The Potential and Limitations of Impact Bonds

The Potential and Limitations of Impact Bonds LESSONS FROM THE FIRST FIVE YEARS OF EXPERIENCE WORLDWIDE Emily Gustafsson-Wright Sophie Gardiner Vidya Putcha july 2015 CONTENTS Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 .1 Intractable Social Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . 1 .2 Inadequate Resources and Delivery Failure . . . . . . . . . . . . . . . 1 .3 A New Approach to Address Social Challenges: Impact Bonds 1 .4 Contribution of This Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Impact Bond 101 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 .1 Impact Bond Feasibility Criteria . . . . . . . . . . . . . . . . . . . . . . . . . 2 .2 Basic Impact Bond Structure and Mechanics . . . . . . . . . . . . . . 2 .3 Variations on the Impact Bond Structure and Mechanics . . . . . 3. A Landscape of Existing Social Impact Bond Transactions . . . . . 3 .1 Geographic Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 3.2 SocialIssueAreaandBeneficiaryAgeRange . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 3.3 CapitalSizeandBeneficiaryNumber . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 3 .4 Contract Duration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 3 .5 Outcome Metrics and Outcome Payment Structures . . . . . . . . . . . . . . . . . . . . . . . .17 3 .6 EvaluationType . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 3 .7 Maximum Payments and Payments to Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 3 .8 Social and Development Impact Bonds in the Development Stage . . . . . . . . . . . . .22 . . . . . . . . . . . . . . . . .iii . . . . . . . . . . . . . . . . .1 . . . . . . . . . . . . . . . . .1 . . . . . . . . . . . . . . . . .1 . . . . . . . . . . . . . . . . .2 . . . . . . . . . . . . . . . . .2 . . . . . . . . . . . . . . . . .4 . . . . . . . . . . . . . . . . .4 . . . . . . . . . . . . . . . . .6 . . . . . . . . . . . . . . . . .7  . . . . . . . . . . . . . . . .11 4. What Does It Take to Get the Deal Together? . . . . . . . 4 .1 Who Are the Stakeholders? . . . . . . . . . . . . . . . . . . 4 .2 What Are the Stakeholders’ Motivations? . . . . . . . 4 .3 What Are the Stakeholders’ Roles? . . . . . . . . . . . . 4 .4 Determination of Outcome Metrics and Payments 4 .5 Challenges Faced in Deal Development . . . . . . . . 4 .6 Facilitating Factors in Deal Development . . . . . . . 4 .6 Impact Bond Transactions Costs . . . . . . . . . . . . . . 4 .7 Main Takeaways on Deal Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23 . . . . . . . . . . . . . . . . . . . . . . . . . .23 . . . . . . . . . . . . . . . . . . . . . . . . . .24 . . . . . . . . . . . . . . . . . . . . . . . . . .26 . . . . . . . . . . . . . . . . . . . . . . . . . .29 . . . . . . . . . . . . . . . . . . . . . . . . . .30 . . . . . . . . . . . . . . . . . . . . . . . . . .31 . . . . . . . . . . . . . . . . . . . . . . . . . .35 . . . . . . . . . . . . . . . . . . . . . . . . . .35 5. 10 Common Claims about Impact Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36 5 .1 Summary of the Analysis of the 10 Common Claims about Impact Bonds . . . . . . . . 47 6. Conclusions and Future of SIB/DIB Market . . . . . . . . . . . . . Appendix 1: Research Methodology and Study Participants Appendix 2: Existing Social Impact Bond Summary Sheets . Fact Sheet Key . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 . . . . . . . . . . . . . . . . . . . . . .52 . . . . . . . . . . . . . . . . . . . . . . 55 . . . . . . . . . . . . . . . . . . . . . . 55 . . . . . . . . . . . . . . . . . . . . . .58 . . . . . . . . . . . . . . . . . . . . . 106 . . . . . . . . . . . . . . . . . . . . . 119 . . . . . . . . . . . . . . . . . . . . .123 . . . . . . . . . . . . . . . . . . . . .124 . . . . . . . . . . . . . . . . . . . . .125 . . . . . . . . . . . . . . . . . . . . .126 . . . . . . . . . . . . . . . . . . . . . 128 U .K . SIB Fact Sheets . . . . . . . . . United States SIB Fact Sheets . . Australia SIB Fact Sheets . . . . . . The Netherlands SIB Fact Sheet Germany SIB Fact Sheet . . . . . . Belgium SIB Fact Sheet . . . . . . . Canada SIB Fact Sheet . . . . . . . Portugal SIB Fact Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appendix 3: Legislation and Policy Action to Support the Impact Bond Ecosystem . . 130 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .140 The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS i LIST OF FIGURES Figure 1 . Impact Bond Feasibility Criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Figure 2 . Impact Bond Mechanics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Figure 3 . Four Stages and Components of Impact Bond Development Process . . . . . . . . . . 7 Figure 4 . SIB Development Over Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Figure 5: Active SIBs by Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Figure6.AgeofSIBBeneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 Figure 7 . Upfront Capital Commitment in SIBs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 Figure8.SIBTargetBeneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 Figure 9 . SIB Contract Duration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Figure 10 . Evaluation Methods Used in SIBs . . . . . . Figure 11 . Number of Actors by Type . . . . . . . . . . . . Figure 12 . SIB Actor Primary Motivations . . . . . . . . . Figure 13 . Challenges in Developing SIBs . . . . . . . . Figure 14 . Facilitating Factors in Developing SIBs . . Figure 15 . 10 Common Claims about Impact Bonds LIST OF TABLES Table 1 . Impact Bond Actors and Roles . . . . . . . . . . Table 2 . Types of Impact Bond Structures and Actor Table 3 . Active SIBs as of March 1, 2015 . . . . . . . . . Table 4: Innovation Fund Round 1 Rate Card . . . . . . Table 5 . Structures of Existing SIBs . . . . . . . . . . . . . LIST OF BOXES Box 1: Impact Bond Funds . . . . . . . . . . . . . . . . . . . . Box 2: Government Support of the SIB Ecosystem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Roles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 . . . 23 . . . 25 . . . 30 . . . 32 . . .36 . . . . 8 . . .10 . . . 12 . . .12 . . .28 . . .18 . . .33 The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS ii The authors would like to thank numerous people for their contributions to this study . First and fore- most we would like to thank our colleague Tamar Manuelyan Atinc, who was a co-conspirator and thinker throughout the entire research project. This study benefited immeasurably from her wealth of experience, wisdom, and unstoppable gumption . We are grateful to every individual who participat- ed in the interviews and survey that contributed to the data presented here . Without their time and ef- fort we would not have been able to tell such a rich story about the development of the impact bond market over the past five years. We also would like to thank the members of our Advisory Panel (listed below) and in particular the chair, Johannes Linn, who provided invaluable recommendations throughout the research process . In addition, we would like to thank Drew von Glahn for thoughtful comments and recommendations on the paper . We are appreciative of those people who partici- pated in the events that we have held over the past year and a half at the Brookings Institution and elsewhere . Each of these conversations added to the discussion here . We would also like to thank our colleagues at Brookings for their research, de- sign, and editing assistance as well as their con- tribution to organization and logistics . In particu- lar we would like to thank Ines Cruzalegui for her dedicated work on the survey as a summer intern . Finally, we would like to thank the Bernard van Leer Foundation for its support of this research . The Brookings Institution is a private non-profit organization . Its mission is to conduct high-qual- ity, independent research and, based on that research, to provide innovative, practical recom- mendations for policymakers and the public . The conclusions and recommendations of any Brook- ings publication are solely those of its author(s), and do not reflect the views of the Institution, its management, or its other scholars . Brookings recognizes that the value it provides is in its absolute commitment to quality, inde- pendence and impact . Activities supported by its donors reflect this commitment and the analysis and recommendations are not determined or influ- enced by any donation . ACKNOWLEDGMENTS Advisory Panel Members J. Lawrence Aber, Professor, New York University Orazio Attanasio, Professor, University College London Owen Barder, Senior Fellow and Director for Europe, Center for Global Development Claudia Costin, Senior Director for Education, World Bank Maria del Rosario Sintes, Regional Vice President, Latin America, United Way Worldwide Robert Dugger, Founder and Managing Partner, Hanover Provident Capital Johannes Linn, Non-resident Senior Fellow, Brookings Institution Joan Lombardi, Senior Fellow, Bernard van Leer Foundation Camilo Mendez, Investment Officer, Pro Mujer Amie Patel, Principal and Director, Emerging Markets, Imprint Capital Andrea Phillips, Vice President, Urban Investment Group, Goldman Sachs Mauricio Santa Maria Salamanca, Former Director of National Planning and Former Minister of Health and Social Protection, the Republic of Colombia Mary Wickersham, Director of the Center for Education Policy Analysis, University of Colorado, Denver The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS iii 1.1 Intractable Social Challenges Governments, nonprofit, nongovernmental, and multilateral organizations have long invested resources to develop strategies and implement programs to address pressing social issues, such as the large number of children who are still out of school across the world, the high rates of youth and adult unemployment, prison recidivism, and the burden of preventable and treatable diseases . While some advances have been made in these areas, enormous challenges remain that inhibit economic and human development, leading to the persistence of social inequities . In the case of education, for example, momentum from the Millennium Development Goals led to sub- stantial improvement in the number of children en- rolled in primary school .1 Nevertheless, it is estimat- ed that 58 million primary school children worldwide are still out of school . Furthermore, education quality remains low, with at least 250 million children of pri- mary school age failing to learn the basics .2 The con- sequences can be huge—in Nigeria, for example, it is estimated that more than 7 percent of GDP is lost due to forgone primary education .3 Problems with such deep consequences span sectors and affect societal well-being in a num- ber of ways . For example, while malaria is both preventable and curable, the World Health Orga- nization estimates that in 2012 there were about 207 million cases of malaria (90 percent of them in sub-Saharan Africa) and an estimated 627,000 deaths .4 Direct costs of malaria related to illness, treatment, and premature death are estimated to be $12 billion per year .5 One study found that, between 1965 and 1990, economies of countries with high malaria prevalence grew 1 .3 percentage points less per year than other countries .6 1.2 Inadequate Resources and Delivery Failure Low levels of education and the prevalence of malaria result from the inability of governments to equitably deliver high-quality services in the education and health sectors . This inability may arise from lack of resources, ineffective use of such resources, or both . In developing countries, for instance, limited tax revenue may lead to in- adequate and unstable financing for development objectives, as the ratio of tax to GDP in poor countries is only half of what it is in the developed world .7 However, even when governments do have resources and spend on services, performance is mixed . For example, while studies on cost-effec- tiveness of preventive and primary curative inter- ventions indicate that the death of a child under the age of 5 could be avoided for as little as $10, cross-national analysis indicates that a developing country at average income levels spends $50,000 to $100,000 per child death averted .8 Data such as these suggest that government failure is not simply a function of insufficient resources for pop- ulations in need. It may also reflect undue focus on more expensive curative or crisis-driven inter- ventions, resources not reaching frontline service providers, weak incentives for service providers to I. INTRODUCTION The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 1 provide quality services, and insufficient demand for services .9 Also, interventions for needy popula- tions can often be very human relations-intensive, requiring close connections with communities, so- cial ties, and trust . Government systems that can be bureaucratic and distant from reality on the ground are not always the best suited to provide these types of social services. In short, insufficient attention to performance and to measuring and being held accountable for results can lead to poor outcomes even with abundant funding . These fail- ures are often inextricably linked to political and institutional constraints . Election cycles, budget silos, and complex or rigid government appropri- ation systems can all hamper governments’ ability to deliver . Nonprofits or nongovernmental organizations at- tempting to fill the gaps where governments fail may face problems of their own related to financing constraints or ineffective use of resources . These types of organizations are often ill-equipped to de- liver quality programs at the scale needed to reach all of the needy population . Their dependence on volatile external resources or government funding, for the reasons described above, can add to the challenges they face . 1.3 A New Approach to Address Social Challenges: Impact Bonds The persistence and enormity of social problems, despite attempts to address them, suggest a need for diverse and innovative solutions that address the weaknesses of traditional approaches . The social impact bond (and the related development impact bond), a mechanism that harnesses pri- vate capital for social services and encourages outcome achievement by making repayment con- tingent upon success, has been proposed as one way to address some of these challenges .10 Social impact bonds (SIBs) combine some com- ponents of results- or performance-based fi- nancing and public-private partnerships, which have been used to fund public services for many decades . However, impact bonds differ in several ways. First, in an impact bond, financing is provid- ed upfront rather than when results are attained . Second, results in social impact bonds are usually related to outcomes as opposed to outputs . Third, impact bonds can focus on the delivery of human services as opposed to the traditional physical infrastructure that has often been the center of both public-private partnerships and performance contracts . Finally, in contrast to programs such as Program for Results (P4R) or results-based financing (RBF) being used by the World Bank, impact bonds bring in private sector rigor and per- formance management to drive results .11 To date, 44 SIBs are being utilized in developed countries to, among other social issues, provide high-quality preschool education, reduce pris- on recidivism, avoid foster care placement, and increase youth employment . One impact bond has been contracted in a developing country, and several projects are underway to establish devel- opment impact bonds in various areas including health and education .12 1.4 Contribution of This Study This study aims to examine critically the potential for this innovative financing mechanism to address the financing and quality service delivery issues described above . As there has been considerable fervor around impact bonds in recent years, we identified the need to provide an impartial and in- dependent perspective with respect to the poten- tial benefits of impact bonds. The research for this study consisted of a system- atic review of the literature, more than 70 structured and informal interviews, and online surveys of 30 individuals . The interviews and surveys captured multiple representatives of the actors involved in every SIB contracted as of March 1, 2015, as well as interviews with other key players in this area (see Appendix 1 for a detailed description of re- search methodology and list of survey participants, interviewees, and other contributors) . The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 2 This study provides: • Clear definitions of the concepts, key play- ers, and development processes of impact bond transactions • A comprehensive inventory of all active 38 active SIBs (contracted as of March 1, 2015) as well as some of the social and development impact bonds in the develop- ment stage • An inventory of key policy actions and legis- lation to support the impact bond ecosystem • An analysis of the stakeholder motivations, key facilitating factors, and biggest challeng- es faced in the 38 impact bond transactions • A critical examination of 10 positive claims made about impact bonds • An analysis of the future potential of impact bonds and any potential derivatives with a particular focus on developing country con- texts . The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 3 Impact investing, a way of investing that seeks both financial and social return, has become in- creasingly popular over the past decade . In 2014, in a survey of 125 investors,13 the global market was estimated to be valued at $46 billion, of which $32 billion was invested in developing countries .14 While these numbers don’t capture the entire im- pact investing market—in particular they miss those impact investors based in the Global South—they demonstrate that the market is fairly substantial in absolute terms . The survey also documents the rap- id growth of impact investing over the past decade and expectations of its continued growth . More and more, investors have an interest in achieving both financial and social returns on their investments, as shown in a study of millennial investors .15 As a frac- tion of total assets under management, which were estimated to be $64 trillion in 2012 and expected to exceed $100 trillion by 2020, impact investing still represents a small portion of the market . This shows that there is still a lot of room to grow . A particular class of impact investing, social im- pact bonds (SIB), also called pay-for-success (PFS) in the United States and social benefit bonds (SBB) in Australia, has gained particular attention in recent years . In this model, private investors put up capital to fund a social interven- tion and governments repay the investor only if an agreed-upon outcome is achieved .16 Development impact bond (DIB) is a term used for a SIB that is implemented in low- and mid- dle-income countries where a donor agency or a foundation is the outcome funder as opposed to the government (although some combination of government with third party is also possible) .17 2.1 Impact Bond Feasibility Criteria Four basic criteria are necessary for impact bonds to come to fruition (see Figure 1) . In addition to these criteria, there must be a set of actors who possess the expertise, will, and dedication re- quired to carry out the transaction . Meaningful and measurable outcomes: Meaning- ful outcomes should minimally be indicative of out- comes that are predictive of the life trajectory of an individual . If an outcome has no evidence that demonstrates that it will lead to better outcomes later on, paying for it doesn’t make a great deal of sense . While interventions should by no means be limited to the outcomes that are interesting to outcomes funders, when choosing outcomes for repayment in a SIB, ultimately the outcome must be attractive to them . This likely means that the outcome metric should be a meaningful proxy for longer-term eco- nomic outcomes or be aligned with a broader polit- ical agenda of some kind .18 Outcomes may repre- sent cost avoidance or potentially fiscal savings. The term often used to describe this is that outcomes are “monetizable .” Measurable outcomes are outcomes that can be measured in a specific context, particu- larly given resource constraints . In other words, not only must you have the tools with which to measure the outcomes, but systems must also be in place to accurately and consistently measure them . For that 2. IMPACT BOND 101 The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 4 reason, the simpler the outcomes to measure, the better they are for the success of an impact bond . Hence, the use of administrative data, where avail- able, makes good sense as an outcome measure . There is potentially even more promise with the col- lection of real-time data that can be used to manage programs and make course corrections along the way . Reasonable time horizon to achieve outcomes: A time horizon for achieving outcomes is reason- able if there is substantial evidence from previous evaluations that the specified outcomes will occur within this time frame . At the same time, a reason- able time horizon is one in which outcomes are measurable and therefore indicative of future life- long opportunities for the individuals . A reasonable time horizon will also be one in which investors and outcome funders are able and willing to make and receive payments given, for instance, legal and political conditions in a country . Evidence of success in achieving outcomes: Ev- idence of success in achieving outcomes should come from evaluations of interventions that close- ly mirror the services and how they are delivered in an intervention supported by an impact bond . These evaluations are best if they come from a context similar to the one in which an impact bond is planned, though this is not absolutely neces- sary . At the very least, evidence should probably be available at the country level for an impact bond to be considered feasible . In our view, rig- orous evaluations are recommended, such as randomized control trials or other techniques that compare outcomes for a group receiving a service with another group that does not receive a service, while also accounting for differences between the groups compared . Ultimately, however, the extent to which evidence must be rigorous is very depen- dent on the risk appetite of the investors and the requirements of outcome funders . Figure 1. Impact Bond Feasibility Criteria Appropriate Legal and Political Conditions Meaningful and Measurable Outcomes Impact Bond Feasibility Evidence of Success in Achieving Outcomes Reasonable Time Horizon to Achieve Outcomes The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 5 Appropriate legal and political conditions: Appro- priate political conditions are those that demon- strate support for the services delivered in an impact bond by relevant stakeholders, including local, state, and national governments, as well as investors . Support for a particular service may be found in a policy framework or strategy document or may be demonstrated in previous funding al- located to services . In addition, appropriate legal conditions will enable governments (in their role as outcome funders) to pay for outcomes beyond the fiscal year in which a contract is made and for that matter to pay for outcomes at all . This is often necessary since most public expenditure is committed on a yearly basis . It may also be nec- essary for legal conditions to support the ability of the government to direct funds to an intermediary in a transaction and for the intermediary to have the authority to make certain decisions, such as selecting a service provider . Legal conditions will also facilitate a transaction such that investors have contract protections and are incentivized to provide capital for the impact bond . Other relevant issues that may influence the feasibility of an im- pact bond include how governments treat hybrid investments, which include debt and equity com- ponents, and how they treat various stakeholders involved in a deal that may be located outside of a country .19 2.2 Basic Impact Bond Structure and Mechanics The basic impact bond structure and mechanics are shown in Figure 2 . In this basic model four major types of actors are usually involved in an impact bond transaction, in addition to the pop- ulation in need . Investors provide capital for a service provider to deliver social services to a population in need . The outcome funder (gov- ernment, or in the case of a development impact bond, a third party) agrees to repay the investors Figure 2. Impact Bond Mechanics INVESTORS INTERMEDIARY 6. Pay for Success OUTCOME FUNDER 5. Evaluate Impact EVALUATOR 2. Coordinate, Structure Deal, & Manage Performance 7. Return of Principal plus Interest 1. Investment of Principal 3. Deliver Services SERVICE PROVIDER POPULATION IN NEED 4. Achieve Outcomes The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 6 if pre-determined outcomes are achieved . The in- termediary can play multiple roles but often has the responsibility of raising capital and bringing the stakeholders together to determine and agree upon the transactional details . In addition to these four players, an evaluator may be used to evalu- ate the outcomes . 