A Social Impact Bond (SIB) is a novel social enterprise finance vehicle that reallocates the financial risk in new public works from governments to private investors. In contract agreements with public institutions, private investors provide up-front private funding to operationally well-defined, evidence-based ventures that have measurable impact goals. If the SIB goals are met per the terms of the contract, the government repays investors with pro rata returns based on the cost of savings due to the successful implementation of the initiative.
SIBs also have the potential to completely reform the way social enterprises engage in their work, as the model requires firms to:
Each of these factors increases social enterprises’ capacity to generate essential social goods. Consequently, SIBs can do a lot of societal good, facilitating the progression and improvement of the human condition, while bolstering accountability in the social sector, and increasing competitive pressures, which force ineffective social enterprises out of the marketplace. SIBs can optimize the value gleaned from the roughly $800 billion the US spends per annum on social programs.
In September of 2010, the world’s first SIB was launched in the UK. Youth recidivism was the focus of the Peterborough social impact bond, which aimed to reduce the re-conviction rate among 2,000 short-sentenced male prisoners (ages 18 to 24) by 7 to 10 percent. In September 2012, the first SIB in the United States was initiated at New York's Rikers Island prison. Like the Peterborough program, Rikers Adolescent Behavioral Learning Experience (ABLE) program was also aimed at reducing the reincarceration rate among young offenders (ages 16 to 21). Currently, around the globe at least 89 social impact bonds have either been launched or are in development. Of these 89 SIBs, eight are criminal justice programs, each with objectives that include a reduction of the recidivism rate.
While exploring the Peterborough and Riker's programs, I discovered two additional exciting recidivism programs— Social Finance’s New York State Workforce Re-entry social impact bond and Roca’s Massachusetts Juvenile Justice Initiative. Social Finance is the same intermediary that oversaw the Peterborough SIB. However, the New York state and the Roca programs are very different from their predecessors in a number of ways, most notably, both the New York state, and Roca’s Massachusetts SIB appears to have been developed and implemented in a manner more consistent with the ideas promulgated by advocates of this burgeoning social service finance paradigm. Ideally, social impact bond funded enterprises should:
Over the course of my investigation of social impact bonds, I have started to believe that a focus on resources and capabilities; particularly, routines are an important and telling element of the story. An exploration of social impact bonds, with special attention to aspects of the initiatives that are associated with the resource-based view. This gives me an opportunity to focus on the internal structures and operations of social impact bonds, including the capabilities of internal stakeholders— utilizing concepts such as dynamic capabilities and absorptive capacity. What follows is a review (in some places cursory and others detailed) of the information I discovered. This is a rough draft and work in progress.