News and Comment

Social Impact Bonds and their implications for service providers

Friday 12 May 2017

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During my recent visit to Japan, I heard about the early steps taken in the Yokohama City Social Impact Bond (SIB) pilot. I was struck by how radical the idea of outcomes-based commissioning and delivery is in Japan. The current interest in SIBs in Japan can be seen as an attempt to refocus public services on to outcomes and not simply on delivery.

At the Social Impact Forum in Yokohama City, I also listened to the experiences of colleagues from Teens and Toddlers: a non-profit organisation running programmes involving young people mentoring young children.

Comparing the two sets of presentations surfaced a number of issues relating to the implications of SIBs for service providers from the voluntary and community sector.

Grant funding v. contracting

Charities play an important role in society, and this is true internationally. In the UK, they are seen as well placed to deliver services in a more bespoke and meaningful way.

At the same time, funding for charities has changed significantly. Relationships are increasingly based on contracts and competition, and charities are challenged to prove their worth or impact. While core grant funding is still seen as playing an important role, and one that should not be neglected, charities in the UK have accepted the reality of contract funding.

In Japan, on the other hand, grant funding for charity providers is the norm. This has important implications for early attempts at SIBs. Since April 2015, some local governments and national government departments have engaged in pilot experiments in collaboration with non-profit players. The Nippon Foundation supported the ones in Yokosuka City, Fukuoka City, and Amagasaki City through grant-giving models that cannot truly be seen as SIBs.

The Yokohama City SIB pilot is the first to involve private capital through the involvement of Goldman Sachs Japan. Despite this, it is illuminating that Goldman Sachs Japan has insisted that the funds are called “donation” and not “investment”. There is resistance towards shifting the voluntary sector in the direction of contract-based and investment-driven models.

Performance monitoring

As charities in the UK engage more directly with contract funding, they have become better at measuring impact (or at least recognising that they have to demonstrate impact).

SIBs, as a form of outcomes-based commissioning, has considerable demands around measurement. After all, financial returns are linked directly to the achievement (and evidencing) of stated outcomes.

During the Yokohama City Social Impact Forum, we heard colleagues from Teens and Toddlers talk about how they already had a good system for evaluation and performance monitoring prior to their engagement in SIBs. In fact, their track record in measurement was one of the factors influencing their decision to go for (and ultimately succeed in) a SIB. We further heard how the organisation modified and expanded their measurement systems as a result of SIBs.

In contrast, Japanese colleagues have encountered significant challenges in terms of measurement. Charity sector providers there are not used to measuring impact. Measurement relates overwhelmingly to throughput (e.g. number of service users) and activities. It is challenging not only getting them to understand why different measurement is needed, but also how to do this robustly. Investors and commissioners find it difficult to assure themselves that a service provider has the requisite infrastructure and culture to make measurement work in support of a SIB.

There is a clear need for capacity building in the Japanese context, and we heard of how they are exploring partnerships with universities to help support this. Capacity building through collaboration is certainly worthy of further exploration both within Japan and internationally. In the UK, the Government Outcomes Lab is an example of this form of collaboration.

Conclusion

These are by no means the only implications for service providers. Our ‘Service Provider Toolkit’, for example, highlights others. Nonetheless, as international learning and sharing grow, we start to identify key themes that cross-cut national boundaries. These could focus our efforts at improving SIB design and implementation in different contexts.

Dr Chih Hoong Sin, Director, Innovation and Social Investment