2.3 Variations on the Impact Bond Structure and Mechanics The design of an impact bond can vary greatly in terms of the composition of the players involved, their roles, and the timeline and process of putting the deal together based on what we see across the 38 SIBs included in this study . The development process for an impact bond transaction is unique to each deal, though four major stages of the process are fairly consistent across deals: a feasibility study, structuring the deal, implementation, and evaluation and repay- ment .20 Within those stages, as shown in Figure 3, there are some basic components of each deal process. These include the identification of a so- cial challenge; an assessment of feasibility for de- veloping an impact bond based on a set of criteria (see Figure 1); the raising of capital from senior and/or subordinate lenders or grant makers; the defining of the intervention, outcomes metrics, and evaluation methodology; the procurement of a service provider (which can occur through various different processes21); the negotiation of contracts between stakeholders; the provision of the services; performance management (in some cases); and evaluation . The order in which these components take place can vary greatly across deals . For example, in some cases a service pro- vider is identified early on in the process, allow- ing inclusion of service provider-specific data in the feasibility analysis; in other cases, the service provider is procured after the identification of an intervention and after a feasibility analysis is con- ducted . Similarly, the capital can be raised before or after securing an outcome funder depending on the circumstances . We describe these differenc- es in more detail in the third section of this study where we analyze the process of deal development across all 38 transactions included in our study . Figure 3. Four Stages and Components of Impact Bond Development Process Feasibility Study Structuring the Deal Implementation Evaluation and Repayment Identify Social Challenge Raise Capital Provide Services Evaluate Determine Feasibility Based on Impact Bond Criteria Determine Intervention and Outcome Metrics Manage Performance Achieve Outcomes and Repay Investors Procure Service Provider Negotiate and Finalize Contracts The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 7 Table 1 provides a more varied description of the potential roles that each of the parties can hold in this process and offers examples of the types of entities that can take on each responsibility . The table also includes additional actors: lawyers, who provide the necessary legal advice and contract- ing for these deals to take place; technical as- sistance providers, who can provide guidance to both governments and service providers in these transactions; and validators, who validate the Table 1. Impact Bond Actors and Roles IMPACT BOND ACTOR ROLE EXAMPLES OF POTENTIAL TYPES OF ENTITIES Service provider Provide social service in transaction Possible: Provide capital for social service Provide data related to service provision and outcomes Nonprofit or nongovernmental organization, public sector service provider, cooperative, non-profit or for-profit social enterprise, for- profit business25 Investors Senior lenders Subordinate lenders Grant makers Provide capital to service providers upfront or over the duration of the contract Investors with highest priority in repayment if outcomes are met Investors with lower ranking priority in repayment if outcomes are met Investors who are not repaid regardless of outcomes being met Possible: Establish company (SPV/LLC26) to manage capital and conduct performance management (this can include participating as board members), receive outcome payments and pay investors Individual, trust, foundation, (impact) investment firm, commercial bank, credit union, community development financial institution (CDFI), public sector entity, nonprofit entity (including service providers themselves), government agency (other than outcome funder) Intermediaries Possible: Raise capital, structure deal, establish company (SPV/LLC), manage partners, receive outcome payments and pay investors, conduct performance management of service provision Nonprofit (financial structuring entity or social policy research organization), commercial bank, impact investment firm, government agency, for-profit business Outcome Funders Pay for outcomes Possible: Determine outcome metrics and repayment terms Government agency, foundation, development agency Evaluators Assess outcomes of program Independent evaluation firm, research institution, university, government agency Validators Validate rigor of evaluation to assess outcomes Independent evaluation firm, research institution, university, government agency Lawyers Advise on structure of deal, represent various actors involved in deal Law firm Technical Assistance Providers Advise outcome funders (governments) and service providers on design and implementation of deal Nonprofit or nongovernmental organization, university, development agency Source: Authors’ research. The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 8 rigor of the outcome evaluation . The bolded text in column two indicates the basic impact bond mod- el role (as seen in Figure 2) and the un-bolded text describes additional roles that this actor can assume . The third column demonstrates the wide variation in types of entities that can take on the different functions. There is considerable flexibility in terms of the roles that different entities can play, provided that the necessary expertise is present in the organization . Today, there are two general models in which impact bonds are developed; as an individu- al transaction impact bond for one outcome payment contract, or as an impact bond fund for multiple outcome payment contracts around the same social issue . In the latter model, a rate card22 is issued that establishes the payment per individual outcome . Partnerships of service pro- viders and intermediaries then bid for a contract at a discounted rate of the outcome payments . The outcome funder (government) selects winning bid- ders based on the discount on the payments and other criteria . Through a fund, the outcome funder is able to set up many SIBs at once . (See Box 1 for more on impact bond funds .) Across the individual transaction impact bonds and impact bonds within funds, the contract structures can be divided into three rough categories based on the actor that holds the contract with the out- come funder and thus has the greatest responsi- bility in the deal .23 Often a special purpose vehicle (SPV)24 is created as a conduit for funds in the deal and the outcome payment contract is with the SPV . In these cases, the structure distinctions are based on the actor with majority control (the most board seats or greatest leadership role) of the SPV . In the first type of contract structure, a managed im- pact bond structure, the outcome funder holds the contract with the intermediary, or a majority in- termediary-controlled SPV, and plays an important leadership role throughout the process of the deal and is responsible for performance management of the service provision . In the second type, an intermediated impact bond structure, the out- come funder holds a contract with the investors or a majority investor-controlled SPV. The inter- mediary often still plays a large role in developing the deal and is contracted by the SPV for perfor- mance management . Finally, in a direct impact bond structure, the service provider contracts directly with the outcome funder . The service pro- vider takes on a more central role, including in- house performance management . The difference in “ownership” of the SPV is significant because outcome payments often flow into the SPV from the outcome funder, and what remains in the SPV after investors have been repaid is kept by the “owner” of the SPV . Table 2 provides a full description of the actors responsible for each role by type of impact bond structure, where white arrows indicate the defining differences between types . The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 9 Table 2. Types of Impact Bond Structures and Actor Roles ROLE ACTOR RESPONSIBLE BY TYPE OF IMPACT BOND STRUCTURE Managed Intermediated Direct Identify Social Challenge Outcome funder and/ or intermediary and/or service provider and/ or technical assistance provider Outcome funder and/or intermediary Outcome funder and/or intermediary Determine Feasibility Based on Impact Bond Criteria Intermediary Intermediary and/or service provider and/or investor Outcome funder and/ or intermediary and/or service provider Raise Capital Intermediary Intermediary Intermediary and/or service provider and/or investor Define Outcome Metrics Outcome funder and/or service provider and/or investor Intermediary and/or outcome funder Outcome funder and/or service provider and/or investor Procure Service Provider Intermediary and outcome funder Outcome funder and/ or intermediary and/or investor Outcome funder or intermediary Contracting with Outcome Funder Intermediary or majority intermediary-controlled SPV Investors or majority investor-controlled SPV Service provider or majority service provider-controlled SPV Provide Services Service provider Service provider Service provider Manage Performance Intermediary Intermediary (commissioned by investors or majority investor-controlled SPV) Service provider Measure/Validate Outcome Achievement Evaluator or outcome funder Evaluator or outcome funder Outcome funder or external validator Source: Adapted from Goodall (2014). The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 10 3. A LANDSCAPE OF EXISTING SOCIAL IMPACT BOND TRANSACTIONS The first SIB was implemented in 2010 in the United Kingdom for the purpose of reducing prison recidivism among short-term male prison- ers . This was followed by several more in the U .K . and by the first SIB outside of the U.K., one in the United States, also for prison recidivism. After five years, the social impact bond market has grown to include 44 transactions .27 Table 3 lists the 38 SIB transactions included in our study or those con- tracted before March 1, 2015, our inclusion cutoff date (see Appendix 2 for detailed fact sheets of each deal) . Later in March and in May of 2015, a new fund that includes four deals and two ad- ditional individual deals were announced in the U .K . Many more transactions are in development . In addition, one development impact bond (DIB) was signed in April, 2015 in Rajasthan, India for girls’ education . The last subsection here discuss- es other DIBs that are currently in development . 3.1 Geographic Distribution SIBs have thus far developed on three conti- nents—Europe, North America, and Australia . The highest number of impact bonds can be found in their origin country of the U .K ., which has 24 SIBs .28 The high number of transactions in the U .K . is driven in part by two SIB funds that were established by government: the Innovation Fund, which comprises 10 SIB deals (six in Round 1 and four in Round 2) in employment, and the Fair Chance Fund, which comprises seven SIBs in so- cial welfare (see Box 1 for more on these impact bond funds) . The country with the second-highest number of SIBs is the United States, with seven as of March 1, 2015. Continental Europe’s first SIBs were established in Germany and the Neth- erlands, followed by Belgium and Portugal . Aus- tralia has implemented two SIBs, and Canada has developed one SIB . The development of the SIB market has been ac- celerating, as demonstrated in Figure 4 . After the first SIB was launched in the U.K in 2010, there was a two-year long period with no new SIBs, fol- lowed by the first and second rounds of the first SIB fund in the U.K. at the end of 2012. The first SIB was launched in the U .S . in January of 2013, fol- lowed by the two additional SIBs in the U .S ., two SIBs in Australia and the first two SIBs in mainland Europe at the end of 2013 . The number of deals grew consistently through 2014, followed by a huge jump at the end of 2014 with the second SIB fund in the U .K . and two more deals in the U .S . 3.2 Social Issue Area and Beneficiary Age Range Among the 38 SIBs included in this study are four broad social issue areas in SIB transactions to date: education, employment, criminal justice, and social welfare .29 While many of the first SIBs were in the social issue area of criminal justice (four SIBs), other areas have since gained traction . In particular, the social welfare (18 SIBs) and employ- ment (13 SIBs) have come to represent the larg- est social issue areas in the SIB market in terms of numbers of deals (see Figure 5) . Social welfare, The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 11 Table 3. Active SIBs as of March 1, 2015 PROGRAM NAME SECTOR Criminal Justice Employment Employment Employment Employment Employment Employment Employment Employment Employment Employment Social Welfare Social Welfare Social Welfare Social Welfare Social Welfare Social Welfare Social Welfare Social Welfare Social Welfare Social Welfare Social Welfare Social Welfare Social Welfare Criminal Justice Education Criminal Justice Criminal Justice Education Social Welfare Social Welfare Social Welfare Social Welfare Employment Employment Employment Social Welfare Education COUNTRY YEAR OF CONTRACT SIGNING ONE Service United Kingdom 2010 United Kingdom 2012 United Kingdom 2012 United Kingdom 2012 United Kingdom 2012 United Kingdom 2012 United Kingdom 2012 United Kingdom 2012 United Kingdom 2012 United Kingdom 2012 United Kingdom 2012 United Kingdom 2012 United Kingdom 2012 United Kingdom 2012 United Kingdom 2013 United Kingdom 2014 United Kingdom 2014 United Kingdom 2014 United Kingdom 2014 United Kingdom 2014 United Kingdom 2014 United Kingdom 2014 United Kingdom 2014 United Kingdom 2014 United States 2013 United States 2013 United States 2013 United States 2014 United States 2014 United States 2014 United States 2014 Australia 2013 Australia 2013 The Netherlands 2013 Germany 2013 Belgium 2014 Canada 2014 Portugal 2015 Triodos New Horizons ThinkForward Links 4 Life Programme Advance Programme Nottingham Futures Living Balance T&T Innovation 3SC Capitalise Programme Energise Innovation Prevista Street Impact Thames Reach Ace Essex Family Therapy It’s All About Me (IAAM) Local Solutions Your Chance Home Group Fusion Housing Ambition East Midlands Aspire Gloucestershire Rewriting Futures Manchester City Council Vulnerable Children Outcomes for Children Birmingham NYC ABLE Project for Incarcerated Youth Utah High Quality Preschool Program Increasing Employment and Improving Public Safety Juvenile Justice Pay for Success Initiative Child-Parent Center Pay for Success Initiative Partnering for Family Success Program Chronic Individual Homelessness Pay for Success Initiative Newpin Social Benefit Bond Benevolent Society Social Benefit Bond Social Impact Bond Rotterdam Eleven Augsberg Duo for a Job Sweet Dreams Supported Living Project Junior Code Academy Source: Authors’ research. The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 12 40 35 30 25 20 15 10 5 0 Source: Authors’ research. as the largest share of all SIB deals, includes a broad range of issues including adoption or long- term foster care placement, family strengthening to avoid foster care, homelessness, and holistic support of disadvantaged young people . Of the three education SIBs, two are for preschool edu- cation and one is for information technology edu- cation for primary school students . It is important to highlight that the likely reason that SIBs start- ed in the area of criminal justice is that the sector closely aligns with the SIB feasibility criteria . The criminal justice system has clearly defined and monetizable outcomes, and there is high political commitment due to the large number of negative outcomes and resulting community pressure . Though the sectors in Figure 5 cover traditional sectors of government service provision, the inter- ventions used in the existing SIBs are almost al- ways not included in core government services or provide unique combinations of government ser- vices . Core government services include primary education, law enforcement, and social protection for the elderly, among many others . In particular, Figure 5: Active SIBs by Sector Figure 4. SIB Development Over Time Portugal Canada Belgium Netherlands Germany Australia U.S. U.K. The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 13 Social Welfare 18 Source: Authors’ research. Note: Social welfare includes adoption or long-term foster care placement, family strengthening to avoid foster care, home- lessness, and holistic support of disadvantaged young people . SIBs have been used as a tool to fund interven- tions where inputs are fairly complex but outcomes are simple to measure . For example, pre-primary education, mentoring for youth, and family therapy Criminal Justice 4 Employment 13 Education 3 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 are all high-impact, cross-sector interventions that fall outside core government services and where service provision by nongovernmental organiza- tions is common, if not the norm . The sector of the SIB is closely related to the popu- lation that the program serves . Figure 6 shows the distribution of ages of the target populations of the active SIBs . Five SIBs in the areas of homelessness and criminal recidivism work with adult populations and have no maximum age limit . Twenty-two SIBs focus on young adults, working on criminal recidi- vism or broad employment support programs . Six of the family support and adoption SIBs focus on children, with two focusing exclusively on older chil- dren and two in Australia focusing exclusively on younger children . The three SIBs in the education sector focus on children around age 4 and those ages 8 to 9 . All existing SIBs focus on vulnerable populations with income and other vulnerability cri- teria used for targeting . 3.3 Capital Size and Beneficiary Number It is a challenge to accurately capture the invest- ment size of the different SIBs because the invest- ment structures differ greatly across deals . First, the capital committed can be drawn upfront or in partial amounts over time . Second, in many deals, particularly in the U .K ., funds are recycled through the program by reinvesting early payments from the outcome funder back into the program to fund operating costs . In these cases, the payments from the outcome funder to the program are much greater than the payments the investors receive . Figure 6. Age of SIB Beneficiaries Portugal Canada Belgium Netherlands Germany Australia U.S. U.K. ONE Service Increasing Employment and Improving Public Safety Chronic Individual Homelessness Pay for Success Initiative Thames Reach Ace Street Impact Duo for a Job Fair Chance Fund (x7) Social Impact Bond Rotterdam Juvenile Justice Pay for Success Initiative The NYC ABLE Project for Incarcerated Youth Eleven Augsberg Innovation Fund Round 1 (x6) **Innovation Fund Round 2 (x4) Essex Family Therapy Outcomes for Children Birmingham Manchester City Council Vulnerable Children Junior Code Academy It’s All About Me (IAAM) Child-Parent Center Pay for Success Initiative Utah High Quality Preschool Program *Partnering for Family Success Program *Sweet Dreams Supported Living Project *Benevolent Society Social Benefit Bond *Newpin Social Benefit Bond Source: Authors’ research. 0 5 10 15 20 25 30 35 40 *Program works with parents, but the intended beneficiaries are the children **Think Forward in the Innovation Fund Round 2 works with 14- to 18-year-olds, rather than 14- to 16-year-olds . The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 14 The investment structures in the 38 existing SIBs vary in their similarity to debt, a more conserva- tive investment with a fixed repayment timeline and interest rate, and equity, a riskier investment where repayment and interest are dependent on the recipient’s performance . Most of the deals have characteristics of both debt and equity . All deals offer variable returns based on outcomes, as in an equity investment . Many of the deals have caps on returns and set interest rates for given outcomes, which is more like a debt investment . In the U .S ., deals have tended to be structured more like debt, while U .K . deals have tended to be structured more like equity . As Figure 7 demonstrates, various SIB deals have been financed by layered capital structures, which may include senior investment, subordinate investment, recoverable grants, non-recoverable grants, or investment guarantees . Subordinate investment is repaid after senior investment, mak- ing it more risky . Subordinate investment is often structured as an equity investment, while senior investment is often structured as debt . Non-re- coverable grants are not repaid, and investment guarantees are triggered to pay investors only if the program is unsuccessful . Investment and re- payment structures are discussed further later in this section, and detailed information of the invest- ment and repayment terms can be found in the fact sheets in Appendix 2 . Figure 7 shows that the upfront capital commit- ment in the U .S . has tended to be higher than in Source: Authors’ research. Figure 7. Upfront Capital Commitment in SIBs Links 4 Life Programme, U.K. Aspire Gloucestershire, U.K. 3SC Capitalise Progrmme, U.K. Local Solutions, U.K. Ambition East Midlands, U.K. Home Group, U.K. Your Chance, U.K. T&T Innovation, U.K. Street Impact, U.K. ThinkForward, U.K. Energise Innovation, U.K. Fusion Housing, U.K. Rewriting Futures, U.K. Outcomes for Children Birmingham, U.K. Manchester City Council Vulnerble Children, U.K. Triodos New Horizons, U.K.** Nottingham Futures, U.K.