assessor in the SIB requires a neutral party and it would be awkward for the provider being assessed to commission the assessment when payment to investors by government depends on what that assessor determines.

> back to the top

Q: How much will success of the intervention depend on the political environment, specifically with reference to the criminal justice arena?

A: As described in the McKinsey report, juvenile & criminal justice are definitely a special program area when it comes to the application of SIBs. For the economics of a SIB to work, a certain number of constituents need to participate in the preventive intervention in a given timeframe. Unless judges and others in the system send offenders to alternative to incarceration programs, just having these programs on offer won’t yield any benefits and a SIB will fall flat. Because many alternatives to incarceration programs are community-based, support and buy-in from the local community is also necessary.

> back to the top

Q: How do you envision community development venture capital funds acting as an intermediary for SIBs?

A: Community development venture capital funds have many of the hallmarks of a SIB intermediary: ability to raise and deploy investment capital, project due diligence and management experience, portfolio management expertise. Community development venture capital funds are likely to need to build their program-specific knowledge in SIB-appropriate program areas as well as ties to the constituent community, however. This dual capacity — financial and content — is key for an intermediary to be successful. The intermediary must also be able to coordinate multiple stakeholders, harness a wealth of talent and build capacity where needed.

> back to the top

Q: How will you define ‘success’?

A: A social impact bond is a tool, a means to an end. The ultimate goal is to serve the needs of poor and vulnerable people in the best way possible. The elements of a SIB — a focus on prevention, investment in evidence-based programs at scale, rewarding results rather than activities — are important steps towards achieving that goal. Real success will be a transformed system which is built on these principles. In many ways, success for the social impact bond is to help the system to transition, and to become obsolete.

> back to the top

Submit a Question to our SIBs Panel

*NOTE that while we will endeavor to answer all submissions, we cannot guarantee that the panel will answer your question.
  • This field is for validation purposes and should be left unchanged.

E-mail alerts

Get our latest knowledge emailed to you

Follow us

@McKinseySociety