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Structure of the SIB in Augsburg (Source: author) 

Structure of the SIB in Augsburg (Source: author) 

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Conference Paper
Full-text available
This paper analyzes the Social Impact Bonds (SIBs) and their potential to unify social entrepreneurs, the government, and financial markets to solve social challenges. The first section analyzes the emergence of the social investment market as a political economy. In addition, it explains how SIBs bring together the key stakeholders in the design a...

Contexts in source publication

Context 1
... U.K. has been the pioneer in the development of the social impact bonds and the social investment market. However, there have been several key innovations since the first SIB was launched (see Figure 3). The pioneer SIB was developed under the premise of creating social benefit and reducing state expenses at the same time. It was grounded on a data-based calculation of the costs of a defined social problem. To be specific, in Britain, a youth offender costs the state around $34,600 (£21,268) per year, while a data-based intervention designed to prevent reoffending costs around $11,400 (£7,000) (Cabinet Office UK, 2014c). Knowing the true cost of a specific social outcome could provide incentives to social service providers to develop interventions capable of improving outcomes at lower expenses (Eccles, 2014a). Hence, one important innovation was the creation of the Unit Cost Database in 2014, which calculates the price of negative outcomes for the government, and promotes a more effective measurement and analysis process of the social service delivery. Another significant innovation was the Social Investment Tax Relief (SITR) regulation in 2014, which encourages individuals to support social enterprises by tax reliefs. Individuals, who invest in organizations with a defined and regulated social purpose 10 , can deduct 30% of the cost of their investment from their income tax liability. Individual investors can invest up to £1m and in more than one social enterprise. (Cabinet Office UK, 2015) Furthermore, the British government established the Fair Chance Fund (FCF) in 2014 as part of the Department for Communities & Local Government (DCLG) and the Cabinet Office, which commissions Payment by Results (PBR) contracts. The FCF addresses some of the key social issues contributing to homelessness amongst 18-24 year olds. A total funding of £15m has been allocated by the DCLG for front line organizations to support this target group with accommodation, education, training and employment over a three year period (Cabinet Office UK, 2014a). Ambition East Midlands (AEM) was the first Social Impact Bond to benefit from the Unit Cost Database, the Social Investment Tax Relief and the Fair Chance Fund. The AEM consortium is formed by P3 Charity, YMCA Derbyshire, and the Y. Their aim is the improvement of accommodation and employment options for young, homeless people, whose support needs are poorly met by existing services. Since this target group often falls through the social safety net due to the complex and interlinking problems they experience, they receive only minimal support, resulting in a high risk of getting involved in crime, rough sleeping, substance abuse or long term benefit dependency (Big Issue Invest, 2015). AEM believes that these young adults deserve a fair chance, and that with the right support everyone can play a positive part in their communities and live fulfilling lives. On behalf of the UK government, the AEM SIB was signed between the DCLG, the Cabinet Office and the AEM consortium for a three year period (January 2015 to January 2018). The awarded maximum contract value is £2.95m as part of the FCF program. Triodos Bank is undertaking the performance management role for the first six months of the contract, until the operational capability of the consortium is fully embedded and tested. In practice, this will largely be an administrative role, firstly ensuring the SPV 11 is set up correctly, as well as processing the claims for outcome payments, and creating the reporting structure for investors. This will ensure that cohort recruitment and delivery is on track. The idea is to build capabilities among social service providers to contract SIBs in the future, without the need of an intermediary. The SIB managing board includes three providers’ representatives, an independent chair and two investor representatives (see figure 4). The social service providers divided their zones to improve the service: P3 works in Derbyshire, YMCA Derbyshire works in Derby City and the Y works in Leicestershire and Leicester City. Together they provide a service that is aimed at 340 of the most vulnerable young homeless people across Derbyshire and Leicestershire by offering them innovative and intensive support (AEM, 2015). Given their greater resources and past experience of operating similar PBR contracts, P3 led the consortium’s mobilization planning. The mobilization involved recruitment of all key staff members, including the Project Delivery Manager, and an agreement of referral pathways with the local authorities (P3, 2015). Referrals are directed to one of the three organizations primarily based on geography, but the consortium will utilize their specific skillsets to provide the most appropriate service for a particular individual – for example, the Y and YMCA have a larger stock of short-term accommodation to deal with emergency presentations, but P3 has more access to the private, long-term accommodations market and greater experience in providing services to those with acute mental health or substance issues (Big Issue Invest, 2015). Each client is referred to a link worker, who will supervise them over the course of the program and help them develop the skills, knowledge, responsibility and confidence necessary for independent living. The Unit Cost Database determined the expected outcomes, as well as the price, for this service. According to this database, the local authorities have an annual expenditure of £8.605 per rough sleeper and £4,257 per person for youths between the age of 18-24 with no employment, training or education (New Economy, 2015). Based on these calculations and a detailed needs- assessment across the region, AEM determined the probability of a service user to achieve the desired project outcomes. As depictured in Table 1, we can see the agreed cost to the commissioner and the expected performance of the AEM project (based on a percentage of the anticipated 340 person cohort to achieve outcomes across the duration of the project), which is significantly lower in comparison to the cost of negative outcomes for the government. This SIB attracted the investment from both socially and financially motivated investors such as Big Issue Invest, KeyFund, Delivery Organization Invest and investors under the Social Investment Tax Relief regulation. 