** It’s All About Me (IAAM), U.K. Advance Programme, U.K. Essex Family Therapy, U.K. ONE Service, U.K. Junior Code Academy, Portugal Duo for a Job, Belgium Social Impact Bond Rotterdam The Netherlands Sweet Dreams Supported Living Project, Canada The Newpin Social Benefit Bond, Australia Benevolent Society Social Benefit Bond, Australia Partnering for Family Success Program, U.S. Utah High Quality Preschool Program, U.S. Increasing Employment and Improving Public Safety, U.S. Juvenile Justice Pay for Success Initiative, U.S. The NYC ABLE Project for Incarcerated Youth, U.S. Child-Parent Center Pay for Success Initiatie, U.S.* Chronic Individual Homelessness Pay for Success Initiative, U.S Senior Investment Subordinate Investment Recoverable Grants or Investment Guarantees Non-Recoverable Grants 0 5 10 15 20 25 USD millions No publicly available information for Thames Reach Ace, Prevista, Living Balance, and Eleven Augsberg . *Division of investment between senior and subordinate investors is not public **Approximate The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 15 the U .K ., where capital recycling is more common . Nevertheless, in the cases where this recycling of outcome funder payments occurs, the total amount that goes toward the intervention is often much larger . The smallest amount of upfront capital com- mitment is in the SIB in Portugal, with $148,000, and the largest is in the SIB in Massachusetts, with $24 .5 million in upfront capital commitment, though the vast majority of this is from grants. The largest upfront capital commitment not including grants is the Child-Parent Center Pay for Success Initiative in the U .S . in Chicago ($16 .9 million) . The U .S . has used subordinate investment, grants, and guaran- tees in SIB structures more than any other country, ranging from 91 percent of the total upfront capital to 9 percent . Australia and the U .K . have also used the split structures . Which costs are included in the contract varies im- mensely . All the deals cover service provision with the capital committed, but fees for the intermediary, legal services, evaluations, and other activities are covered within the contracts of some deals and not in others .30 In many cases, the intermediary is paid a closing fee or a success fee out of the program budget . Intermediaries are also often paid for per- formance management during implementation . The cost of pipeline development has fallen largely on the intermediaries to raise on their own (often through philanthropy), though as the market develops inter- mediaries are looking for new ways to sustainably fund these services . In some cases, service provid- ers also receive success fees if the program reach- es certain goals . Legal services to date have been mostly provided on a pro bono or “low bono” basis . The number of beneficiaries that the program reaches is another measure of scale . Figure 9 shows the variation in the number of target ben- eficiaries in each deal. In the deals that work with entire families to improve outcomes for children, we have included only the number of children reached as they are the ultimate beneficiaries. Twenty-five of the 38 SIBs serve populations equal to or smaller than 1,000 individuals . The 10,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Source: Authors’ research. Figure 8. SIB Target Beneficiaries Note: The SIBs in Australia, Canada, and the SIB in the U.S. with 270 beneficiaries work with parents and children, but we have included only the children as they are the ultimate beneficiaries. Number of target beneficiaries for the Prevista SIB is not publicly available The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 16 Canada Portugal U.K. U.K. Germany U.K. U.K. U.K. Netherlands U.K. Belgium U.K. U.K. U.S. U.K. U.K. U.K. U.K. U.K. Australia U.K. U.K. U.K. U.S. U.S. U.K. U.K. Australia U.K. U.S. U.S. U.K. U.K. U.K. U.S. U.K. U.S. Number of Target Beneficiaries smallest SIB, in Canada, seeks to keep 22 chil- dren and their mothers together . The largest SIB with a publicly available number of beneficiaries targets approximately 10,000 youth in the U .S . criminal justice system. 3.4 Contract Duration The duration of the contracts between the actors in the SIBs is relatively short, though significant in that service providers are often accustomed to year-by-year contracting . It is worth noting that contract duration is often not equivalent to the du- ration of service provision . Of the 38 SIBs,31 16 have contract durations of three years or less, 14 have contract durations of four to five years, and seven have contracts that are longer than five years (Figure 10). The shortest contract du- ration is for 20 months, and the longest for 120 months . The U .K . fund deals have tended to have the shortest contract duration, while the individual transactions in the U .K . and in the U .S . and Aus- tralia have had the longest contracts . 3.5 Outcome Metrics and Outcome Payment Structures The outcome metrics and payment structures are unique to each deal and are challenging to sum- marize . For a detailed description of each deal’s outcome metrics and payment structure, please see the fact sheets in Appendix 2 . There are two broad categories of outcome met- rics and payment schedules. In the first, prices are set for outcomes per participant and are paid on a monthly, quarterly, or yearly basis . As a note, many of the metrics of success in these deals are outputs (completion of an activity), rather than out- comes (measures of impact on the individual) . The deals within this category include the two funds for youth employment and welfare in the U .K ., the two deals for homelessness in the U .K ., the four deals for family support in the U .K ., the two deals for preschool in the U .S ., and the deal for adult homelessness in the U .S . The SIB actors sub- mit the evidence of their outcomes for payments on a time frame specified in the contract terms. 140 120 100 80 60 50 20 0 Source: Authors’ research. Figure 9. SIB Contract Duration *Duration of contract signed by SIB participants; not duration of service provision Note: The NYC ABLE Project for Incarcerated Youth SIB contract duration not publicly available. The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 17 Portugal Belgium Germany U.K. U.K. U.K. U.K. U.K. U.K. U.K. U.K. U.K. U.K. U.K. U.K. U.K. U.K. U.K. U.K. U.K. U.K. U.K. U.K. U.S. Netherlands U.K. Australia U.S. U.S. Canada U.S. U.S. U.S. Australia U.K. U.K. U.K. Months* Box 1: Impact Bond Funds As of March 1, 2015 there were two active impact bond funds in the world, the Innovation Fund and the Fair Chance Fund, both in the U .K . The Innovation Fund aims to improve education and employment outcomes for youth and was launched in two rounds: the first six SIBs in April of 2012 and next four SIBs in November of 2012 . The Fair Chance Fund, including seven SIBs aiming to improve hous- ing, education, and employment for homeless youth, was launched in December of 2014 . Since this study’s cut-off, the U .K . launched the Youth Engagement Fund in mid-March of 2015, including four SIBs for youth education and employment . To establish these impact bond funds, the commissioning government department (the Department for Work and Pensions in the case of the Innovation Fund and Youth Engagement Fund, and the De- partment for Communities and Local Government in the case of the Fair Chance Fund) produced a list of outcomes and prices it was willing to pay for each outcome, called a rate card . The list and prices were developed through extensive research on the cost savings of reduced remedial assistance, such as unemployment benefits, that each outcome will yield. Table 4: Innovation Fund Round 1 Rate Card OUTCOME PAYMENT PER INDIVIDUAL Improved behavior at school (Measured by a letter from a teacher) £800 Stop persistent truancy (absent for over 10% of school days per year) £1,300 Achievement of First National Qualifications Framework (NQF) Level 2 qualification £2,200 Achievement of First NQF Level 1 qualification £700 Entry into first employment including a training element £2,600 Entry into sustained employment £1,000 Completion of first NQL Level 3 training/ vocational qualifications £3,300 Successful completion of an ESOL course £1,200 Entry into education at NQF level 4 £2,000 Source: Centre for Social Impact Bonds (2013). Note: Outcomes can only be claimed once per individual . Total payments per individual are capped at £8,200 and each SIB contract has a maximum payment cap across all individuals . The commissioning department (the outcome funder) then committed a pool of funding to pay for outcomes . In the case of the Fair Chance Fund, the commissioning department’s funding was sup- plemented by funding from the U.K. Cabinet Office, and in the Youth Engagement Fund, funding was supplemented by the U.K. Cabinet Office and Ministry of Justice. Partnerships of service providers, investors and, in some cases, intermediaries were invited to bid for contracts within the fund, bidding at a discount to the rates in the rate card . Contracts were then awarded to bidders based on a number of factors, including the discount of their bid . After service provision began, the service provider or intermediary may submit claims of outcomes, using various forms of administrative data, on a monthly or quarterly basis to the commissioner . The outcome payments are then reinvested, or “recycled,” to continue funding service provision . Capital recycling allows for lower upfront capital commitment than SIBs where outcome payments are not recycled . The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 18 In the U .K . funds (see Box 1), outcomes can be claimed only once per individual . In the family sup- port deals in the U .K ., there are either one-time or weekly payments for children’s participation in the program (essentially funding the service) and additional one-time payments for positive outputs or outcomes . In the second category of outcome metrics and payment structures, outcomes are measured for the group of participants in comparison to a control group and are paid at one, two, or four intervals over the contract . The SIB contracts in- clude agreed-upon payments for each percent- age change in the outcome metric or metrics . The deals in this category include the one deal for criminal justice in the U.K., the three deals for criminal justice in the U.S., the one deal for family support in the U .S ., the two deals for family sup- port in Australia, the one deal for youth employ- ment in Belgium, and the one deal for youth infor- mation technology education in Portugal . Two of the three deals in the U .S . for recidivism reduction also have outcomes at an individual level, as in the first category of metrics. The Newpin Social Benefit Bond has slightly different metrics for the payments from the outcome funder to the service provider and from the service provider to inves- tors; it is the only SIB with two sets of outcome metrics . The SIBs in Germany, the Netherlands, and Canada do not fall particularly neatly into ei- ther of the two categories . In Canada, payments are made per individual outcome at the end of the program . In Germany, investors are paid their principal and 3 percent interest at the end of the program if 20 of approximately 100 participants achieve the outcome . The payment structure for the SIB in the Netherlands is not public, though is based on reduction in participants’ months of unemployment benefits. Six of the SIB deals that pay based on group outcomes also have set outcome thresholds that must be met for payments to begin, increasing the risk to investors. In the SIB for criminal justice in the U .K ., interim payments for each of the three cohorts are paid if that cohort achieves a reduction in recidivism of 10 percent or more, in compari- son with the control group . If none of the cohorts meet these ambitious interim targets, payments will be made at the end of the project if all three cohorts achieve a reduction in recidivism of 7 .5 percent or more . Similarly in the three SIBs in the U.S. for criminal justice, payments occur only if the percentage change in comparison to the control group is above an established threshold . In the SIBs in Germany and Canada, payments occur only if a set number of participants achieve the given outcome . In contrast to the threshold levels, capital protec- tion and early termination opportunities act as protection mechanisms for investors in SIBs with group-based outcomes . In six SIBs, investors are not placing 100 percent of their capital at risk . The investments for two of the SIBs for criminal justice in the U .S . are protected at 9 percent and 75 per- cent, respectively; this means that the investor will recoup that share of the investment regardless of program results . In the SIBs in Australia, senior capital in one deal is 100 percent protected and in the second deal is 75 percent protected for years one to three and 50 percent protected after that . For the SIB in the Netherlands, 33 percent of the investment is protected, and for the Home Group SIB in the U .K ., 10 percent of the investment is protected . Nearly all of the SIBs have some stipulations in the contract releasing parties from their obliga- tions if any party is unable to complete the mini- mum agreed-upon responsibilities, but three SIBs have additional early termination opportunities for investors . In the SIB in New York City for criminal justice, the investor had the opportunity to termi- nate the deal after three years . In the Benevolent Society SIB in Australia, the investment is struc- tured similarly to traditional bond issuance, and the bonds are readily salable at any time . In the Newpin SIB in Australia, the investors have the opportunity to terminate the deal each year in years three through seven if the restoration rate The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 19 of children with their families is below 45 percent . To date, two SIB contracts have been reduced in duration . There was a contract duration reduction of two-years in the ONE Service SIB in Peterbor- ough, U .K . due to a new national program in the U .K . that provides the intervention the SIB is based upon .32 There was also a contract duration reduc- tion in the SIB for criminal justice in New York City because targets were not reached by year three of the contract . The change has brought up a num- ber of important questions about the alteration of SIB contracts in changing government contexts .33 3.6 Evaluation Type The type of evaluation method used to determine outcome payments depends on the outcome met- rics being measured and the requirements of the stakeholders involved . For the SIBs with set pay- ments for outcomes per individual, administrative data are often used to determine outcome pay- ments . Figure 10 shows that in most cases out- come payments are determined by a validation of service provider or government administrative data . Examples of the administrative data include use of special education, placement in out-of- home care (residential or foster care), employ- ment status, and incarceration . In the SIBs where payments are based on the comparison of the program beneficiaries to other comparable groups, more complex evaluations are required . As a note, some SIBs use a combi- nation of outputs or outcomes at an individual lev- el and outcomes in comparison with other groups . In six SIBs, outcomes are measured in compar- ison to a historical baseline . Concurrent control or comparison groups were used for comparison in eight SIBs, of which four used matched com- parison groups—a quasi-experimental evaluation method—and four used a randomized control trial (RCT) . 3.7 Maximum Payments and Payments to Date As all returns in the existing SIBs are variable de- pending on outcomes and each has its own risk profile, it is impossible to make direct comparisons in the returns to investors across deals . However, all deals do establish a maximum potential return 30 25 20 25 20 5 0 Source: Authors’ research. Figure 10. Evaluation Methods Used in SIBs Validated Administrative Data Historical Comparison Quasi-experimental Randomized Control Trial Note: The evaluation method for the NYC ABLE Project for Incarcerated Youth SIB and Child-Parent Center Pay for Success Initiative are not publicly available . The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 20 Number of SIBs for investors or a maximum amount of money that the outcome funder will pay, also known as a max- imum contract value . The only deal with no maxi- mum contract value is the It’s All About Me SIB for adoption in the U .K ., where outcome funders can elect to join the program (see Section 4.3). Of the 12 programs that had a public maximum average annual return to investors, six of the rates of return were less than 7 .5 percent . The maxi- mum average annual return in Germany was the lowest, at 3 percent . The SIB in Canada and the SIB for adult homelessness in the U .S . have maxi- mum average annual returns of 5 percent and 5 .33 percent, respectively. The SIB for juvenile criminal recidivism in Massachusetts and the SIB for family support in Ohio in the U .S . have set maximum av- erage annual returns of 5 percent for senior inves- tors and 2 percent for subordinate investors, but investors have the opportunity to earn significant additional success fees .34 In the Utah and Chica- go SIBs for preschool in the U .S ., investors can earn up to 7 .26 percent and 6 percent average annual return, respectively. The five SIBs with a maximum average annual return over 7 .5 percent are in Australia (two), Belgium, the Netherlands, and the U .K .35 where maximum average annual return for senior investors ranges from 9 percent to 30 percent and for subordinate investors (only the Benevolent Society SIB) is a maximum of 10 percent average annual return . Three SIBs have disclosed a target or maximum internal rate of return (IRR), a more holistic mea- sure of returns that takes into account all cash flows over the period of the investment. The ap- proximate IRR for the SIB in Portugal is 2 percent . The maximum IRR for the SIB in Peterborough in the U .K . is 13 percent, and the maximum implied annual IRR for the SIB in New York state in the U .S . is 12 .5 percent . Performance-based payment to service providers merits its own discussion . Service providers have the opportunity to earn success fees in three of the SIBs in the U .K . Innovation Fund and have the opportunity to earn success fees and deferred service fees in one of the SIBs for criminal recid- ivism in the U .S . In two of the Fair Chance Fund SIBs and the two London Homelessness SIBs in the U .K ., service providers have made equity in- vestments alongside senior fixed-interest loans and stand to gain any additional payments once the senior loans have been paid . In the four fam- ily support SIBs in the U .K ., recurring payments for participation and one-time outcome payments (discussed in the outcome metrics section above) are divided between investors and the service pro- vider based on established terms . This arrange- ment essentially provides operating costs for the service provider when an individual begins to par- ticipate in the program . So far, few deals have completed at least one set of payments to investors . In the ONE Service SIB in Peterborough U .K ., interim payments, as noted previously, are made for each of three cohorts if the percentage difference in outcomes between the treatment and control groups is greater than 10 percent, or a payment is made at the end of the program if the percentage difference between the treatment and control group exceeds 7 .5 per- cent across all of the three cohorts . To date, one of the cohorts has reached evaluation, achieving an impressive reduction in recidivism of 8 .4 percent relative to a comparable national baseline . This percentage change does not meet the interim pay- ment target, but is on track for the overall payment at the end of the program .36 Government payments for outcomes in the first round of the Innovation Fund in the U .K ., which comprises six SIBs, will complete payments in the summer of 2015, and the second round, which has four SIBs, will complete payments a few months later . Of the 10 total SIBs, at least two have al- ready fully repaid investors and will pay investors the additional outcomes payments through the rest of the year as a return on the investment . The Newpin Social Benefit Bond in Australia has disclosed that investors received a 7 .5 percent The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 21 interest payment in the first year of the program, which is in the middle of the range of interest that investors can receive .37 Finally, the SIB for criminal justice in New York City, fell short of targets in year three of the inter- vention leading to a loss for the senior investor, Goldman Sachs, of $1 .2 million .38 3.8 Social and Development Impact Bonds in the Development Stage In addition to the 38 existing SIBs surveyed in our study, the recently announced six SIBs in the U .K . and one DIB in India, dozens of SIBs and DIBs are being developed across the world . In the United States, the Social Innovation Fund within the Corporation for National and Commu- nity Service (see Box 2) has led the effort of sup- porting SIB development through eight grants to ecosystem builders; these organizations, in turn, have agreed to provide 43 sub-grants to state and local governments for technical assistance . The deals being developed through this fund cover social welfare (including early childhood develop- ment, child welfare, homelessness, and housing), health (including teen pregnancy prevention and asthma prevention), criminal recidivism, educa- tion, and resource management . At a recent con- ference hosted by ReadyNation and the Institute for Child Success, 33 delegations from across the U .S . discussed their efforts to develop SIBs for early childhood development interventions . In Ontario, Canada, a process has begun to de- velop SIBs in the areas of social welfare (housing and at-risk youth) and employment . In Portugal, a 150 million euro ($165 million39) social innovation fund to support SIBs has been established . Sev- eral countries in Scandinavia have also expressed interest in exploring the use of SIBs . The U .K con- tinues to rapidly develop SIBs and will likely pro- duce many more in the next few years . A number of other SIBs are under exploration across Asia and the Pacific. In Malaysia, the government has started to explore the possibility of utilizing SIBs as a way to provide social services . The Seoul Metropolitan Government in South Ko- rea signed a memorandum of understanding with a private investor for a SIB for child welfare .40 In New Zealand, the Ministry of Health41 is leading work to pilot SIBs in the country, and in Australia there is interest in expanding the existing impact bond market . Exploration and design of potential SIBs and DIBs are also occurring across Africa . In South Africa, an impact bond innovation fund at an advanced stage of development will support the provision of early childhood services for children up to age 2 . Three other DIBs are in development in South Africa, in the areas of criminal justice, business development services for small and medium-size enterprises, and tuberculosis prevention . In Mo- zambique, several private investors are exploring the possibility of establishing an impact bond for malaria . In Uganda, impact bonds for Rhodesian sleeping sickness, education, and family planning are also in development . In addition, DIBs are in exploratory phases in Swaziland related to HIV and tuberculosis prevention, in Morocco for youth job creation, and in Ghana for a funding facility for small and medium-size enterprises and workforce training programs .42 In the Middle East, the World Bank is working on a DIB for workforce develop- ment and employment in Palestine .43 In the Latin America and the Caribbean region, the Multilateral Investment Fund, a member of the In- ter-American Development Bank Group, launched an effort in March of 2014 to support SIBs in the region . The commitment includes $2 .3 million in grants to support the ecosystem for SIBs in the region and $3 million in investment capital to facil- itate the launch of up to three SIBs . Several other impact bonds are in early stages of discussion in the region . The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 22 4. WHAT DOES IT TAKE TO GET THE DEAL TOGETHER? At this early stage, the process of developing a SIB contract can be more complex than other forms of government contracting . The process is also unique in each deal depending on the individ- uals and organizations involved and the roles that each plays. This section will first discuss the char- acteristics of the actors in the 38 deals included in our study, their motivations for coming to the table, and their roles in these transactions . The second subsection will explain the process and analyze the greatest challenges and facilitating factors in this process across the 38 deals . 