Combining comments from our interviews with providers and experts, and other groups’ research[1], we have summarised some of the advantages of SIBs for delivery organisations, compared to other types of financing such as standard Payment by Results contracting, fee-for-service and grants.
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1. Investors carry the risk and bring expertise and scrutiny
- Investors bear the financial risk which would be carried by the delivery organisation in standard payment by results contacting
- Upfront capital from investors means small providers can participate, who would not be able to otherwise in standard payment by results contracts
- Funding can provide capital to scale up operations
- Scrutiny of investors leads to capacity building for improved performance management and service redesign
- Strong foundations are put in place to measure social and financial benefits
- New-found skills, confidence and connections can unlock future funding opportunities
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2. Deal structure offers flexibility, innovation and upside
- Funding for innovative programmes, and proof if they work
- A great deal of flexibility in the delivery model, especially with an active board
- Potential of upside, in case of out-performing
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3. Longer-term funding means more stable and predictable revenue
- Most SIBs have timelines of three to seven years
- Enables providers to improve financial planning rather than depend on government budget cycles or granting timelines
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4. Partnerships
- Partnership brings wide range of expertise (provider consortia, investors, intermediary) and improved ways of working
- Foster a culture of collaboration, combining services to best serve the population
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[1] Social Impact Bond Technical Guide for Service Providers, 2013: MaRS Centre for Impact Investing.
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