Social Impact Investing

SOCIAL IMPACT INVESTMENT: BUILDING THE EVIDENCE BASE
3.48 Today, most social investment is still in the form of grants, primarily from the philanthropic
community, or secured loans. Venture philanthropists, who can operate across the spectrum of investment
return, typically offer non-returnable grants for a purely social return while others use loan, mezzanine or
quasi-equity finance for blended risk-adjusted financial and social returns (EVPA, 2011). Venture
philanthropists provide substantial and sustained financial support to a limited number of organisations.
Support typically lasts three to five years although it can also be longer with a goal of helping the
organisation become financially self-sustaining by the end of the funding period (EVPA, 2011).
Foundations have become increasingly interested in these models. A recent OECD publication highlights
some foundation’s experiences to date in developing countries (OECD, 2014).
3.49 There is a need for hybrid models using a combination of instruments. Increasingly, foundations
are co-mingling traditional grants with social investment funds to combine their own experience and assets
with those of commercial investors (HM Government, 2013a). Most deals require a mix of different types
of instruments.
3.50 “Pay for Success” instruments such as Social Impact Bonds (SIBs), first launched in the U.K. a
few years ago, are capturing attention within the industry as well as in the broader public as an innovative
new way to finance solutions to social issues. These public-private partnership models can contribute to
much needed innovation in financing models as well as improvement in public service delivery. However,
they can also be complex and time consuming to structure and implement (Addis et al, 2013).
3.51 A SIB is a type of public-private partnership that embeds a pay-for-success scheme,
commissioned by public authorities, foundation or corporations to provide social (goods and) services. SIB
commissioners have clear priorities in terms of social goals that need to be achieved in a more efficient
way. So, they set up predefined and measurable target social outcomes. As depicted in Figure 3.2 below,
social service providers, with a track record in addressing that particular social need, are provided funding
in the form of investment by private investors. The investors in the SIB are then repaid based on the
achieved outcomes, defined a priori by the SIB commissioner.
Figure 3.2. The SIB model
Source: UK Cabinet Office, available at: https://www.gov.uk/social-impact-bonds.
© OECD 2015 33