4.1 Who Are the Stakeholders? As the SIBs 101 section of this study explains, the simplified version of the SIB structure comprises four actors: investor, service provider, outcome funder, and intermediary . In the 38 deals includ- ed in this study, these categories are used to de- fine different roles; however, the number of actors within each category varies, actors can fall into multiple categories, the types of entities within each category can differ greatly (see Table 1), and their roles can vary substantially across the deals . Figure 11. Number of Actors by Type Outcome Funders Service Providers Intermediaries Senior Investors Subordinate Investors Grant makers/guarantors Evaluators Technical Assistance Providers Source: Authors’ research. 0 5 10 15 20 25 30 35 40 1 2 3 to 5 6 to 8 9 to 14 15 to 24 25 to 40 41 to 60 0 Not public or not determined Note: The number of senior investors is not public in seven deals and the evaluator has not been confirmed in one. Grant makers/ guarantors category encompasses both recoverable and non-recoverable grant makers . Evaluators include parallel evaluations outside of the SIB contract . Outcome funders count multiple levels of government and sources of funding, though the funds may finally be channeled through one actor. The It’s All About Me SIB has an unlimited number of service providers and outcome funders, but has been counted as 11 for each as that is the number contracted as of April 2015 . The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 23 Figure 11 shows the variation in the number of ac- tors within each category . As Figure 11 demonstrates, all deals have outcome funders, service providers, and senior investors . The evaluator has yet to be confirmed in one deal, but all deals will have evaluators . All but two SIBs have an actor that is considered an intermediary body . Technical assistance providers, subordinate investors, and grant makers and guarantors are optional types of actors . Furthermore, organiza- tions often fall under multiple categories . For ex- ample, outcome funders also act as evaluators in many deals by validating administrative data . Oth- er cases of crossover include organizations acting as both service providers and investors, interme- diaries and investors, senior investors and subor- dinate investors, intermediaries and evaluators, intermediaries and technical assistance providers, and service providers and evaluators . Across the deals there are almost always one out- come funder and one intermediary body . Various deals, however, have large numbers of service providers and senior and subordinate investors . In some cases the intermediary will market the investment to a number of investors or an invest- ment bank that manages investments on behalf of their clients . For example, in the case of the In- creasing Employment and Improving Public Safe- ty bond in New York state, Bank of America Merrill Lynch managed the investment of 44 individual investors . 4.2 What Are the Stakeholders’ Motivations? One of the stated strengths of impact bonds is that they bring to the table a multitude of stakeholders, each having different motivations for participating . In our research we have found that motivation for entering into an impact bond contract does indeed vary both across and within the existing deals that we have surveyed, although in some areas the value proposition for some stakeholders is com- mon . The literature that has been written thus far on SIBs, which is still a nascent market, states that the outcome funders are motivated to enter a SIB by monetizable savings in remedial services, the reduction in risk if the service is not successful, and the benefit to society if outcomes are suc- cessful .44 Service providers are said to be moti- vated to join a SIB because it provides them with a stable, long-term revenue stream, allowing them to achieve outcomes, and because a SIB might allow them to scale a program .45 Investors in SIBs are said to be motivated by social and financial return, with some variation across the spectrum in finance-first vs. impact-first motivation.46 Inves- tors could experience a loss of principal, a return of principal, or a return of principal plus interest . For-profit investors include commercial investors that prioritize a return on their investment, impact investors that are looking for a balance of social and financial returns, and social investors that are willing to risk their capital completely for social good . The types of foundations that invest in SIBs also vary greatly, from foundations motivated by the opportunity to make program-related invest- ments, which allow them to earn back their money and recycle funding into another grant or invest- ment, to foundations that are comfortable making a non-recoverable investment .47 Each of these investors has different motivations, which can lend itself to a layered capital structure . Figure 12 shows the results of our survey of ac- tors involved in SIBs on their primary motivations for involvement in the SIB . It is important to note that actors participated in our survey after com- pleting the deal development, rather than during the process . However, we believe that the survey responses bring up questions that accurately re- flect the thinking and concerns in the field. Figure 12 does not include either subordinate investors or grant makers/guarantors because there are too few of these types of investors across the deals to make robust generalizations . The survey responses largely confirm what has been said in the literature about actor motivations . The motivations for outcome funders were spread The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 24 relatively evenly across all of the categories . How- ever, in our survey and in our interviews, the op- portunity to scale a promising intervention in the presence of budget constraints was frequently emphasized . Other government motivations out- side of those include avoiding budget silos, pro- curement issues, hurdles in the budgeting pro- cess, and political barriers . In comparison to the literature, reducing the risk of service provision was not mentioned as a motivation and savings was a relatively low priority, though this is not ex- haustive . One possible explanation is that govern- ments and investors carried out extensive due dil- igence before the deal was signed and therefore do not consider the service risky . Figure 13 shows that service providers are largely motivated by the opportunity to scale successful interventions and achieve outcomes, which is con- sistent with the literature . In our interviews, ser- vice providers also mentioned that developing a culture of monitoring and evaluation, funding for preventive services, and long-term contracts were motivators to enter the SIB . Our survey demonstrates that the most significant motivations for senior investors are the opportuni- ty to test an innovative financial model for social services and an equal combination of social and financial return. In our interviews, senior investors confirmed that they were motivated by the oppor- tunity to recycle grants after the project; however, it was not just foundations that were interested in this . Other organizations also provide grants as part of their corporate social responsibility work or community involvement, and these organiza- tions indicated interest in recycling these funds . Program-related investment is one of the prima- ry forms of investment, particularly in the United Kingdom where they account for most, if not all, of investments . As mentioned, many of the senior investors are investment institutions that raise in- Figure 12. SIB Actor Primary Motivations Opportunity to demonstrate (test) innovative financial model to address social problems Opportunity to improve collaboration among public, private, and development funders Opportunity to scale up intervention that works Opportunity to test innovative social intervention Equal combination of social and financial returns Social return/Outcome achievement Financial return/Savings 0% Outcome funders Intermediaries 5% 10% 15% 20% 25% 30% 35% 40% Percentage of Actor Responses Service providers Senior investors Source: Brookings Institution survey. Actor respondents: senior investors (12), service providers (12), intermediaries (19), outcome funders (18) The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 25 vestment from their clients . Client interest in social return was cited as a motivating factor for these institutions to be involved in SIBs . Lastly, publicity was explicitly and implicitly discussed as a motiva- tion for investors to be involved in SIBs . The moti- vation to invest in a SIB appears to be much high- er if it is the first in its country or sector, because of the greater publicity. Our research confirms the literature’s assertion that investors are motivated by both social and financial return and adds that investors are interested in SIBs specifically to test an innovative financial model. The motivations for intermediaries to be involved in SIBs are rarely discussed in what has been writ- ten about SIBs . In many of the deals, the inter- mediary is paid for its contribution through grants external to the SIB, often from a philanthropic entity, but might earn a success fee in the SIB if the program achieves its target outcomes . It is im- portant to note that like investors, various types of organizations serve as intermediaries and their motivations are influenced by the mandate of their organization . Each organization is ultimately try- ing to fulfill its role as a transaction and project manager . The survey responses indicated that in- termediaries are motivated by the opportunity to test innovative financial models to address social problems and to achieve outcomes . Many inter- mediaries in our interviews noted that they had left careers in finance to use their skills to improve so- cial outcomes . The motivations for intermediaries also depend on the stage of the SIB market . As the field continues to mature, the motivations for actors to enter the field may change. If there is less publicity around each SIB as more develop, out- come funders and investors may be less motivated to engage in a SIB . Intermediaries and investors both listed the opportunity to test an innovative fi- nancial model as one of their greatest motivations; as the model becomes more mainstream, this may be of less importance, though the intermediaries and investors may be driven by the desire to con- tinue to refine and improve the model. 4.3 What Are the Stakeholders’ Roles? In the Impact Bond 101 section, we noted that im- pact bonds can vary greatly in the composition of actors involved, the actors’ roles, and the process of putting the deal together . The actors’ overarching roles are defined by whether they are investors, in- termediaries, outcome funders, service providers, technical assistance providers, or evaluators, as de- scribed in the Impact Bond 101 section. The specific activities that actors take on are largely determined by the structure of the deal and the local context . To explain the variation in roles, we can start by categorizing the existing SIBs into the two broad impact bond models described in the Impact Bond 101 section: individual transaction impact bonds and impact bond funds with established rate cards . The two funds with rate cards are the Innovation Fund and the Fair Chance Fund in the U .K . The Innovation Fund took place in two rounds, the first with six SIB contracts and the second with four . The Fair Chance Fund awarded seven SIB contracts . The Youth En- gagement Fund is the third fund that was launched in the U.K., but because its first four contracts were awarded after March 1, 2015, they are not includ- ed in our analysis . In these funds, the government did a great deal of research and issued the tender with a rate card for outcomes . The rate cards include approximately 10 outcomes, and each has a price attached to it that the government is willing to pay (see fact sheets in Appendix 2) . Teams of service providers and intermediaries bid at a discount on those outcomes to win the contracts . Though not considered in the same category, the government also issued a rate card for the London Homeless- ness SIBs, and teams of service providers and inter- mediaries bid against this rate card . Two contracts were awarded . In Massachusetts, the state gov- ernment established a Social Innovation Financing Trust Fund for SIB outcome payments in two sec- tors; however, the government did not issue a rate card for the establishment of outcome metrics and therefore not a “fund model” like the U .K . funds . In the other deals, all parties have identified outcomes and payments together . The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 26 Furthermore, the existing SIBs can be categorized into one of three types of deal structures: direct, intermediated, or managed . As mentioned in the Impact Bond 101 section, in direct deals, the out- come funder holds a contract with the service pro- vider or majority service provider-controlled spe- cial purpose vehicle; in intermediated deals, the outcome funder holds a contract with the investor or a majority investor-controlled SPV; and in man- aged deals, the outcome funder holds a contract with the intermediary or majority intermediary-con- trolled SPV . As mentioned previously, it is chal- lenging to cleanly divide the deals across these categories because the actors can serve multiple roles . In particular, there are many intermediated deals in which the intermediary also invests . Man- aged deals are distinct from these intermediated deals in that the intermediaries in managed deals have not invested in the SIBs to date . Table 5 cate- gorizes the 38 SIBs included in this study into one of the three SIB structures . Notably, all of the SIBs in the U .S . are managed, while all but two of the SIBs in the U .K . are direct or intermediated, which could be an indicator of the maturation of the U .K . market or simply high government interest . In most of the direct deals, the government initi- ated the deal; the intermediary determined the feasibility, structured the deal, and raised the cap- ital; and the service provider was then responsi- ble for implementing the service and managing performance . In a couple of cases, intermediary actors or service providers initiated or helped ini- tiate the deal by bringing the case to government . In one case the service provider led the feasibility study and structuring, and in two cases the ser- vice provider was responsible for raising capital . In comparison to the intermediated and managed structures, service providers have the greatest responsibility in the direct structure . Two unique cases within the direct structures are worth men- tioning . In the Nottingham Futures deal, part of the Innovation Fund in the U .K ., the Nottingham City Council is the “investor” and “intermediary” and also runs the service . This is essentially a pay-for- results contract, as the Nottingham City Council is funding the service through outcome payments from the national government . The other structure that is unique is that of the It’s All About Me bond for adoption of hard-to-place children, also in the U .K . In this bond, investors have committed a set amount, and the outcome funders (local govern- ments known as Local Authorities) and service providers have the opportunity to join the SIB and receive upfront capital as cases arise of particular- ly hard-to-place children . Further investment could be raised, based on the success of the program . In most of the intermediated deals, the govern- ment initiated the deal, while the intermediary determined feasibility, structured the deal, raised capital, and provided ongoing performance man- agement . The intermediary also often helps in initiating the deal by identifying service providers that will fit the feasibility criteria. In the majority of managed deals, the government initiated the deal and the intermediary developed the feasibility study, raised capital, and managed the performance of the program . The only devia- tion from these roles was in one case where the service provider and technical assistance provider initiated the deal . Though the categories above help to provide an overview of the roles played by each actor, no deals are carried out in exactly the same way . The relative strengths and interests of the actors and the specifics of the legal structure foster each SIB’s distinctive dynamics . For example, in one direct deal, the service provider led the develop- ment of the financial model structure because it had the in-house technical capacity to do so . The diversity of structures and roles demonstrates the potential for this tool to be adapted to specific con- texts . One characteristic that is consistent across all of the SIBs is the close collaborative relation- ship between all players . Collaboration has been particularly critical in this early stage of the market and may evolve as actors become more practiced in this space . The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 27 PROGRAM/ SIB NAME Nottingham Futures Triodos New Horizons ThinkForward Links 4 Life Programme Advance Programme T&T Innovation 3SC Capitalise Programme Energise Innovation Living Balance Prevista Aspire Gloucestershire Ambition East Midlands Home Group Local Solutions Fusion Housing Rewriting Futures Your Chance Street Impact Thames Reach Ace It’s All About Me (IAAM) Manchester City Council Vulnerable Children Outcomes for Children Birmingham Essex Family Therapy ONE Service Juvenile Justice Pay for Success Initiative Chronic Individual Homelessness Pay for Success Initiative NYC ABLE Project for Incarcerated Youth Utah High Quality Preschool Program Increasing Employment and Improving Public Safety Child-Parent Center Pay for Success Initiative Partnering for Family Success Program Sweet Dreams Supported Living Project Newpin Social Benefit Bond Benevolent Society Social Benefit Bond Duo for a Job Social Impact Bond Rotterdam Junior Code Academy Eleven Augsberg Source: Goodall (2014) and authors’ research. COUNTRY United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United States United States United States United States United States United States United States Canada Australia Australia Belgium The Netherlands Portugal Germany MODEL Rate Card Fund (Innovation Fund) Rate Card Fund (Innovation Fund) Rate Card Fund (Innovation Fund) Rate Card Fund (Innovation Fund) Rate Card Fund (Innovation Fund) Rate Card Fund (Innovation Fund) Rate Card Fund (Innovation Fund) Rate Card Fund (Innovation Fund) Rate Card Fund (Innovation Fund) Rate Card Fund (Innovation Fund) Rate Card Fund (Fair Chance Fund) Rate Card Fund (Fair Chance Fund) Rate Card Fund (Fair Chance Fund) Rate Card Fund (Fair Chance Fund) Rate Card Fund (Fair Chance Fund) Rate Card Fund (Fair Chance Fund) Rate Card Fund (Fair Chance Fund) Rate Card Transaction** Rate Card Transaction** Individual Transaction Individual Transaction Individual Transaction Individual Transaction Individual Transaction Individual Transaction (part of Massachusetts Social Innovation Financing Trust Fund) Individual Transaction (part of Massachusetts Social Innovation Financing Trust Fund) Individual Transaction Individual Transaction Individual Transaction Individual Transaction Individual Transaction Individual Transaction Individual Transaction Individual Transaction Individual Transaction Individual Transaction Individual Transaction Individual Transaction STRUCTURE Direct Intermediated Intermediated Intermediated Intermediated Intermediated Intermediated Intermediated Managed Not publicly available Direct Direct Direct Direct Intermediated Intermediated Intermediated Direct Direct Direct Direct Direct Intermediated Managed Managed Managed Managed Managed Managed Managed Managed Direct Direct* Direct* Direct Intermediated Intermediated Managed Table 5. Structures of Existing SIBs *Goodall 2014 category is intermediated, though authors’ research suggests that this is a direct contract structure with the service provider holding the contract and providing performance management . In the Newpin SIB, in contrast to the other direct structures, the intermediary owns the SPV that controls funds between the service provider and the investors . **These London Homelessness SIBs are not considered a Fund, though service providers did bid against a rate card for the contracts . The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 28 4.4 Determination of Outcome Metrics and Payments In all types of deals, one of the most critical and complex parts of the process of developing the SIB is to determine the outcomes metrics and cor- responding payments . The design of the outcome metrics influences the design of the preferred in- tervention and selection of provider, which in turn influences the investment needed and funding commitment from the outcome funder . Finding a balance between the metrics, financing, and out- come payments can be a big challenge and often requires collaboration from all actors (see also discussion in Impact Bond 101 on feasibility crite- ria for impact bonds and Section 4 .5) . Ultimately, these choices are all intimately linked with imple- mentation risk and the extent to which investors and outcome funders believe in the service provid- ers’ ability to achieve a set outcome . In the deals where rate cards were issued by the government, a great deal of research was neces- sary early on to determine the value to them of the proposed outcomes and the commercial viability for service providers to achieve the outcome for the set price . As referenced in the discussion of feasibility in the second section of this study, the outcomes had to be both measurable and mon- etizable . For example, in the Innovation Fund, a very comprehensive review of historical data was conducted in the Department of Education . The outcomes on the rate cards for both funds in the U .K . include outcomes such as entry into