Are you ready for social impact bonds?

Social Impact Bonds (SIBs) are a powerful new tool to align the interests of social organisations, governments and investors around proven social impact. While this form of funding is still in its early stage, there are some principles that are emerging. It is clear that a SIB will not be appropriate for all social programs - the need for robust proof of impact attributed to the intervention, and the involvement of investors and multiple government departments makes SIBs complicated instruments.

We encourage social organisations to think about the future of outcomes-based funding for programs. With new SIB funding rounds opening up, social organisations are asking - do I have the right kind of program and support to be successful in applying for a SIB?

There are several key dimensions to consider before beginning your application for a SIB.

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> A vision

What is it that you are trying to achieve and for whom? A SIB is a long, challenging process, so your senior management need to have a clear and unified vision of why you want to proceed. While this will help sustain you when the complexity is greatest it will also help you convince Government that your organisation – your intervention – is ready to be taken through this process.

> A clearly defined problem

SIBs allow you to create, fund, measure and adapt an existing or new service response to a specific health or social need and for a specific cohort of people. The organisation needs to be very clear about the target cohort for the program. Develop a view on why, where and how the existing sets of services are inadequate. Demonstrate (ideally with existing evidence) how your proposal will solve the problem. Ideally, you have an existing intervention that you wish to ‘scale’ through a SIB, although this is not essential.

​> An ‘investable’ opportunity

Most SIBs work by paying upfront for an intervention that can be proved to reduce existing government costs, say in delivering health care or running prisons, or delivering intensive social services. They help prevention based solutions to get funded that might not otherwise have a clear pathway to sustainable funding. But they also need to attract investors, which may include the social organisation itself, philanthropy or other social investors. As a result, the financial case needs to stack up for these investors, and the risk profile needs to suit their investment strategy. Not all programs have the characteristics to appeal to investors, and not all social organisations are willing to take on the risk of having potential funding ‘at risk’ should the program fail to deliver its objectives.

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Latitude Network has experience in managing and negotiating SIBs, as the lead advisor for Victoria’s first SIB, the Sacred Heart Mission Journey to Social Inclusion SIB. Our role is to help assess programs against the criteria and assist with SIB applications. We also assist organisations to run the joint development phase where outcomes and financial agreements are negotiated with relevant government departments including Treasury. We help coordinate the various technical specialists needed to successfully concluded a negotiation.

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>  Organisational commitment

The typical stages of a SIB negotiation are:
1. Your application in response to a tender opportunity - this requires building a high level financial model and clarity on the outcomes you plan to deliver.
2. Successful shortlisting to the negotiation phase (also known as ‘Joint Development Phase’).

Each of these phases requires the right team and the right response. Latitude's approach is to work with you to make sure the budget is right for the stage – only spending what you need to at any particular time and getting the best value advisors in the process.

>  Right mix of expertise

While you will need to draw upon in-house expertise to navigate the SIB application and negotiation process, SIBs require you to bring those skills together in different ways. They also stretch you to consider things that you will not have had to previously. So, you will need a guide – a Sherpa – to assist you to navigate the process (sometimes known as ‘intermediaries’). We can work with you to pick a team that meets your organisation’s, your intervention’s and your transaction’s specific needs, matching the need with the best possible advisor. We can also take into account any preferences you might have to use existing advisor relationships.

> Being proactive

In some parts of the SIB world service ‘commissioners’ (Government, typically) welcome unsolicited social and health outcomes-based bids for partnerships. We are not yet at that level of maturity here in Australia and so we need to wait until each State instigates a formal tender process. 

Like all tender processes though, they are short, intensive and competitive and so you need to conclude and enunciate your plan quickly. This means that being prepared for a tender round is the best approach. We work with organisations year-round to help them plan for, and access, outcomes-based financing opportunities.

Contact us for assistance with a SIB application or design of an outcomes-based project.