What are social impact bonds and how do they work?

An update to Social Impact Bonds in Australia including Australia's first SIB focused on homelessness.

Last updated 21 Jan 2020

In 2017 the Australian Government announced it would provide $10.2 million over 10 years to partner with state and territory governments to trial the use of Social Impact Bonds (SIBs). As part of that commitment SIBs funded a number of innovative programs, including ones aimed at improving housing and welfare outcomes for young people at risk of homelessness.

What are social impact bonds?

Social impact bonds—also known as social benefit bonds—pay a return to an investor when an agreed social benefit outcome has been achieved by a service provider. These social benefits might be anything from improving conditions for people experiencing chronic homelessness to improving employment outcomes for long-term unemployed young adults.

The return to investors is partly generated by the cost savings to government, that is the reduction in costs to government in dealing with a social issue due to a SIB-funded program compared to the costs that would otherwise have been required. Payments to investors are conditional on the service provider actually achieving good results.

For a social impact bond to be feasible, the planned activity must have meaningful and measurable outcomes that the service provider, private investor, and government stakeholders can agree upon as measures of success. These outcomes need to be demonstrable within a timeframe that the above stakeholders agree upon as reasonable.

The term ‘bond’ may be a misnomer for SIBs, as they are ‘payment by results’ contracts with “outcome funders” like governments. Repayment of the principal and the interest is dependent on the success of the project and investors risk losses if the project fails.

Social impact bonds are different to social bonds

The term ‘social impact bond’ is sometimes confused with ‘social bond’, although the two are significantly different.

Social bonds are financial instruments used to finance a project that delivers social outcomes. They are functionally a debt instrument, with fixed returns and with a promise to use the proceeds for an identified ‘social good’ purpose. This can include projects ensuring access to essential services, affordable housing or micro-finance.

Unlike with SIBs, with social bonds, payment of interest and repayment of the capital is not contingent on any measure or outcome being achieved.

Where did they start?

Social impact bonds were developed by Social Finance Ltd in the UK, and between 2007 and 2016 that organisation has raised over £100 million investment for social benefit projects. By early 2015, 44 bonds had been issued by various governments and organisations across Europe, North America and Australia.

Australia’s first social impact bond

The NSW Government created Australia's first SIB, the Newpin bond, NEWPIN in March 2013 to fund UnitingCare Burnside's New Parent and Infant Network (Newpin) program. The bond is expected to last 7¼ years.

In June 2013, $7 million had been raised to finance the bond, allowing UnitingCare Burnside to run intensive courses for parents and to restore children to their families from out-of-home care.

In its first year (2014), the Newpin bond delivered a 7.5% return to investors, while improving supports for parents of children in, or at risk of entering, out-of-home care, and by 2019 the Newpin SBB delivered an 11.6 per cent per annum return to investors.

By 30 June 2019,  the Newpin program helped restore 328 children to the care of their families, at an overall restoration rate of 63.0 per cent (that is the proportion of children in out-of-home care who are restored to the care of their parent). The program has also supported an additional 55 families in preventing their children entering care.

Over the course of the contract, the Newpin model has evolved, moving away from Centres focussing specifically on either mothers or fathers to support now provided to both genders at all Centres. As such some Centres have closed, while others have opened. Seven Centres will operate through the final year of the contract.

What’s happening with social impact bonds in Australia?

The 2017 Australian Government support came on top of other social impact investment such as Social Ventures Australia (SVA) and Impact Investing Australia. The NSW government has established an Office of Social Impact Investment and aims to build capacity in the sector. Victoria announced an investment of $700,000 in the 2016–17 budget to explore options for social impact bonds in the state.

In late 2015 the South Australian Government made a $9 million commitment to launch a specialised homelessness service using a social impact bond. This led (in 2017) to the Aspire Social Impact Bond (Aspire SIB),  Australia’s first SIB focused on homelessness, delivered by Hutt St Centre, an Adelaide based homelessness services specialist, in partnership with community housing providers including Common Ground Adelaide and Unity Housing. Over a four year period, the Aspire Program will offer support for up to three years to around 600 adults who are experiencing homelessness.

Queensland’s first SIB is the Newpin Queensland Social Benefit Bond, which is based on the NSW Newpin SIB model. This bond commenced in 2017 and will finish in September 2024.

AHURI Inquiry

An AHURI Inquiry, ‘Social impact investment for housing and homelessness outcomes’, explores the opportunities, capacity and ability of social impact investments to create social change in housing and homelessness in Australia.