employ- ment, which can be measured immediately using data on participants and do not require long eval- uations, as in some of the other deals . However, outcomes cannot necessarily be attributed to the intervention, as there is no counterfactual com- parison . The payments from the government to the program (or SPV) during the intervention are used to continue funding service provision, a pro- cess known as capital recycling . At the end of the program, investors or service providers as inves- tors receive what remains in the program SPV . If capital is being recycled, less capital is required upfront and investors can make smaller, though riskier, investments . These investments have higher risk because the program does not begin with the capital it needs to run the service through- out the SIB; it must achieve sufficient outcomes each year to fund the following . In contrast to the process of developing a rate card in the U .K ., the process of developing outcome metrics and payments in many of the individual transactions has involved significant input from actors outside the outcome funder . The outcomes in the individual transactions are often more com- plex and observable only after longer periods of time than in the rate card-based funds, as they frequently involve evaluations with comparisons to control groups or historical data . Although out- comes of these deals may be more challenging to measure, various actors in the deals said that choosing the simplest set of outcomes and metrics possible makes the resulting SIB program signifi- cantly easier to operate . Simple metrics provide a clear focus for the service provider and reduce resources needed for evaluation . Although a sim- ple metric may not capture every outcome that matters to all actors, a measure that is a proxy for other meaningful outcomes could be sufficient. Ad- ditionally, using administrative data from a single source that can be easily aggregated simplifies the evaluation process and can reduce costs . Lastly, there must be sufficient evidence that the service providers can achieve the given outcomes for in- vestors to support the SIB . The degree of evidence needed varies by deal based on each investor’s appetite for risk . Often there is evidence on individ- ual components of interventions or evidence of the intervention with a similar target population, but no evidence of the impact of combined programs with the exact target population of the SIB . Many SIBs have tiered outcome metrics and pay- ments, where some outcomes are backed by a great deal of evidence and highly likely to occur and others may be less certain to occur but are still of high value to the outcome funder . The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 29 4.5 Challenges Faced in Deal Development The process of trying to agree on the best metrics, financing, and payment structures is complex and is particularly challenging with limited precedent at this early stage in the market . This form of govern- ment budgeting requires advanced financial mod- eling and navigation of procurement regulations, almost always necessitating at least one legal representative for each actor involved . As an ex- ample of this complexity, the legal counsel to the intermediary in the Massachuesetts recidivism SIB reported that “27 contracts were written and more than 1,100 legal hours were billed” to develop the bond .48 Across the 38 deals analyzed in this study, deal development ranged from six months to three years . Of the actors we interviewed and surveyed, 24 said that complexity of the SIB structure, given the lack of precedent, was the greatest challenge in setting up the SIB . Many also said that they an- ticipated that the time to develop the deals would decrease as the market matured . That is what we see in the U .K ., where deal development is almost always six to nine months . Figure 13 shows the results of our survey on the further challenges in developing a SIB . It confirms that developing the technical aspects of the deal without precedent is one of the greatest challenges; the lack of finan- cial mechanisms in place and lack of favorable le- gal conditions in place are at least somewhat of a challenge for at least 80 percent and 60 percent of actors, respectively. The financial costs of the Figure 13. Challenges in Developing SIBs Financial mechanisms in place Existing capacity to scale up social service Availability of monetizable outcomes Coordination among actors involved in the SIB/DIB Availability of evidence that service provider could produce desired outcomes Availability of measurable outcomes Financial costs of the deal Favorable legal conditiions in place Private investor convinced of significant return Wait time to see measurable results Availability of technical advice Election cycles Presence of philanthropic actor willing to bear risk Willingness of payors to repay investors Willingness of government to support the social service itself Willingness of government to support SIB transaction 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percentage of Actors’ Responses A Big Challenge Somewhat of a Challenge Not a challenge Source: Brookings Institution survey. Actor respondents: investors (16), service providers (7), intermediaries (13), outcome funders (6) The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 30 deal, the hours required to put the deal together, was also cited as a big challenge or somewhat of a challenge for over 60 percent of actors . As discussed in the section on the development of outcome metrics, the availability of measurable and monetizable outcomes was a significant chal- lenge for actors in these SIBs . Availability of evi- dence that the service provider could produce the outcomes was similarly a big challenge or some- what of a challenge for over 60 percent of actors . It is worth noting, however, that the wait time to see measurable results was cited as a challenge by less than half of actors, although it is often said that this poses a challenge to investor commit- ment and government interest . The existing capacity of the service provider to scale the intervention was another challenge identified by the actors. Scaling an interven- tion is a complex, non-linear process that has been the subject of its own set of literature.49 Government support was not a challenge for the actors in these deals, likely because, as the pre- vious section on stakeholder roles indicated, gov- ernment was often the initiating entity of the SIB . Two other challenges were raised in our inter- views with the SIB actors . First, in addition to the challenges of deciding on outcome metrics, decid- ing on an evaluation method of the metrics can be a roadblock to the process . A randomized control trial is the most rigorous evaluation method avail- able, but it requires that the intervention be ran- domly assigned to some members of the target population and not to others in order to create a statistically equivalent control group to compare with the treatment group . In at least two SIBs, the exclusion of the control group from services led to heated debate over evaluation method, almost ending the deal development . The other challenge that arose was the “wrong pocket problem,” where the government entity sav- ing money from the SIB service was not the gov- ernment entity paying for outcomes . There are two types of wrong pocket problems—vertical and hori- zontal . An example of a vertical wrong pocket prob- lem is in the Portuguese SIB where the national government gets the savings from fewer students repeating grades (because they fund municipalities on a per student per year basis), yet the munici- pal government is the outcome funder in the SIB . A horizontal wrong pocket problem is when costs and savings are experienced by different government agencies at the same level, for example, the Minis- try of Justice and the Ministry of Health . In the SIB in the Netherlands, both horizontal and vertical wrong pocket problems exist, as there were incongruenc- es in spending and savings between the municipal and national government and between the Ministry of Education and the Ministry of Social Services . In all of these cases, the SIB was contracted despite the presence of this problem . The Social Outcomes Fund and Commissioning Better Outcomes Fund in the U .K . and federal grants in the U .S . (see Box 2) have helped resolve wrong pocket problems by supplementing outcome funds with grants from the executive offices. 4.6 Facilitating factors in deal development A number of facilitating factors helped the 38 deals come to fruition . Figure 14 lists the factors that were most significant in facilitating the deal devel- opment process . Consistent with the challenges section, measur- able and monetizable outcomes were very import- ant or important for all actors surveyed, though monetizable outcomes were very important in fewer cases than measurable outcomes . The ev- idence of the service providers’ ability to achieve the outcomes was also very important to actors, evidenced both in the robust evidence catego- ry and the existing capacity to provide the social service category . The credibility and capacity of the intermediary and the availability of technical advice were also facilitating factors, likely because these actors can help navigate the complex deal development process . The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 31 Figure 14. Facilitating Factors in Developing SIBs Outcomes measurable Government support for transaction Robust evidence that service provider could produce desired outcomes Credibility/capacity of intermediary Existing capacity to provide social service Potential savings from investment Necessary financial mechanisms in place Private investor saw possibility of social return Presence of philanthropic actor willing to bear the greatest risk Availability of technical advice Extent to which the intervention is preventive in nature Necessary legal conditions in place Outcomes monetizable Potential to adapt the intervention on the basis of data Availability of legal advice Private investor saw possibility of significant financial return 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percentage of Actors’ Responses Very Important Important Not Important Source: Brookings Institution survey. Actor respondents: investors (15), service providers (8), intermediaries (16), outcome funders (6) As a reflection of the responses presented in the previous section indicating that government sup- port was not a challenge, government support was cited as a very important facilitating factor in deal development for 87 percent of the actors surveyed and important for the other 13 percent . The trans- action is dependent on coordination with govern- ment in order to reach the target population, and outcome payments from government are at the heart of the deal . Figure 14 also shows that private investors’ in- terest in social return was more helpful for the process than their interest in financial return. The presence of philanthropic or subordinate investors was said to be very important in the deals where there was this form of investment and not import- ant in the deals where there was no subordinate investment or grants . Lastly, the figure shows that 97 percent of actors surveyed found the preventive nature of the pro- grams to be a very important or important facilitat- ing factor and that 86 percent found the potential to adapt the program based on data to be a very important or important facilitating factor . Invest- ment in preventive services and program flexibility are two of the commonly stated strengths of SIBs, which will be discussed in the following section . The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 32 In our interviews, actors emphasized the impor- tance of individual abilities and relationships in fa- cilitating deal development . Within the team in the government working on the Innovation Fund in the U .K ., they developed a team with the right mix of skills, including program implementing, economic and social analysis, marketing, project manage- ment, and social investment . In Utah and in Austra- lia, an advocate and a social service provider had backgrounds in finance and economics, respec- tively, which greatly facilitated deal development . The personality traits of the individuals also matter . Actors also need perseverance and drive to push the SIB deal development process through the complications and challenges to completion . Indi- vidual champions who possess many of these traits can be the key to successfully arranging a SIB . In addition to the characteristics of the individuals, the relationships between individuals are equal- ly important . In Utah, all of the actors involved in the deal had already known each other through local connections . In the small Canadian town of Saskatoon, all of the actors were able to devel- op close relationships, which facilitated the deal development . Communication between the actors and clear definition of roles also helped improve the operations of SIBs . For the Innovation Fund in the U .K ., communi- cation of the government request for proposals (RFP) and allowing the investment market suffi- cient lead time to develop proposals helped in the process . The Department for Work and Pensions even hosted “speed dating” nights for investors, intermediaries, and service providers to meet one another . The introduction of private sector mentality to so- cial service provision can also be an important fa- cilitating factor . For example, in two of the deals the private sector investor was able to push the government to reform its referral process so that the service provider could improve its planning . Lastly, there has been a great deal of funding that has gone into organizations building the ecosys- tem for SIBs . In addition to the invaluable grants for intermediary and technical assistance provid- ers, government support of the SIB ecosystem in some parts of the world has been critical (de- scribed in Box 2) . Box 2: Government Support of the SIB Ecosystem Over the past five years, state and national governments have taken multiple steps to develop the enabling conditions for future SIBs by introducing policy frameworks and legislation related to the ex- ploration, design, and implementation of SIBs . A summary of these can be found in Appendix 3 . Governments have demonstrated their commitment to SIBs by developing policy frameworks, which outline strategies for future action, and in introducing legislation, which authorize discrete activities . The U .K . government has one of the most advanced support systems for SIBs . The Prime Minister’s Cabinet Office hosts a Centre for Social Impact Bonds within the Social Investment Finance Team. Its role is to analyze and facilitate the SIB market in the U.K. The Cabinet Office launched a £20 million ($31 million50) Social Outcomes Fund in November of 2012 to add to outcome funds available for SIBs . This central fund is critical in facilitating SIBs where government savings accrue over a number of departments, making it challenging for a single department to fund outcomes . The Big Lottery Fund, which distributes a portion of the funds raised through the U .K . National Lottery, established a similar £40 million ($62 million51) Commissioning Better Outcomes Fund to contribute funding for outcome payments .52 In the U .S ., the Obama administration is working to establish a similar national fund to support out- come funding for SIBs . The White House has requested funding for SIBs (PFS) in each White House The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 33 budget request since the 2012 fiscal year, with the request rising from $100 million to approximately $500 million . However, Congress has yet to approve any of these requests . Notably, the budget re- quests since the 2014 fiscal year have included a request for a $300 million PFS (SIB) Incentive Fund, which is modeled after the U .K .’s Social Outcomes Fund and intended to smooth savings across lev- els and departments of government .53 In May 2015 there were two bipartisan PFS (SIB) funding bills in committee in each of the houses of Congress, both called the Social Impact Partnership Act . Sponsors are Representatives Todd Young (R-Ind .) and John Delaney (D-Md .) in the House and Senators Orrin Hatch (R-Utah) and Michael Bennet (D-Col .) in the Senate .54 Outside of the appropriations process, the White House has established a Social Innovation Fund (SIF) within the Corporation for National and Community Service, a federal agency . In 2014, SIF awarded grants to eight organizations to facilitate the development of SIBs in the U .S . One of the recipients is the Harvard Kennedy School’s Social Impact Bond Technical Assistance Lab, which part- ners with local and state governments to receive technical assistance in developing PFS projects related to design, implementation, and evaluation of policy initiatives .55 Other federal agencies sup- porting PFS include the Department of Justice through the Second Chance Act, the Department of Labor through the Workforce Innovation Fund and the Workforce Innovation and Opportunity Act, and the Office of Management and Budget through the Performance Partnership Pilots for Disconnected Youth program .56 At the state level in the U .S ., 10 states have introduced legislation to authorize PFS deals, but only Massachusetts and Utah have passed this legislation . Outside of the U .S . and the U .K ., other countries have established policy frameworks supporting SIB development . For example, the government of the state of New South Wales, Australia, implemented a Social Impact Investment Policy in 2015 outlining 10 actions that the government plans to take to support the growth of social impact investments . These key actions are centered on increasing the number of social impact investment transactions, growing the market and removing barriers, and building the capacity of market participants .57 Another example of a country’s demonstrated interest in SIBs in future planning is Canada’s 2012 Economic Action Plan, which called for greater exploration of the potential of SIBs .58 Other legislation has also supported the SIB ecosystem indirectly by creating incentives for investors to finance them. For example, in the U.K., legislation enacted in 2014 calls for tax relief to individuals making investments in qualifying social enterprises .59 In the U .S ., the Community Reinvestment Act (CRA) of 1977 encourages depository institutions to meet the credit needs of the communities where they do business, including low- and moderate-income neighborhoods . The CRA can be leveraged to encourage banks to invest in SIBs . Federal, state, and local agencies have also implemented other policies to encourage investments in SIBs . Although the actions required to develop the ecosystem for SIBs vary greatly by context, governments can use these examples of engagement in policy and legislation as they look to furthering their en- gagement with SIBs . The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 34 4.6 Impact Bond Transactions Costs Beyond the investment amount for the service pro- vision are additional costs to the transaction that include intermediary services and technical assis- tance, evaluation, and legal fees . These amounts can be structured either within the deal or outside the deal . From our review of the landscape, it is apparent that the first impact bonds have been time-intensive and costly operations . Much of the initial work was done on a pro bono basis, and some of it has been designed with success pay- ments to be paid to intermediaries if the deal is successful in achieving outcomes . As the impact bond market grows, some developments could reduce these costs or at least make them more sustainable . First off, there will be some reduction in transactions costs that result from learnings and standardization of processes . Nevertheless, for new actors in new settings, adaptation of these processes will be necessary . Second, some inter- mediaries are beginning to conduct initial scoping exercises for impact bond transactions in which they build in the costs for their time . Third, the de- velopment of philanthropic and government sup- port for scoping and feasibility exercises will help to make this work possible for actors wanting to engage (see Box 2) . A SIB development fund has recently been established, for example, for the de- velopment of three SIBs in Utah . This “collabora- tive financing” model brings together public, phil- anthropic, and private capital to support the critical development phase for the SIB transactions .60 Finally, the development of innovation funds or rate cards (see discussion above), which allow for larger investments over multiple service providers or for the achievement of multiple outcomes, are another way to reduce relative transactions costs . 4.7 Main Takeaways on Deal Development 1. The impact bond model is evolving and flexible. There are two main types of SIB models (individual impact bond or fund), and each deal can be structured different- ly depending on context and the actors in- volved . This variation seen across all SIBs provides an opportunity to tailor deals to specific contexts. 2. Developing a SIB can be a complicated process. Among the reasons are the need for appealing and achievable outcomes, a capable and reliable service provider (and the due diligence necessary to determine this), the enabling legal and financial envi- ronment, and the willingness of multiple par- ties to try something new and collaborate . 3. It is likely that deal development will be- come easier. Over time, systems will be developed for standardization, lessons will be learned, and the model will be refined. Already in five years, there has been a move in some locations toward simplifying the deal structure . The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 35 5. 10 COMMON CLAIMS ABOUT IMPACT BONDS In the past five years, since the first social impact bond was implemented, there has been a great deal of buzz around SIBs as demonstrated by an increasing number of reports and online media dis- cussions on the topic (SIBs made Harvard Busi- ness Review’s List of Audacious Ideas for Solving the World’s Problems in 201261) . Less has been written about development impact bonds, though this area is receiving greater attention of late .62 In this section, based on a comprehensive review of what has been written about impact bonds, we Social impact bonds have the po- tential to substantially transform the social sector, support poor and vul- nerable communities and create new financial flows for human service delivery by offering an innovative way to scale what works and break the cycle for crisis-driven services. —Judith Rodin, President The Rockefeller Foundation Figure 15. 10 Common Claims about Impact Bonds 1. CROWD-IN PRIVATE FUNDING 10. SUSTAIN IMPACT 9. BUILD A CULTURE OF MONITORING+EVALUATION 8. INCENTIVIZE COLLABORATION 7. DRIVE PERFORMANCE MANAGEMENT 2. INVEST IN PREVENTION 3. REDUCE RISK FOR GOVERNMENT 4. FOCUS ON OUTCOMES 5. ACHIEVE SCALE 6. FOSTER INNOVATION IN DELIVERY The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 36 identify 10 common claims about what they are able to achieve (see Figure 15) . We then compare these claims to the findings from our extensive interviews and online survey of all existing trans- actions to date and we analyze how these claims stack up to the reality on the ground . 