Grant strategies to build nonprofit capacity

Understanding Social Benefit Bonds: Queensland’s pilot program

katesunnersAuthor: Kate Sunners

The big news in Queensland is the announcement by the Palaszczuk Government that it will be trialling Social Benefit Bonds (also known as Social Impact Bonds) in early 2016. The bonds will be set up to tackle issues faced by Aboriginal and Torres Strait Islander people as well as homelessness, out of home care and recidivism. Queensland Treasury is set to consult with stakeholders and intends to hold a Request for Proposals process by early 2016.

Social Benefit Bonds (SBBs) are a form of funding whereby private investors provide funding to a nonprofit to carry out interventions and programs. The idea of the bonds is to save the government money over the long run, and to use some of these savings to provide investors with a certain percentage of return on investment based on evidence of success*.

If the project meets the preordained measures of success set out in the bond agreement (eg. a 10% drop in re-offending), the social benefit partner is paid by the government and then repays the investor the investment and returns.

If the project is unsuccessful and does not meet the goals, investors are not repaid or are not paid returns depending on their level of investment and the terms of the bond agreement. The social benefit partner carries the reputational risk if this is the outcome.

SBB

This type of funding is very new, having first been introduced in the UK in 2010. The bonds were first trialled in Australia in 2011 in New South Wales with some success. Investors provided the funds for UnitingCare to run early intervention programs to keep families together, rather than requiring out of home care, and due to the success of the program received a 7.5% return. There have since been several other trials, tackling family resilience and recidivism in New South Wales.

Proponents of Social Impact/Benefit Bonds say they give more leeway to service providers to tackle problems in innovative ways because of the focus on outcomes, rather than inputs and methods. It is also thought that SBBs are much more geared to support early interventions than Governments which to some extent are only be responsive to crises, rather than pre-emptive.

Professor Jason Potts from RMIT suggests that programs with outcomes that are less quantifiable – he gives the example of a young Indigenous women’s pageant in the Kimberley region leading to an increase in self-confidence and workplace readiness – can still be much more successfully funded by SBBs than by Government because private investors are more willing to carry the risk of testing such programs’ effectiveness.

Social Benefit Bonds are certainly an interesting pathway for future funding that all nonprofits should keep abreast of. Check back regularly at the Strategic Grants Blog, and follow us on Facebook and Twitter for further updates.

For a more detailed insight into social impact bonds in Australia, see the Centre for Social Impact’s document ‘Social Impact Bonds – An Australian Snapshot’of 2012.

 

*For an example of a payment schedule see the recently terminated Rikers Island example here.