55% of the investment was made by Big Issue Invest (£330,000) and 16% by Big Society Capital (£100,000), through SITR. The total amount was £600,000. However, the exact amount invested by each investor has still not been published. In case of success, the investors expect an internal rate of return (IRR) 12 of up to a 15%. The U.S. is characterized by its market-based and free enterprise culture. According to Pollitt & Bouckaert, the U.S. has a strong anti-government rhetoric and low public trust, hence, both Republicans and Democrats approve of more business-like government practices (2011). With this rhetoric in mind, the outsourcing of governmental responsibilities has been constant; from contracts for general services, e.g. as prison management, to core governmental and statutory functions, e.g. policy-making or education (Durant et al., 2009). SIBs, or Pay-For-Success (PFS) contracts (as they are commonly referred to in the U.S.), fit perfectly into this culture. The SIB concept has been rapidly adopted by several entities in the US. The Department of Justice and the Department of Labor allocated funding to develop PFS contacts to reduce crime recidivism. Additionally, the Department of the Treasury and the Obama administration provided $300m to help state and local governments to implement PFS contracts. The initial funding allowed the establishment of the Harvard Kennedy School Social Impact Bond Technical Assistance Lab (Harvard SIB Lab) in 2012, which has been a cornerstone in developing the SIB market in the US. Currently, two SIB legislations are proposed at the federal level, “The Social Impact Bond Act (HR 4885)” and the “Pay-For-Performance Act (S 2691)”, which aim at the promotion of PFS schemes (Social Finance, ...
Context 2
... order to develop a tailored preventive program for underprivileged and unemployed adolescents that are not reached by established governmental programs, the first and only SIB in Germany, the Augsburg pilot project was configured. It was launched in September 2013 by the Bavarian State Ministry of Labor, Social and Family Affairs, and Integration (Bayerisches Staatsministerium für Arbeit und Soziales, Familie und Integration, StMAS) and the Juvat Gemeinnützige GmbH, a non-profit subsidiary of the Benckiser Foundation Future. Juvat is also a contractual partner to commissioners, investors and social service providers in this intervention (see figure 3). The targeted service users are 1,000 unemployed adolescents under 25 years old in the Augsburg region with no current school attendance or uncompleted compulsory education, no ongoing or successfully completed apprenticeship, no current occupation, no contact to the employment agency, or no participation in agency programs over the last two years before being part of the intervention (Juvat, 2013). The The project intervention will run is for delivered 27 months, by from four September different social 2013 to service December providers: 2015. To Apeiros achieve e.V., the Ausbildungsmanagement expected outcomes and trigger Augsburg, payments, Kinder, at Jugend, least 20 und service Familienhilfe users have Hochzoll, to be and placed Jobline in gAG apprenticeships München. All or gainful of these employment, providers designed as well as tailored remain programs in these positions covering the for more areas than of youth nine welfare, months. Furthermore, vocational support the jobs and obtained career should guidance be located services. either The in service the district participants of Augsburg receive or intensive the district support of Aichach-Friedberg and guidance and and must are provided be subject with to social a safe insurance environment, and tax where contributions. they are prepared These objectives to deal with and the characteristics obstacles they of the can service expect users, when searching as well as for the an maximum apprenticeship rates or of employment. returns, were Afterwards, defined in the a adolescents collaborative are effort placed between in an apprenticeship the partners program and the or governmental employment situation commissioners. with follow-up support services (Juvat, 2013). Helping adolescents to reintegrate into society, solve their issues, and find jobs can drastically reduce the need of welfare assistance and other reactive programs in the future. The intervention is delivered by four different social service providers: Apeiros e.V., Ausbildungsmanagement Augsburg, Kinder, Jugend, und Familienhilfe Hochzoll, and Jobline gAG München. All of these providers designed tailored programs covering the areas of youth welfare, vocational support and career guidance services. The service participants receive intensive support and guidance and are provided with a safe environment, where they are prepared to deal with the obstacles they can expect when searching for an apprenticeship or employment. Afterwards, the adolescents are placed in an apprenticeship program or employment situation with follow-up support services (Juvat, 2013). Helping adolescents to reintegrate into society, solve their issues, and find jobs can drastically reduce the need of welfare assistance and other reactive programs in the future. Four socially motivated investors, BMW Herbert Quandt Foundation, BHF-BANK Foundation, BonVenture gemeinnützige GmbH, and the Eberhard von Kuenheim Foundation of BMW AG, provided the up-front capital for the SIB. They also assumed the entire default risk. The ex-ante and ex-post evaluation of the predefined objectives is determined by the Munich-based law firm Dr. Mohren & Partner. In addition, the University of Hamburg will evaluate the process. In case of achieving the expected outcomes, the investors can be compensated with a maximum return of 3% for the entire timeline of the project. However, the exact amount invested is still unknown. The multi-stakeholder partnership embodied by SIBs introduces complexities that traditional models of service delivery do not entail. The case approach will help us understand how different ...

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... Impact investing refers to investments that deliver measurable social/environmental returns along with financial profits (Bugg-Levine & Emerson, 2011;Nicholls, 2010;Ormiston et al., 2015). Impact bonds are an outcome-based policy-making strategy in which private investors receive a rate of return if pre-agreed social/environmental outcomes are achieved (Liebman, 2011;Rivera-Acevedo, 2015). At the time of this research, 93 impact bonds are being implemented, including one in Colombia (Social Finance UK, 2017). ...
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