1. IMPACT BONDS CROWD-IN PRIVATE FUNDING There are two parts to the claim found in the liter- ature that impact bonds crowd in private funding . One is that impact bonds crowd-in funding from the same private investors (mainly foundations) that typically contribute to social services through grants . The second is that impact bonds bring in new and different types of investors, which adds to the total amount of private funding for social ser- vices . Additional capital from traditional private actors There are several arguments for why impact bonds have the potential to bring in more funding for so- cial services from traditional private actors . First, the opportunity to receive a financial return on a socially beneficial investment may be a convinc- ing proposition to many traditional private funders such as foundations . Program-related investment (PRI), which can be funded by either program or investment funds, are aimed at achieving program goals but with the expectation of at least a mod- est financial return. To date, PRI capital has been minor for several reasons . Those engaging in PRI have historically been asset-based lenders financ- ing, for example, housing and economic develop- ment projects that are income-generating. Impact bonds provide a way for foundations to make PRIs in human capital rather than contributing capital to typical infrastructure investments, but this requires a different analytic mindset and acceptance of credit approval .63 This would also mean that they could use PRI beyond the usual additions to their existing grant programs . Second, community de- velopment financial institutions (CDFIs) that have traditionally had an asset-based approach and have struggled to fund social services can now do so with impact bonds . The prospects of recycling such capital, once outcomes are achieved, could drive more funding into social services via impact bonds. Third, finding good opportunities for philan- thropic investments is a costly business, eating up an estimated 15 to 20 percent of grants provided; impact bonds have the potential of reducing such infrastructure costs for the outcome funder, there- by expanding the pool of investable funds . Final- ly, private funding can leverage public funding by demonstrating the potential of programs to deliver outcomes (and potentially fiscal savings), which may be attractive to the traditional private funders, leading them to invest more . Fresh capital from new private actors Impact bonds are also said to be able to attract ad- ditional funding by drawing in new types of private funders that otherwise wouldn’t have invested in social services (or at least not the specific social service in question) . Such new investors include, for example, high-net-worth individuals seeking in- vestments beyond traditional capital markets due to their desire to achieve social good as well as credit unions, commercial investors and banks, and pension funds (See Box 2) .64 Impact bonds, by design, draw in private funding for investment to advance social goals . Given the growing market for social investing opportunities, it may be fair to say that impact bonds have led to an increase in social financing by mainstream inves- tors . A close look at the private investors involved in the 38 deals to date does seem to indicate that indeed fresh capital has come to some social ser- vice sectors from new players . One example is Goldman Sachs, which has invested in four SIBs in the U .S . It is important to note that two of the investments came directly from Goldman Sachs’ impact investing business, the Urban Investment Group (UIG), while the other two came from the Goldman Sachs Social Impact Fund, managed by UIG . These investments are part of the investment The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 37 banking firm’s CRA activities (see Box 2 for more on this topic), which could turn out to be an import- ant driver of the impact bond market in the U .S . ABN AMRO Bank, which invested in reducing time on unemployment benefits in the Netherlands, also drew funds from an innovation fund within the bank but with a different regulatory framework be- hind it . In addition, there is an observable increase in interest in double bottom line investments, and SIBs provide a concrete way of doing so . As noted earlier, the impact investing market is large and growing, and a recent survey of private investors showed an increased appetite among millennials in achieving social returns together with financial returns . A shift from mainstream investing to social investing may bring additional funds to the social sector . Our survey demonstrated that 40 percent of inves- tors (of multiple types) who were surveyed were primarily interested in the opportunity to test an innovative financial model to address social prob- lems . About 24 percent responded that they were primarily interested in achieving an equal combi- nation of financial and social returns, while less than 5 percent were motivated by the possibility of achieving financial returns alone. A more nuanced view across different types of investors shows that In the pool of philanthropic investors, SIBs do seem to have attracted larger sums of capital from traditional investors (e .g ., J .B . Pritzker and the Pritzker Family Foundation, which have tradition- ally granted funds to the early childhood sector), though of course it is difficult to know how much these traditional investors would have contributed to the sector in the absence of the SIB . In sum, SIBs have brought funding for addressing social challenges from both traditional investors and new investors . What private funding does do is address imme- diate liquidity and potentially political constraints that governments face in allowing for the financing of preventive services . The question is whether these resources represent a shift in assets un- der management from one sector to another or if they equate to some additionality in the pool of resources for social challenges . First, it is import- ant to note that in the short run, if outcomes are achieved, outcome funders (governments) will have to pay for the services. Hence, financially, it may be a wash unless government does indeed save more than what it pays investors in that short term . But true additionality could be achieved by private funding if the bigger picture of potential longer-term, cross-sectoral, and societal benefits is considered . Also, SIBs may contribute to addi- tionality by leveraging public sector funds through a demonstration effect around the return on in- vestment for certain kinds of social services . Fi- nally, additionality may be achieved by reducing costs for government procurement of social ser- vices and by reducing costs of doing due diligence by foundations if those savings are transferred to- ward the social services themselves . If they do not equate to additionality from traditional donors but rather represent a shift from grants to loans, this could potentially harm social services . Do impact bonds crowd-in private funding? Yes. This does not by definition mean, however, that this constitutes additional capital (though it is possible that it could). Is there room to grow? Yes. 2. IMPACT BONDS PRIORITIZE PREVENTION Impact bonds are said to focus on funding pre- ventive services, rather the traditional remedial interventions .65 Preventive services are services that reduce or eliminate negative social outcomes and potentially high remediation costs for both the public and private sectors in the longer term . The degree to which a service is preventive re- lates to the timing of its delivery and the outcomes that are being measured . This claim is based on the expectation that outcome funders are, in an The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 38 PFS financings monetize the economic value of positive social impact from prevention and early intervention programs while providing a net cost savings to the public sector. —Godeke Consulting, 2013 impact bond, driven either by the desire to achieve a positive outcome or by the fact that the achieve- ment of that outcome avoids costs in the longer term . This cost avoidance can be reaped by the outcome funder itself, other public sector entities, society as a whole, or all three . Over time, the ex- pectation is that a shift into preventive services will increase the cost-effectiveness of delivering the desired outcomes . All but one SIB included in our study are explicitly structured around the prevention of some nega- tive outcome such as returning to prison, remain- ing homeless, needing remedial education, or being unemployed . The one exception is the Por- tuguese SIB, which aims to improve student prob- lem solving and could indirectly prevent negative outcomes through improved student learning . Some of the interventions could be considered more preventive than others based on the extent to which they have the potential to prevent multi- ple negative outcomes across an individual’s life- time and therefore yield potentially larger savings for government and society . There is extensive lit- erature highlighting the importance of intervening early in an individual’s life . For example, a study of the Child-Parent Center Education Program in Chicago in the U .S ., which provides educational and family support services between the ages of 3 and 9, finds that program participation was linked to higher educational attainment, income, socio-economic status, and health insurance cov- erage, as well as lower rates of justice system in- volvement and substance abuse for up to 25 years after the program . A study of the Abecedarian ear- ly childhood program in the U .S . showed that if the program were to be implemented at full scale— targeting the most disadvantaged 20 percent of children in the county—GDP would be 1 .2 percent higher and federal revenue would be $136 billion greater 75 years from implementation .66 A recent longitudinal study of an ECD program in Jamaica found that 20 years later, program participants had 25 percent higher earnings than peers who did not participate in the program .67 As shown in Section 3, few programs are financed through SIBs that target the youngest popula- tion—of the 38 SIBs studied, four serve children during the early childhood years exclusively, two serve children from birth to teen years, 13 serve adults exclusively, and the remaining SIBs serve children over age four and young adults . Notably, one of the two preschool SIBs in the U .S . utilizes the Child Parent Center model discussed above . While, without a doubt, there are many beneficial preventive interventions for older populations, po- tential investors and outcome funders might also consider using SIBs to focus on preventive inter- ventions for the youngest age ranges for which there is a higher rate of return on the investment . Do impact bonds prioritize prevention? Yes. Is there room to grow? Yes. It would be prudent to focus more on younger children to achieve larger societal benefits. 3. IMPACT BONDS REDUCE RISK FOR GOVERNMENT The theory is fairly simple . Since outcome funders (government) pay for services only when outcomes are achieved, they are able to avoid several types of risk that they might otherwise be exposed to . These risks include budget management risk, or paying for services without getting the outcomes they hope to achieve; fiduciary risk, or paying for The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 39 perverse or bad outcomes; and execution risk, which is associated with scaling a known interven- tion . There are also risks associated with innova- tive approaches that have not been tested, as well as risks associated with taking promising pilot or small-scale programs to scale . Governments are typically reluctant to take these risks, which leads to limited innovation in public services funded through the traditional budget process . By shifting the risk to the investor and paying only when outcomes are attained, as is done in a SIB, public funds can be- come instruments for innovative solutions without the risk . In the end, advocates say, impact bonds ensure that taxpayers’ money is spent on services that achieve intended objectives.68 In a SIB structure, much of the risk associated with financing a social service is shifted from govern- ment to investors or guarantors . If outcomes aren’t achieved, the government does not have to pay for the intervention . In a DIB, this can be the same, if the government joins a third-party entity as the outcome funder or if the government is completely outside of the transaction, in which case it assumes no risk . Though in a SIB risk is inherently shifted from government, it would be possible to analyze the magnitude of the risk of the programs through potential investor losses . However, because most of the SIBs are still in early stages, we have yet to observe the riskiness of these investments across all of the deals. In the SIB for criminal justice in New York City, the risk was indeed substantially reduced for government when targets were not met by the end of the third year of the SIB contract . In this case, the government did not have to pay for the provision of services .69 A much more nuanced perspective on govern- ment risk should be considered . In some instanc- es, it is possible that not all of the types of risks described above are removed from government . For example, governments have the risk that they will ultimately bear the costs for any unintended consequences for impact bond beneficiaries. This can occur if service providers are able to choose themselves which beneficiaries are the recipients of the intervention, thereby “cherry-picking” the easy cases and denying services to those most in need. The most risky beneficiaries may then be left to those least equipped to address their needs, and the results can be costly . Another example is when investors have the possibility to terminate a contract prematurely, resulting in the “stranding” of needy populations . The short and potentially long-term costs of abandoning these individuals midway through an intervention could be very high and would be borne by government as the funder of last resort . This would particularly be true when governments are outsourcing social services . In- terestingly, our surveys and interviews indicate that the transfer of risk isn’t actually the primary driver for governments to get involved in SIBs . Some out- come funders in the study cited the possibility of circumventing rigid government budget silos and procurement processes and the ability to over- come politics, while most said that the opportunity to scale was the primary driving factor . Do impact bonds reduce risk for government? Yes. But not all risks are mitigated. Is there room to grow? Risk is likely to be reduced as long as solid due diligence is conducted before entering deals. 4. IMPACT BONDS SHIFT FOCUS TO OUTCOMES One of the biggest claims made about impact bonds is that they encourage key stakeholders to focus on the achievement of social outcomes . The way impact bonds work is that outcomes are identified by the stakeholders, and the contract between them incentivizes the achievement of those outcomes by paying for success . The de- termination of outcomes depends on how the im- pact bond is structured—in the various models the outcomes that trigger payment can be determined jointly, by the intermediary, or by the outcome The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 40 funder . This differs greatly from the lion’s share of social service financing and provision, which often doesn’t consider how effective programs are in delivering outcomes . Even when they do look at performance, it is argued, it is usually related to outputs as opposed to outcomes . With this em- phasis on outcomes comes not just a focus on what matters but also transparency in government procurement of service providers .70 The concept of outcome-based financing is not new. In fact, it has been around in public finan- cial management circles for a long time . In de- veloped countries and even in some developing countries, as discussed in the introduction, per- formance-based contracts have been in contract- ing for public infrastructure projects for decades. In the development arena, we have seen in re- cent years an increasing interest among donors in results-based financing and output-based aid through such tools as Cash on Delivery (Center for Global Development) and results-based fi- nancing (RBF) and Program for Results Lending (P4R) (World Bank) . These tools can differ from impact bonds in several ways . First, impact bonds provide upfront capital as opposed to delivering it when outcomes are achieved . Second, they bring private sector discipline into performance man- agement and outcome achievement . Overall we see that SIBs have led to a substantial shift in thinking around procurement and provision of social services among government and service providers in the deals that we surveyed . For exam- ple, one stakeholder involved in the SIB for home- lessness in Massachusetts stated that “there has been a complete shift to outcome-driven procure- ment in this sector .” Service providers are chosen based on their ability to deliver outcomes instead of based on platitudes. One government official in the United States said, “We are just tired of pay- ing for programs that don’t work, so this [impact bond] structure helps us get the outcomes that we want .” Service providers are incentivized to deliver outcomes since they face reputational risk if they do not. In some cases, though not the majority, SIBs have resulted in more flexibility to do what works in service provision by allowing for course adjustment along the way. In our study, we found that the extent to which performance manage- ment and thereby course adjustment takes place actually varies a great deal (see discussion under claim 7), so the extent to which services are being delivered differently than they would have other- wise also varies . Do impact bonds shift the focus to outcomes? Yes. Is there room to grow? Yes. Another one of the most common claims about im- pact bonds is that they can help to achieve scale . The literature highlights that the majority of nongov- ernmental service providers operate at very small scale due to financial and capacity constraints. Im- pact bonds, it is said, can open up access to growth capital and allow these service providers to bring their services to a larger population, including dif- ferent segments of the population or different geo- graphical areas . The expectation among some im- pact bond promoters is that impact bonds can play a significant role in addressing some of the enor- mous social challenges faced globally today . The term “scale” is a highly relative concept . The question is, scale with respect to what? Do the “impact bond-hypers” mean that impact bonds can really address the outsize costs that would be as- sociated with reaching every needy member of the population for a given preventive intervention? For malaria control in Africa alone, the estimated fund- ing gap is $3 .6 billion .71 Delivering good-quality universal education from preschool through lower secondary levels in low- and lower-middle-income countries is estimated to have an average annual 5. IMPACT BONDS ACHIEVE SCALE The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 41 The social impact bond is a promising new product within the impact investing sector, with potential to become a multibillion- dollar source of growth capital to fund effective social programs. —Social Finance U.S., 2012 cost of $239 billion per year between 2015 and 2030, with an estimated average annual financ- ing gap of $22 billion across the same period .72 Very few examples exist of truly reaching scale with social programs in developing country con- texts . These include, for instance, two large gov- ernment programs to address poverty and human development indicators: Oportunidades in Mexico and Bolsa Familia in Brazil, both of which have been successful in achieving their goals through their conditional cash transfers to poor families .73 There is scale relative to the size of the target population, in scaling one intervention to other cities or places, and scale as in a large program . In a lot of the SIBs trying to reach the most vul- nerable people, they seem to be reaching a fair size of their target population (Canada, Ohio, and Australia all have very targeted populations), and they wouldn’t have been reached otherwise . In the U .K ., the Innovation Fund, Fair Chance Fund, and the countrywide adoption deal are good examples of creating structures for scaling services . A different take on the concept of scale could be that impact bonds can serve as catalysts to achieve scale in that they may encourage a gov- ernment to take on the funding or service provision in the future . An alternative, perhaps more con- servative, view of achieving scale is that impact bonds simply serve to expand services to a larger population than is currently being served . Finally, scale may mean something beyond numbers of people served—it could be related, for example, to putting in place the systemic infrastructure for supervision, training, monitoring, and evaluation . An examination of the current SIB market shows that in the majority of the deals, the number of in- dividuals reached is fairly small . Of the 38 SIBs, 25 of them serve populations equal to or less than 1,000 individuals . Of those SIBs on which public data exist, the smallest SIB, in Canada, serves 22 people, and the largest SIB targets approximate- ly 9,000 individuals . Another way to examine the question of whether these programs are reaching any kind of scale in terms of reaching all of the needy population would be to look at the propor- tion of the needy population being served through a given program . In Utah, for example, the goal is to reach about 50 percent of the needy population in the school district with the preschool SIB,74 while in Ohio, the focus is less on reaching scale and more on the innovation of combining services . In developing country contexts with large-scale problems, both in terms of depth and breadth, it is likely that to have any substantial impact will re- quire something larger than an individual impact bond transaction . The fund model may be a prom- ising way to achieve this . Nevertheless, the chal- lenge will be finding sufficient capacity to provide services to such large populations . Do impact bonds achieve scale? In absolute terms, no. In relative terms (specific target populations), somewhat. Is there room to grow? Possibly through impact bond funds. 