Expanding the Vision of Social Impact Bonds
Date:  05-02-2013

Authors of new article assert that SIBs should do much more than simply save money
MDRC, an organization that tackles the thorniest issues facing society with the goal of finding innovative solutions, published a new article that sheds some light on the confusion often surrounding the concept of SIBs. To learn more about MDRC Click here to go to website .

An introduction to the article, “Using Social Impact Bonds to Spur Innovation, Knowledge-Building, and Accountability,” written by David Butler, Dan Bloom, and Timothy Rudd offers background information on MDRC and Social Impact Bonds (SIBs).

“In this article, first published in a special issue of the Federal Reserve Bank of San Francisco’s Community Development Investment Review, we propose a vision of a social impact bond (SIB) model that moves beyond just achieving cost-savings to spurring innovation, knowledge-building, rigorous evaluation, and, potentially, outcomes that go beyond cost savings. We discuss two of the key rationales for SIBs: securing new resources to expand programs more broadly and ensuring that government only pays for successful programs that save money. Both are important goals but are also limited. We therefore propose a more expansive vision of the SIB model.

We draw on our experience as the intermediary for a New York City SIB (NYC SIB) project that is attempting to lower recidivism and improve the lives of 16- to 18-year-olds in New York City’s Rikers Island jail. This project is the first of its kind in the United States. Over the next year, we will be writing about the experience of designing, implementing, and beginning to test the potential of this program set within a complex and dynamic political and service environment. Other partners include the New York City Department of Correc¬tion, the Mayor’s Office, the Bloomberg Family Foundation, Goldman Sachs, the Osborne Association, Friends of Island Academy, and the Vera Institute of Justice.

What Is a SIB?

SIBs are innovative financing arrangements that aim to increase the pool of money avail¬able for preventive services. In a SIB, investors provide financing to operate federal, state, or local-run programs that aim to achieve predetermined outcomes. Generally, these outcomes are expected to save government money, for example, by reducing the need for beds in prisons or homeless shelters. The government entity agrees in advance that, if the program meets its goals, it will use the savings to pay back the original investment, plus a return. Usually, an intermediary organization puts the pieces together — identifying appropriate inter¬ventions and service providers, making a match between government agencies and investors, helping to structure the financial deal, and monitoring the program as it operates. This is the role MDRC is playing in the NYC SIB. An independent evaluator will confirm that the program has achieved the pre-specified goals and determine whether the government is obligated to pay back the investors.”

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