Are Social Impact Bonds an Innovation in Finance or Do They Help Finance Social Innovation?

Abstract

Outcomes Based Commissioning (OBC) – for example, Pay for Success (in the US) or Payment by Results (in the UK) – has been suggested as a way to provide ‘more’ social services for ‘less’ public resources. Such commissioning is often linked with an innovative financing tool called a Social Impact Bond (SIB). Using data from the Social Finance UK Database and focusing on SIBs in the US and UK, we evaluate whether the SIB approach aligns with the theoretical predictions of social innovation. The results provide limited evidence that SIBs facilitate capital injections from the private sector into the production of social goods as well as facilitate parts of the process of social innovation – namely, piloting and scaling. We conclude that there is significant variation, both between the US and UK and within the US, in social innovation ecosystems and the role played by SIBs.

Missing finance in social impact bond research? A bibliometric overview between past and future research

“…This study is further anticipated to contribute in several ways: (1) scholars may easily identify the institutions and countries working in this field and, therefore, potentially interested in developing joint research and sharing research results; (2) researchers and practitioners can also use our findings to identify the most influential papers and publication avenues; and (3) by identifying several future research directions, this article can provide to the scientific community a useful starting point for future research. By looking at our results in a combined manner with the results provided by Olson et al (2022), some practical considerations can also be drawn. Future SIBs could be developed by considering the need for a more detailed financial formulation able to attract private investors by going beyond the purely UK perspective in which SIBs are recognized mainly as a way to fund welfare services by using private capital.…”

“…The analysis further uncovered an interesting aspect within the SIB ecosystems by comparing the US and UK markets. In particular, within the UK, the central government has given considerable funding and support to SIBs, while in the US, stakeholders seem to be continuing to test SIBs by applying them in more innovative ways (Olson et al, 2022).…”

“…More in details, SIBs “are new financial assets whose objective is to invite investors to fund social programs by providing them an incentive if the project meets its predefined targets” (Schinckus, 2017, p. 729). In a recent analysis provided by Olson et al (2022), two‐thirds of US SIBs received up‐front funding from private investors compared to only one‐sixth of UK SIBs. The analysis further uncovered an interesting aspect within the SIB ecosystems by comparing the US and UK markets.…”

“…cept in 2010 and remains the global leader considering that, by the end of 2020, more than 200 SIBs had been implemented worldwide, of which about forty percent were in the UK(FitzGerald et al, 2021; INDIGO, 2023). The results fromAlbertson et al (2018),Olson et al (2022), andAlbertson et al (2022) confirm that the main driver of SIBs in the UK was public sector demand for the subcontracting of existing services with a focus on commissioning, which justifies the tendency to draw on the public administration and NPM literature. These aspectstogether with the absence of a focus on risk/return or the portfolio perspectiveare thus correlated, since the focus in current research (but also in practice) is on the "public side" rather than the fact that private investors are involved and provide risk capital.…”

New insights on social finance research in the sustainable development context

“…• Development of new financial mechanisms: Social finance has contributed to developing new financial instruments, such as social bonds, social impact funds, and crowdfunding platforms. These mechanisms allow investors to align their investments with social and environmental values González-Ruiz et al, 2023;Olson et al, 2022;Rizzi et al, 2018).…”