6. IMPACT BONDS FOSTER INNOVATION IN DELIVERY Impact bonds are also said to have the ability to foster innovation in the delivery of social ser- vices—something that governments are often unwilling or unable to do because of funding or political constraints . We have seen innovation in delivery to refer to two related but slightly different concepts in the literature on impact bonds . The first is the introduction of a new way to provide The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 42 services from the start of an intervention . The sec- ond is the ability to innovate or adapt along the way . The latter we will discuss in more detail in the following section on performance management . While the term “innovation” is defined as some- thing new and different, how innovative something is relates very much to the context in which it is being introduced . In the context of innovation in service delivery, a broader definition of innovation should include a range of options such that an in- tervention could be considered innovative if it has never been implemented: • at all • with a given population • in a particular service delivery setting • by a particular service provider • in a given geographical area • in combination with other interventions • some or all of the above In our landscaping exercise, none of the 38 SIBs falls into the first category of never having being im- plemented . There is not a single intervention that has never been used before this SIB transaction . We suspect that this relates closely to the risk ap- petite of investors linking to the third impact bond criteria mentioned in Section 2: There must be ev- idence of success in achieving outcomes . There may be investors out there who have a large appe- tite for risk and would be willing to invest in an inter- vention for which there is very little or no evidence, but in the existing SIBs this was not the case . Oth- er instruments, such as innovation challenges, are likely to be better suited for this purpose . Nevertheless, quite a few interventions are inno- vative in that they are being delivered in new and different settings, by different service providers or in combination with other interventions . One exam- ple of an intervention that was innovative in mul- tiple aspects is the Rikers Island SIB for reducing prison recidivism in New York . Here, a previously utilized and proven therapy is being used with a younger population than ever before, and it is being delivered within prison walls, which also had not been done before . In this case the impact bond is heavily backstopped by philanthropic capital . In the Portuguese SIB, an information technology system developed and tested in the United States is being used among young children to help them develop critical thinking skills . In this case, there was a great deal of support from government to focus on inno- vation, the investment amount was small, and it was backed by philanthropic funding . Other examples of innovation include using new combinations of inter- ventions such as in Cuyahoga County, Ohio, where the aim to reunite children in foster care with their biological parents who were experiencing home- lessness required multiple types of services . In the U .K ., the Innovation Fund supported 10 initiatives that provided mentorship programs at scale . At least so far, SIBs have not supported many highly innovative interventions but some have supported interventions that are being delivered in different ways or to different populations . As the market develops, it will be interesting to see the degree to which investors are willing to invest in completely innovative methods of addressing so- cial challenges . Do impact bonds foster innovation? Mostly no, but to some extent yes, in that services have been provided in new combinations, to new populations, or in new settings. Is there room to grow? Maybe. There is greater scope for work in conjunction with innovation platforms to do the kinds of experimentation that we have seen rather than greenfield investments. 7. IMPACT BONDS DRIVE PERFORMANCE MANAGEMENT Impact bonds are said to drive performance man- agement, which in turn leads to the achievement The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 43 DIBs create a financial incentive to find the most effective and efficient ways of delivering the services and commodities that people need. Because interventions are financed by private investors, there is more flexibility than there would be under traditional public sector contracts to adapt interventions according to feedback loops and changing circumstances on the ground. —Center for Global Development, 2013 of outcomes as discussed in claim 4 . Performance management systems help to ensure that service providers are on track in delivering the necessary components of their intervention . While some providers have the ability to develop and follow performance management strategies in-house, many don’t have the capacity or resources to do so . Governments and donor agencies general- ly do not have this capacity either . Furthermore, government-funded nonprofit service provision is often inflexible and leaves little room to adapt along the way . Impact bonds, it is argued, bring in private sector expertise in performance manage- ment and release nonprofits from the hold of rigid government contracts . This ability for adaptation, together with the pay-for-success contract, leads to the delivery of outcomes . The extent to which performance management and in particular external private sector perfor- mance management is taking place in existing deals depends greatly on the type of SIB struc- ture (managed, intermediated, or direct) and on the types of actors involved in the deal—primarily who played the role of performance management if there was any at all . We see a wide variation in the types of organizations that play this role, which also affects both fidelity to the model and the de- gree to which adaptation actually occurs in prac- tice in these deals . In some deals there was an ideal combination of expertise in the intermediary party in that the organization had both the finance and nonprofit sector expertise or even social sec- tor-specific expertise. A good example of this was in the SIB in Massachusetts for young men and women in the juvenile justice system. The interme- diary in this case happened to have one member of the team with deep knowledge of this sector . In combination with a very strong data management system within the service provider, this allowed for a great deal of flexibility, learning, and adaptation in the process . In other cases there appeared to be very little learning by doing and adaptation in service delivery . Few deals reported using data to make course adjustments along the way. Do impact bonds drive performance management? Yes, though it is not clear that much course adjustment is occurring. Is there room to grow? Yes. The use of real-time data course adjustment could be increased, which would have implications for outcome achievement and efficiency. 8. IMPACT BONDS STIMULATE COLLABORATION Another common claim about the promise of im- pact bonds is their ability to stimulate collaboration across stakeholders . Some of the commentary fo- cuses on the potential to foster cooperation across different types of players in the public and private spheres, while others highlight the possibility for impact bonds to break down silos and bring to- gether players across different government agen- cies .75 Another type of collaboration is across partisan lines where agreement on policy would otherwise be difficult or impossible. When collab- oration takes place across agencies or stakehold- ers and alignment of interests to attain certain out- comes, there is an exchange of information and know-how that leads to increased efficiency and creative solutions . The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 44 They [social impact bonds] also provide the incentive for multiple government agencies to work together, capturing savings across agencies to fund investor repayment. —Social Finance U.S., 2012 From our interviews it was clear that, across stake- holders, many were interested in the possibility of collaboration that SIBs could bring. For the majority of those surveyed, however, that wasn’t the primary reason for engaging . Among outcome funders, 25 percent chose collaboration as their primary motiva- tion for involvement in a SIB, while only about 7 or 8 percent of intermediaries and investors, and not a single service provider surveyed, found collabo- ration to be the most important reason for getting involved in a SIB . When asked about challenges in developing a SIB, collaboration and agreement on the terms of the transaction were notably among the biggest challenges faced . Nevertheless, the general structure of the SIB clearly generates the necessity to work together to find areas of common ground and to come to agreement (albeit difficult at times) on the contract terms . A DIB can also generate collaboration, but if the government is not the outcome funder, a DIB will not necessarily promote collaboration between the public and private sectors . Several actors mentioned the frequent commu- nication that took place early on in the process and the importance of building trust . One nota- ble example where collaboration occurred across agencies was in the SIB for unemployment in the Netherlands . One of the stakeholders noted, “Be- fore having the SIB there was a very poor sys- tem of referral for young people on unemployment benefits ... now we have a data collection system across agencies which allows us to identify the individuals who need services .” The private sec- tor can bring a new perspective to the way social services are delivered and the way government has been operating . Other examples of collabo- ration include investors engaging in activities that support the service beneficiaries. This happened in Canada, where, in a program aimed at keeping mothers with their children, the credit union Con- exus provided financial education to the mothers. A good example of collaboration across partisan lines was in the SIB for quality preschool education in Utah in the U .S . Ben McAdams, the mayor of Salt Lake County, said in an interview that “the initial sup- porters of the SIB structure [Democrats] were able to gain backing from Republicans who were sold by the fact that government would only have to use tax- payer funds to pay for the services if outcomes were achieved . In the end, the legislation, sponsored by Republicans, passed both the House and Senate with overwhelming bipartisan support .” Do impact bonds stimulate collaboration? Yes. There are very good examples of this. It has also proven to be a big challenge. Is there room to grow? Yes. It will likely become easier to collaborate as more experience is gained in this area. However, new players may face some of the same challenges. 9. IMPACT BONDS BUILD CULTURE OF MONITORING AND EVALUATION Although not discussed as often in the literature, impact bonds are also said to have the potential to bring about a culture of monitoring and evaluation among both nongovernment service providers and the government agencies involved in impact bond transactions . This cultural change in theory would be the result of a combination of the shift toward an outcomes focus, performance management, and the collaboration among multiple stakeholders . The demand for better data and the desire to be able to work across actors would force a change in the cur- The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 45 rent systems, which place little emphasis on moni- toring and evaluation . While still very early on in their development, we saw, in our examination of the existing SIBs, a great deal of potential for impact bonds to bring about a cul- ture of monitoring and evaluation . In some cases this change had already begun as the SIB itself forced service providers and government agencies to col- lect and manage key data related to the outcomes of their beneficiary populations. In fact, in some cases stakeholders stated that the SIB had helped them to solve longstanding problems of data collection in the system . One service provider in particular noted that the motivation for getting involved was to be able to promote a system of monitoring and evaluation . For other stakeholders this was characterized as a diffi- cult and intimidating process . They cited the need for financial and technical support to service providers, capacity building in government, and ensuring priva- cy of beneficiaries. As with many of the claims about what a SIB can achieve, this claim is highly dependent on the indi- vidual actors involved . It does seem that there must be a champion for the cause who is willing to lead the charge, but the SIB can serve as a catalyst for deeper behavioral change within old institutions . Do impact bonds build a culture of monitoring and evaluation? It is too soon to say whether this has created a broad shift in systems across all of the deals, but there is some movement in this direction. Is there room to grow? Yes. This is an area with a lot of potential for growth. 10. IMPACT BONDS SUSTAIN IMPACT Finally, impact bonds are said to lead to sus- tained impact . This can be interpreted in sever- al ways . First, the impact bond itself can provide multiyear contracting, which differs from the busi- ness-as-usual single-year contracting by allowing for more continuous and reliable services . This may lead to better and more sustainable outcome for the beneficiary population. Second, impact bonds can lead to sustained impact in that they provide a demonstration effect of the benefits of preventive services which can foster longer-term government commitment to this social challenge .76 Finally, im- pact can be sustained as a result of impact bonds if they lead to a major shift in how governments view performance management, achievement of outcomes, and the development of monitoring and evaluation systems as discussed in the previous claims . The arguments for why SIBs can lead to sustained impact are promising—for long-term impact to occur, there must be a shift in the focus of those that finance and deliver services toward outcome achievement . SIBs seem able to do this, at the very least for the interventions that they finance. The multiyear contracting in itself is one step in the right direction to ensure more consistent care over time . This also helps to protect the provision of so- cial services from politically influenced ebbs and flows of funding. However, for this to have deeper systemic impact, monitoring and evaluation sys- tems must also be put into place . It is too soon to know if impact bonds will have this effect or if they will be a passing fad and things will go back to business as usual after deals are complete . The development of multiple SIBs in some locations, legislation, and political action to support the SIB ecosystem and SIB funds is encouraging . Do impact bonds sustain impact? It is too soon to say, but the fact that most SIBs provide multi-year contracting does contribute to the achievement of longer- term impact Is there room to grow? Yes. The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 46 5.1 Summary of the Analysis of the 10 Common Claims about Impact Bonds CLAIM HOW ACCURATE? ROOM TO GROW? 1. Crowd-In Private Funding Yes. This does not by definition mean, however, that this constitutes additional capital (though it is possible that it could). Yes. 2. Prioritize Prevention Yes. Yes. It would be prudent to focus more on younger children to achieve larger societal benefits. 3. Reduce Risk for Government Yes. But not all risks are mitigated. Risk is likely to be reduced as solid due diligence is conducted before entering deals. 4. Shift Focus to Outcomes Yes. Yes. 5. Achieve Scale In absolute terms, no. In relative terms (specific target populations), somewhat. Possibly through impact bond funds. 6. Foster Innovation in Delivery Mostly no, but to some extent yes, in that services have been provided in new combinations, to new populations, or in new settings. Maybe. There is greater scope for work in conjunction with innovation platforms to do the kinds of experimentation that we have seen rather than greenfield investments. 7. Drive Performance Management Yes, though it is not clear that much course adjustment is occurring. Yes. The use of real-time data course adjustment could be increased, which would have implications for outcome achievement and efficiency. 8. Stimulate Collaboration Yes. There are very good examples of this. It has also proven to be a big challenge. Yes. It will likely become easier to collaborate as more experience is gained in this area. However, new players may face some of the same challenges. 9. Build a Culture of Monitoring and Evaluation It is too soon to say whether this has created a broad shift in systems across all of the deals, but there is some movement in this direction. Yes. This is an area with a lot of potential for growth. 10. Sustain Impact It is too soon to say, but the fact that most SIBs provide multiyear contracting does contribute to the achievement of longer- term impact. Yes. The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 47 6. CONCLUSIONS AND FUTURE OF SIB/DIB MARKET While we have seen considerable progress over the past decade in some indicators of well-being, the gravity of the social challenges the world continues to face today requires seri- ous consideration of innovative ways to finance and deliver services more efficiently and cost-ef- fectively . Some key contributions in recent years have forced those of us working on addressing these challenges to think differently . First, there has been greater emphasis on evidence as a ba- sis for financing, which has led to a movement to evaluate program impact in both the devel- oped and the developing worlds . As part of that movement, we have observed the consequences of such evaluations for both cost-effectiveness and sustainability of service provision .77 Second, there has been a greater focus on value for mon- ey, leading to the use of performance-based fi- nancing and output-based aid programs in both developed countries and by development finance institutions globally . There has been recognition that the private sector can complement the pub- lic sector in both financing and delivery of social services . This has resulted in an explosion in the participation of the private sector in financing and driving outcomes through, for example, public-pri- vate partnership models . Third, increased appetite for achieving double bottom line returns has led to a growth in impact investing globally . Impact bonds bring together elements of these various strains of thinking and policy action into one instrument. Over the past five years, since the first SIB was implemented, an exponential growth in the number of deals has occurred in the de- veloped world . While we are still in the very early stages of this market with much remaining to see and learn, our examination of the 38 existing deals provides grounds for cautious optimism . Our main findings: So far, SIBs have focused on a handful of sec- tors and problems with certain characteristics. To start, they have focused on areas where the government is already contracting out to nongov- ernmental agencies to deliver services such as programs that provide job and life skills training. Second, they have focused on areas where ser- vice inputs are fairly complex but outcomes are simple to measure, such as homelessness, fos- ter care, and prison recidivism . Third, they have mostly focused on areas that aren’t core services under government responsibility such as primary education . Impact bonds have the potential to contribute to the improvement of social service delivery though thus far the deals have been complex and time- and expertise-intensive. Deal devel- opment has proven to be challenging due to the steep learning curve of this new form of collabora- tion involving many different types of players and the complexity of multiyear contracts and legal constraints . The need to determine outcome met- rics and conduct complex budget analytics and calculate the costs and benefits of interventions adds to the difficulties in putting a deal together. The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 48 There is an enormous variation in the deals with respect to the structure, mechanics, and stakeholder roles, which is one reason for op- timism in that this demonstrates a great deal of flexibility in how a deal can be structured. Impact bonds have been designed as one of two models—either as an individual transaction focus- ing on a given intervention or as a fund aiming to achieve a set of outcomes across potentially multi- ple service providers . Second, impact bonds have followed one of three structures, which are dictat- ed by who plays the important roles of managing the deal, contracting, and performance manage- ment. This flexibility in role designation allows a variety of entities to play different roles depending upon their area of expertise and local conditions . Finally, depending on whether a government wish- es or is able to engage, impact bonds can take the form of a SIB, where the government is the outcome funder, or a DIB where a third party takes on the role of outcome funder . While only one DIB is contracted to date (though it was not contracted before our study cutoff date), a number of others are in development . This variation in the structure may allow for the initial introduction of this financ- ing model to systems that are not quite ready or able to enter into contracts between government and private partners in this manner . Across the 38 SIBS we studied, four factors came out as key to getting a deal together: measurable outcomes; evidence of interven- tion impact; government support; and dedi- cation and collaboration of the stakeholders. However, across these factors there was some variation in the importance of each one. In the majority of the deals, there was administrative data or a system set up for data collection related to intervention impact . In every deal, either out- comes or outputs related to service delivery were identified. In many there was evidence that partic- ular service providers had the capacity to deliver those services and achieve the outcomes in ques- tion . There was quite some variation, however, in the robustness of that evidence, and this depend- ed to some extent on the risk appetite of investors . Government support was crucial in every deal as it would have been impossible to execute without that support . Finally, because these deals take a great amount of time and effort to develop, the stakeholders overwhelmingly highlighted the im- portance of all of the actors’ willingness to put in the necessary time and effort . This included the expertise and work of intermediaries in the pro- cess but with some variation by deal as there was a different mix of individuals in each . It also re- quired philanthropic support for the time and effort spent on developing the deals . Rigorous (experimental or quasi-experimen- tal) evaluations of the interventions in SIB deals were not always necessary for measur- ing impact and determining repayment. In our examination of the 38 deals, 28 of the deals use validated administrative data, six use historical comparison data, and eight use quasi-experimen- tal and experimental methodologies (four each) .78 Many of the deals (primarily the impact bond funds in the U .K .) have outputs rather than outcomes as their payment triggers . The choice of evaluation type was dictated in part by the intervention itself and in part by the desire of the investors and out- come funders to have evidence as to the causality of the outcomes . In our examination of 10 claims about the po- tential of impact bonds five years into their de- velopment, we find that many of these claims do indeed hold true though they almost all de- serve more nuanced analysis than the litera- ture has provided to date. Five of the 10 claims in particular capture what we identify as the most promising potential for impact bonds . The most important claim is that impact bonds lead to a shift in focus to outcomes. We find that the existing SIBs have truly transformed the con- versation among participating government stake- holders about procurement of social services and the transparency and accountability that go along with that . In essence, instead of paying