How does the money flow?

While SIBs can be structured in a variety of ways, sometimes with multiple providers, commissioners, or investors, and often involving other stakeholders such as intermediaries and evaluators, the fundamental activities are as follows:

'How does a SIB work?' diagram

  1. The investor provides working capital to the service provider at the beginning of the SIB
  2. The service provider works with the participants to deliver the programme, and if all goes well the desired social outcomes are achieved along the way
  3. As the programme progresses, the commissioner checks that the desired social outcomes have indeed been achieved
  4. If the commissioner is satisfied that the desired social outcomes have been achieved, payments are made (sometimes indirectly) to the investor, following a rate of return agreed upfront

In some variations, the delivery organisation may choose to share in the risk and be rewarded for achievement of outcomes. See Phase 3 of SIBs Step By Step for more details.

How is a SIB different from standard payment by results contracting?

It is the involvement of a social investor, who bears the financial risk, that makes a SIB different from standard payments by results contracting. SIBs have been a very small part – less than 1% - of the estimated £15 billion PbR market. (Social Spider Briefing on Social Impact Bonds).

Payment by Results + Investment = SIB

Next: How have SIBs developed in the UK?