Social Impact Bonds in the era of mandatory Corporate Social Responsibility

In India, the new Corporate Social Responsibility law will introduce large amounts of resources that can be effectively leveraged for results-driven development. One innovative financing approach that many organizations will consider is Social Impact Bonds. This much-talked about tool is a mode of financing that encourages results-driven investments and improves government investment accountability. 

This development connects with two very powerful forces that have been shaping the health sector: First, an increasing pressure on the public systems to perform better and deliver effective results, and second, an immense increase in philanthropic resources for developmental activities. 

Public health budgets are considerably constrained and often not very transparent and accountable. There is a need for innovative ways of financing and service delivery in order to meet budgetary constraints. Social enterprises have loomed large in this space by showing sustainable ways to address social issues. Yet they are limited by their very nature of entering into markets that can yield some profits. Thus, core functions of health provision, such as preventive health, are left purely to the public or the NGO sector, where funding is often the challenge. 

What are Social Impact Bonds?

Social Impact bonds are an innovative form of financing results-driven developmental changes in which private investors fund a not-for-profit organization to bring about an incremental change, and investors will be reimbursed with an additional interest should the results be positive. The way SIB’s work is depicted in the following flow chart:

Source: (Social Finance INC, 2014)

Some of the key features of Social Impact Bonds are:

 1) Up-front capital is provided by private investors, effectively insulating service providers from financial risk,

 2) A measurement and evaluation procedure is inherent in the product, as the government only pays back investors if pre-specified performance targets are met according to a specific timeline,

 3) The performance contingency makes it attractive for risk-averse governments, and

 4) Greater accountability for public spending on programs that show definitive results.

Increasingly, foundations are willing to use SIBs more because of their ability to influence many aspects of healthcare. They can shift the focus of funding to prevention than remediation, support outcome-focused interventions, foster collaboration between governments, service providers and financers, and improve government accountability on spending. 

Social Impact Bonds can potentially have a good impact in helping shift the focus of healthcare provision from curative care to preventive care. An intervention program for preventing chronic asthma in children in California is demonstrating this benefit. The results were monitored through insurance data on hospital stay duration and care needed for emergency asthma attacks. This program is now being implemented statewide to prevent asthma. 

Despite presenting a novel opportunity for financing development, the SIBs have a long way to go before they evolve into matured tools. Some of the immediate challenges are a lack of standardized, high quality data on the impact of social programs. Weak data could lead to unintended consequences and the misallocation of resources. Philanthropic institutions, community-based organizations, and particularly Indian corporations holding significant funds they must spend socially should encourage experimentation with this tool to use it to its best potential.

Photo: Social Impact Bonds Animation courtesy of Darby Communications