Social impact credit

The Social Impact Loan ( SWK ), also known as Social Impact Bond (mainly in Great Britain), Pay for Success Bond (United States) and Social Benefit Bond (Australia), is a political and financial instrument in which social services are privately financed and if successful publicly reimbursed. For this purpose, public administration , private pre-financiers and social service providers form an effective partnership that is managed by an intermediary and evaluated by an expert. The repayment depends on the success of the social measure.

functionality

The social impact credit is basically a multi-stakeholder partnership that brings together different actors to solve stubborn social problems: the public sector, intermediaries, investors, social service providers and reviewers (often from academia). The SWK is based on two pillars: A contract between the public sector and an intermediary. Here, a clearly defined target is agreed and a remuneration mechanism is set if the target is achieved. Based on the contract, the actors create a functional sphere of activity that is divided into four sections:

1. Pre-financing by private (mostly philanthropic) investors
2. Service provision by social services and companies
3. Evaluation by an independent reviewer, and
4. Return of capital from the public sector to the pre-financier - but only if the target is achieved.

First of all, private donors (mostly from the foundation sector) invest capital in order to pre-finance a promising social service over several years. This service is provided either by one or jointly by several social services or companies. The financing of your respective service (s) is secured in advance and in full for the entire contract period, usually between three and five years, with better financial resources than in conventional financing models. An independent expert checks whether the specified effective goal has been achieved. If this is the case, the investors receive their invested capital including a return from the public sector (refinancing). The sphere of activity is "managed" by an intermediary who plays a central role.

Worldwide distribution

One of the pioneers of social impact credit was British businessman and investor Sir Ronald Cohen . The first Social Impact Bond was initiated in September 2010 in Peterborough prison by the organization Social Finance UK . This was used to finance services for released prisoners with short prison sentences in order to reduce the recidivism rate. Since then, 26 model projects have been started around the world, including in Great Britain, the United States, Belgium, Austria and the Netherlands. A total of fourteen of the 26 social impact credits are dedicated to the integration of NEETs into the labor market. Seven SWKs focus on improving the physical and mental well-being of children and adolescents, three model projects seek to achieve better social reintegration of criminals, the Austrian project is dedicated to reducing poverty and the exclusion of women who have experienced violence, and a SWK has developed aim to reduce the number of homeless people in Greater London. So far, however, the mechanism of action can only be demonstrated by way of example. However, the world's first pilot test in Peterborough, England, shows positive results after initial difficulties. The rate of re-convictions among short-term offenders was reduced by 8.4 percent compared to the control group. The Austrian pilot project PERSPEKTIVE: ARBEIT ended after three years on August 31, 2018. Even if the specified goal of placing women affected by violence in employment with an annual gross salary of at least 19,500 euros was narrowly missed and the costs are borne exclusively by the foundations, the successes are remarkable: 311 women and 430 children have benefited from this offer and were supported on the way to a secure future. More than 180 women found employment on the primary labor market and around 30 have laid the foundation for their professional integration with training and qualifications.

The first successful German model project started in 2013 under the name "eleven Augsburg" and was completed in 2016. The project partners have signed a contract with the State of Bavaria according to which at least 20 young people and young adults from the Augsburg region who are neither in employment nor in training or further education and so far could not be addressed are to be brought into training or work .

Potential

The added value of the SWK is that it combines the effectiveness of social services with savings for public institutions and at the same time outsources the higher implementation costs of more intensive (usually preventive) approaches to external donors. In this way, the SWK enables those in need to receive more foresighted, target group-oriented, more intensive - and thus more effective - than with conventional measures. The potential of the SWK is revealed when comparing the measure and follow-up costs of different offers of assistance. Intensive services may be more expensive in the short term. But by achieving a greater effect, they prevent chains of increasingly expensive measures from gradually accumulating immense follow-up costs.

In this way, the initially high costs will amortize over time compared to existing approaches. It is precisely this total cost comparison that is funded by the SWK. At the same time, the impact loan initially outsources the implementation costs of the intensive / preventive service to external investors. Because only if the savings in follow-up costs actually occur for the public sector and these ultimately exceed the implementation costs, there will be a return of capital to the pre-financier. In this way, the respective public institution not only creates measurable added value for those in need, but also saves costs through the successful measure.

A policy letter from the new responsibility foundation points to five central target groups for a SWK, in which significant savings potentials as well as novel approaches to effect could be identified: children / families at risk, young people at risk, recipients of basic security, people in need of care and the mentally ill.

Challenges

At the same time, the potentials are faced with not inconsiderable challenges. First and foremost, the savings to be achieved by the public sector must be so high that the costs incurred, including the return to be paid in the event of success, are compensated. At the same time, the savings must be incurred during the term of the SWK, which can last between two and eight years depending on the specific project. This can hardly be achieved in early childhood education or preschool language support, because savings sometimes only occur after ten years or later.

In order to determine the impact, the objective and target group must first be defined. Difficulties usually arise here, because such goals can only be represented using key performance indicators (KPIs), i.e. they must be both measurable and quantifiable. However, it is difficult to determine the quality of many social services, such as outpatient or inpatient care for the elderly. At the same time, verifiable proof of effectiveness requires attribution. This means that it must be clearly evident that the result achieved can actually be traced back to the intervention carried out. However, many social enterprises and social services in free welfare are not sufficiently familiar with the instruments and techniques of impact measurement.

The question also arises of who bears the costs for the impact measurement and pre-finances these costs. An impact measurement that meets scientific criteria sometimes causes considerable effort, so additional staff is often required to adequately document the project. For the financier there is the risk of a partial or full loss (similar to conventional investments) if the agreed goal is not achieved.

Individual evidence

1. ↑ Fliegauf, MT; U. Unterhofer 2015. Social Impact Credit - Innovative with substance? Berlin: New Responsibility Foundation, January 2015, 1.
2. ^ Weber, M .; S. Petrick 2012: What are Social Impact Bonds? Definition, structures, market development. In: impactinmotion.com , 2012.
3. ↑ Fliegauf, MT 2014: Social impact credit. Structure, potential, challenges. Berlin: New Responsibility Foundation, December 2014, 2.
4. ^ David Brook, Caitlyn MacMaster and Peter A. Singer: Innovation for Development . In: Bruce Currie-Alder, Ravi Kanbur, David M. Malone and Rohinton Medhora (Eds.): International Development: Ideas, Experience, and Prospects . Oxford University Press, Oxford 2014, ISBN 978-0-1916-5169-4 , p. 610
5. ^ The Global Social Impact Bond Market. (No longer available online.) In: London: Social Finance. Archived from the original on September 24, 2015 ; accessed on October 12, 2018 . Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice.  
6. ↑ Fliegauf, MT; U. Unterhofer 2015: Social Impact Credit - Innovative with substance? Berlin: New Responsibility Foundation, January 2015, 6.
7. ↑ Success of the first Austrian Social Impact Bond: PERSPECTIVE: ARBEIT is brought into regular operation. Retrieved December 7, 2018 . 
8. ↑ Social work with returns. In: Handelsblatt. February 27, 2014, 26.
9. ↑ Eleven non-profit GmbH ( Memento of the original from August 8, 2016 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. As of March 31, 2015. 
10. ↑ Fliegauf et al. 2015: investment, intervention, impact. The social impact credit in Germany. Policy Brief. Berlin: New Responsibility Foundation, February 2015, 20–21.
11. ↑ Fliegauf et al. 2015: investment, intervention, impact. The social impact credit in Germany. Policy Brief. Berlin: New Responsibility Foundation, February 2015, 9.