for ser- vices, government pays for outcomes . At the same time, SIBs push service providers to deliver on The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 49 these outcomes . A second very important and re- lated claim is that impact bonds drive performance management . Bringing private sector mentality into the provision of services (which often means getting government bureaucracies out) can lead to more efficient and effective delivery of social services . This has been mainly seen through the push toward outcome achievement and fidelity to the service delivery model and less in terms of ad- aptation of service provision along the way . Third, in the existing deals, this mechanism has held up to the claim that it stimulates collaboration . Fourth, if larger systematic change, such as development of strong monitoring and evaluation systems, con- tinues to happen with impact bond deals, that in itself would be an enormous contribution toward improving many people’s lives . Finally, impact bonds can shift the focus of government away from curative or remedial services and toward pre- ventive services . This could have huge economic implications for government and society . The existing individual impact bond deals are not achieving substantial scale in absolute terms, but impact bond funds can achieve greater scale. Of the 38 deals, 25 serve popu- lations equal to or less than 1,000 individuals . The Innovation Fund in the U .K ., which brings to- gether multiple investors to jointly support a set of outcomes to be provided through many service providers in 10 deals, serves more than 16,000 individuals . The other impact bond fund in the U .K . is not as large in scale—it serves about 1,600 ben- eficiaries. Many of the deals had very specific tar- get populations, so in relative terms the programs were serving an important part of that target popu- lation in a given setting . Prospects are bright for the development of more impact bonds (or some derivative of them) worldwide, though this will take sub- stantial effort on the part of many stakehold- ers. The challenges are likely to be much larg- er in developing country contexts. Given the complexity of deal development, the evidence and outcome identification necessary to even begin to develop a deal, and the willingness of outcome funders to enter into these contracts, the continued development of impact bonds will take substantial effort on the part of many different parties . First, support from philanthropy will continue to be cru- cial to the field; these contributions have played a key role in the building of the impact bond ecosys- tem to date . For example, they can help by fund- ing the collection of data and evidence necessary to start the conversations about outcome-based financing with outcome funders. Second, legisla- tion and policy action on the part of government will also be important in the future development of the market . Third, technical assistance or advising governments will be very important to help ensure that the needs of beneficiary populations are tak- en into account and that the costs and benefits make sense . This will be even more important as new sectors are explored for deal development . Finally, expertise will be crucial in the areas of fi- nancial modeling, contracting, and performance management and in conducting due diligence of nonprofits. It is very likely that the impact bond model de- velopment process, structure, and application will continue to be adapted in the future. Thus far we have seen SIBs developed in fields with a complex set of inputs but with simple outcomes . It is likely that there will be more impact bonds devel- oped in these same types of sectors but that future impact bonds will come to include, for example, a wider range of interventions in early childhood de- velopment (maternal and child health, parenting, and child welfare), health (in particular preventive care), housing, and water and sanitation . The types of interventions within these sectors that are most probable include services that cater to particularly underserved or marginalized populations as well as to ones that provide improvements in the margin to existing services such as in quality improvements when access is not an issue . Impact bonds could also be used more experimentally where investors are interested, for instance, in testing innovative ideas for service provision or outcome funders would like to test which interventions or service The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 50 providers deliver services most effectively . While risky, these propositions could represent high fu- ture value for both investors and outcome funders . Can impact bonds tackle some of the large-scale social issues facing the world today, in particular in developing country contexts? This seems un- likely given the outsize sums of private capital that would be required to fund these services, the availability and capacity of service providers to provide at large scale, and the availability of funds on the outcome funder side to make payments to investors if outcomes are achieved . One way to address some of these issues, as mentioned above, is through the impact bond funds . In de- veloping country contexts, such funds could be supported by multiple large donor agencies, for example, but the problem of capacity may remain . At the same time, enormous scale may not be the purpose of impact bonds . If smaller deals are able to shift how governments and service providers think about service provision and if outcomes be- come the main focus, this could have important ripple effects on service delivery more broadly . For this reason we feel that it is important that govern- ment be part of the conversation in the transac- tions . DIBs, with third-party outcome funders, may be easier to get off the ground and may provide an important demonstration effect, though their impact might not be as sustained as under a SIB . This argument will be familiar to those who worry about government ownership of aid programs . As the impact bond market grows, we expect that some of the challenges faced in the first five years of deal development will be reduced . The main challenge will be the complexity of the deal and the time and costs of development . Already, stake- holders are beginning to think creatively about how to go about this . As discussed above, this will require the contribution of all involved, and it will take some creative thinking and collective effort . To move forward there must be increased trans- parency and knowledge sharing . The develop- ment of communities of practice, workshops, con- ferences, and easily accessible online content can foster this movement . More research about how this very nascent field develops will be critical to capture lessons learned, contextualize them with- in the bigger picture of social sector financing and service provision, and apply them to real-world problems with the populations in need at the cen- ter of the discussion . The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 51 APPENDIX 1. RESEARCH METHODOLOGY AND STUDY PARTICIPANTS The research for this study consisted of three components. The first component was a compre- hensive review of the literature on impact bonds, including reports, working papers, white papers, articles, blog posts, and opinion editorials . A more shallow review of the broader impact investing literature was also conducted . The second com- ponent comprised a series of unstructured inter- views with key players in the impact bond arena, including academics, foundations, investors, and intermediaries . The third consisted of structured interviews that were conducted via a survey com- pleted online (using the survey platform Qualtrics), in person, or over the telephone that targeted one representative of each of the key stakeholders (investors, intermediaries, service providers, out- come funders) in each of the 38 social impact bonds included in the study . In some cases, mul- tiple individuals from the same organization were consulted . The individuals who provided the infor- mation in these interviews and surveys have all given written authorization for publication of their responses. In addition, we held five private events on impact bonds from which we gathered ideas and viewpoints from a variety of stakeholders . All of the contributors to the study and panelists from the events who gave authorization for the inclu- sion of their name are listed below . U.K. • Liz Armstrong, Chief Executive Officer U.K., Advanced Personnel Management • Vicki Brown, Social Investment Lead, U .K . Department for Work and Pensions • Toby Eccles, Development Director, Social Fi- nance U .K . • Michelle Farrell-Bell, North West Regional Di- rector, Teens and Toddlers • Peter Gilson, Investment Manager, Northstar Ventures • Paul Hargreaves, Operational Director, Social Investment, Action for Children • Chin Hoong Sin, Director, Office for Public Management Ltd . • Nigel Jackson, Employment and Skills Man- ager, Nottingham City Council • Dave McCloskey, Senior Delivery Manager, 3SC • Kevin Munday, Investment Director, Impetus Private Equity Foundation • Jane Newman, International Director, Social Finance U .K . • Peter Nicholas, Director, Social Finance U .K • Pedro Sampaio, Investment Team, Impetus Private Equity Foundation • Louise Savell, Director, Social Finance U .K . • Jan Tomlinson, Enterprise Director, Tomor- row’s People Trust • Anonymous, Numbers4Good • Anonymous, Numbers4Good • Anonymous, Social Finance U .K . • Anonymous, Social Finance U .K . North America • Sam Aigner-Treworgy, National Policy Man- ager for School Districts, Ounce of Prevention Fund • Molly Baldwin, Founder and CEO, Roca Inc . • Brad Cauthen, The Osborne Association • Danielle Cerny, Social Innovation Finance Manager, Massachusetts Executive Office for Administration and Finance • Cathy Clark, Director, Case i3 Initiative on Im- pact Investing, Duke University • Jacques de Corby, ‎Executive Vice President, Marketing and Communications, Conexus Credit Union • Gerald Croan, Senior Fellow, Third Sector Capital Partners The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 52 • Janis Dubno, Early Childhood and Education Senior Policy Analyst, Voices for Utah Chil- dren • Lili Elkins, Chief Strategy Officer, Roca Inc. • Jamie Etkind, Analyst, Goldman Sachs • Andrew Feldman, Special Advisor for Evi- dence-Based Policy and Programs, U .S . De- partment of Education • Joe Finn, President and Executive Director, Massachusetts Housing and Shelter Alliance • Megan Golden, Senior Fellow, Institute for Child Success • Brenda van Gorder, Director of Preschool Ser- vices, Granite School District • David Gorleku, Associate, Goldman Sachs • Susan Gottesfeld, Associate Executive Direc- tor, The Osborne Association • John Grossman, Co-President and General Counsel, Third Sector Capital Partners • Jeff Hayward, Chief of External Affairs, Unit- ed Way of Massachusetts Bay and Merrimack Valley • Kippy Joseph, Associate Director, The Rocke- feller Foundation • Ashish Karamchandani, Executive Director, Monitor Deloitte India • Michelle Kirby, Alum of Casei3 Initiative on Im- pact Investing, Duke University • Jeff Liebman, Malcolm Wiener Professor of Public Policy, Harvard University • Beth Mascitti-Miller, Chief Officer of Early Childhood Education, Chicago Public Schools • Ben McAdams, Mayor of Salt Lake County, Utah • Don Meikle, Acting Executive Director, EGADZ Downtown Youth Center • Ryan Moser, Managing Director, Eastern Re- gion, Corporation for Supportive Housing • Tracy Palandjian, Chief Executive Officer and Co-Founder, Social Finance U .S . • Andrea Philips, Vice President, Goldman Sachs • Mike Puma, President, Chesapeake Research Associates, LLC • Caitlin Reimers Brumme, Director, Social Fi- nance U .S . • Clint Repski, Assistant Deputy Minister, Minis- try of Education, Saskatchewan • Timothy Rudd, Research Associate, MDRC • Joe Schmidt, Director of Strategic Initiatives, IFF • Jeff Schoenberg, Advisor, The J .B . and M .K . Pritzker Family Foundation • Liya Shuster, Senior Associate, Third Sector Capital Partners • Joe Waters, Vice President, Institute for Child Success Australia • Rosemary Addis, Co-Founder and Chair, Im- pact Investing Australia • Sally Cowling, Manager, Research and Pro- gram Development, UnitingCare Burnside • Nick Harrington, Associate, Impact Investing, Social Ventures Australia • Craig Parker, Executive Director, Head of Structured and Asset Finance, Westpac Insti- tutional Bank • Elyse Sainty, Director, Impact Investing, So- cial Ventures Australia • Emma Tomkinson, Delivering the Promise • Kirrin Winning, Manager, Office of Social Im- pact Investment, New South Wales Treasury Continental Europe • Eric Buckens, Manager Social Impact Fund, ABN AMRO • Pierre-Louis Christiane, Investment Analyst, Kois Invest • Joana Cruz Ferreira, Analyst, Laboratório In- vestimento Social • Maurice Fransen, Senior Manager, Public Sector, Deloitte • Ruben Koekoek , Innovation Manager, ABN AMRO • Leo Van Loon, Director, Buzinezzclub The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 53 • Antonio Miguel, Director, Laboratório Investi- mento Social • Niklas Ruf, Project Manager, Juvat • Ralph de Ruijter, Investment Manager, Start Foundation • Bjorn Vennema, former Associate, ABN AMRO • Tjalling de Vries, Program Manager Social Im- pact Bonds, Municipality of Rotterdam Other • Paul Atherton, Education Economist, U .K . De- partment for International Development • Michael Belinsky, Co-Founder, Instiglio • Caroline Bressan, Principal, D . Capital Part- ners • Gib Bulloch, Founder and Executive Director, Accenture Development Partnerships • Phyllis Costanza, Chief Executive Officer, UBS Optimus Foundation • Michael Eddy, Co-Founder and Partner, Insti- glio • Drew von Glahn, Innovative Finance, World Bank • Avnish Gungadurdoss, Co-Founder and Man- aging Partner, Instiglio • Susannah Hares, International Director, Abso- lute Return to Kids • Nonni Hlongwane, Principal, Omidyar Net- work • Robin Horn, Director, Education, Children’s Investment Fund Foundation • Zachary Levey, Senior Associate, Multilateral Investment Fund, Inter-American Develop- ment Bank • Aunnie Patton, Innovative Finance Lead, Ber- tha Centre for Social Innovation and Entrepre- neurship • Liesbet Peeters, Founding Partner, D . Capital Partners • Ferdinando Regalia, Social Protection and Health Division Chief, Inter-American Devel- opment Bank • Faith Rose, Manager, Education Sector Team, Children’s Investment Fund Foundation • Mirjam Schöning, Global Head, Programs and Partnerships, LEGO Foundation • John Simon, Founding Partner, Total Impact Capital • Sara Taylor, Investment Executive, CDC Group • Humphrey Wattanga, Senior Partner, Afcorp Investments • Susan de Witt, ‎Innovative Finance Pro- gramme Coordinator, Bertha Centre for Social Innovation and Entrepreneurship • Arthur Wood, Founding Partner, Total Impact Capital • Maya Ziswiler, Program Director, Education, UBS Optimus Foundation Anonymous: 17 The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 54 APPENDIX 2. EXISTING SOCIAL IMPACT BOND SUMMARY SHEETS Fact Sheet Key SIB FUND NAME Included for the 17 SIBs in two SIB Funds (Innovation Fund and Fair Chance Fund) Sector symbol (Social Welfare, Criminal Justice, Education, or Employment) SIB NAME The name of the SIB used by the involved parties. Pay for Success is the term used for SIBs in the U.S. and Social Benefit Bond is the term used in Australia for a SIB. LOCATION City, State/Region, Nation (in the case of the U.K.) COUNTRY Country START DATE (DATE OF CONTRACT SIGNING) Date of principal contract signing (there are many contracts) CONTRACT DURATION Duration of the contract with the outcome funder, not necessarily equivalent to the duration of service provision. SOCIAL ISSUE Broad definition of the social issue the intervention addresses within the target population TARGET POPULATION Number of beneficiaries and qualifications for the program. The beneficiaries may all participate over the entire course of the program or participate for shorter periods staggered throughout the project duration. INTERVENTION A description of the intervention. For the 8 programs working with children in or at risk of entering state out- of-home care, there are a few definitions worth noting. Out-of-home care applies to all care provided through the state due to an unsafe family environment for the child or a parent voluntarily surrendering their child. Residential care and foster care are two types of out-of-home care. SERVICE PROVIDER The Service Provider provides the intervention. OUTCOME FUNDER The Outcome Funder provides outcome payments based on the metric below. The Outcome Funder is also referred to as the commissioner. The structure of outcome funds vary across deals: in some cases it is provided up front, in others it is in escrow, and in others it is appropriated. INTERMEDIARY (ROLES IN PARENTHESES) The Intermediary is any actor the deal participants view as an Intermediary. Generally this is any party that facilitates activities between the other parties. The roles played by this actor are specified in parentheses. In addition, a Special Purpose Vehicles (SPV) is often established as a conduit for funds between parties; these are noted here. TECHNICAL ASSISTANCE PROVIDER The Technical Assistance Provider is any actor the deal participants view as a Technical Assistance Provider. The type of support is specified. Many of the other parties also provide technical assistance and this category often overlaps with the intermediary category. The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 55 UPFRONT CAPITAL COMMITMENT (USDM)* This is a sum of Non-Recoverable Grants, Recoverable Grants and Investment Guarantees, Senior Investment and Subordinate Investment. This number is not comparable across deals as some deals recycle outcome payments year to year to fund service provision. The costs covered by this investment and the draw-down schedules also differ across deals. NON- RECOVERABLE GRANTS These are grants or commitments provided by non-Outcome Funder actors to fund the intervention, which the grantor has no opportunity to recover or recycle. The grants included are not perfectly comparable across deals as the interventions may benefit from different forms of support from other government programs or organizations. Pro bono legal, intermediary and technical assistance services have not been included here, though they have been included as a form of subordinate investment if fees were deferred and the provider stands to earn success payments. Senior Investors Subordinate Investors Recoverable Grants and Investment Guarantees INVESTOR NAME Investors with the highest priority for re- payment This category is added in 7 deals. Investors with a lower repayment priority than senior investors This category is added in 4 deals. Re- coverable Grants include grants that stay with the intermediary and are recycled into future programming. Investment Guarantees include first loss guarantees that are paid to investors in outcomes are not achieved and are recycled into future programs if not used. INVESTMENT (USDM)* Provided in millions of U.S. dollars. Local currency in parentheses. MAXIMUM POTENTIAL LOSS (% OF PRINCIPAL) Percentage of principal that investors stand to lose in a worst case scenario OUTCOME METRIC The outcome metric used to determine pa yments from the outcome funder. OUTCOME EVALUATION METHOD [EVALUATOR IN BRACKETS] The methods include Validated administrative data (no comparison used), Historical comparison, Quasi-experi- mental (matched control group), and Randomized Control Trial (RCT). Validated administrative data may be used in any of the other three evaluations. Other parallel evaluations or process evaluations are noted here. PAYMENT SCHEDULE The number and frequency of payments from the outcome funder to the intermediary, SPV, or service provider and the number and frequency of payments to investors, if different. THRESHOLD FOR PAYMENTS FROM THE OUTCOME FUNDER This is a threshold in the metric that must be met for payments from the outcome funder to begin. This applies to payments to the investor where specified. If a portion of the investors’ principal is protected, there is no threshold for them to receive this payment. PAYMENTS BEYOND THRESHOLD This describes the determinants and values of payments from the outcome funder and payments to the inves- tors beyond the threshold specified above. MAXIMUM RETURN Average annual return, Internal Rate of Return (IRR) or maximum payments from the outcome funder. *Using exchange rate from month of contract signing Columns are joined where information is the same The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 56 Active SIBs as of March 1, 2015 PROGRAM NAME ONE Service Triodos New Horizons ThinkForward Links 4 Life Programme Advance Programme Nottingham Futures Living Balance T&T Innovation 3SC Capitalise Programme Energise Innovation Prevista Street Impact Thames Reach Ace Essex Family Therapy It’s All About Me (IAAM) Local Solutions Your Chance Home Group Fusion Housing Ambition East Midlands Aspire Gloucestershire Rewriting Futures Manchester City Council Vulnerable Children Outcomes for Children Birmingham NYC ABLE Project for Incarcerated Youth Utah High Quality Preschool Program Increasing Employment and Improving Public Safety Juvenile Justice Pay for Success Initiative Child-Parent Center Pay for Success Initiative Partnering for Family Success Program Chronic Individual Homelessness Pay for Success Initiative Newpin Social Benefit Bond Benevolent Society Social Benefit Bond Social Impact Bond Rotterdam Eleven Augsberg Duo for a Job Sweet Dreams Supported Living Project Junior Code Academy Source: Authors’ research. SECTOR Criminal Justice Employment Employment Employment Employment Employment Employment Employment Employment Employment Employment Social Welfare Social Welfare Social Welfare Social Welfare Social Welfare Social Welfare Social Welfare Social Welfare Social Welfare Social Welfare Social Welfare Social Welfare Social Welfare Criminal Justice Education Criminal Justice Criminal Justice Education Social Welfare Social Welfare Social Welfare Social Welfare Employment Employment Employment Social Welfare Education COUNTRY United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United States United States United States United States United States United States United States Australia Australia The Netherlands Germany Belgium Canada Portugal YEAR OF CONTRACT SIGNING PAGE 2010 58 2012 60 2012 62 2012 64 2012 66 2012 68 2012 70 2012 72 2012 74 2012 76 2012 78 2012 80 2012 82 2012 84 2013 86 2014 88 2014 90 2014 92 2014 94 2014 96 2014 98 2014 100 2014 102 2014 104 2013 106 2013 108 2013 110 2014 112 2014 114 2014 115 2014 117 2013 119 2013 121 2013 123 2013 124 2014 125 2014 126 2015 128 The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 57 U.K. SIB Fact Sheets SIB FUND NAME Innovation Fund (Round 1) SIB NAME ONE Service LOCATION Peterborough, East of England COUNTRY United Kingdom START DATE (date of contract signing) March 2010 CONTRACT DURATION** 96 months SOCIAL ISSUE Prison recidivism TARGET POPULATION 3,000 short-term (sentences of less than 12 months) male prisoners aged 18 and older released from Peterborough Prison. INTERVENTION A package of intensive support services (called ONE Service) including housing assistance, drug and alcohol treatment, employment assistance, parenting assistance, and mental health support. SERVICE PROVIDER Services are organized by the special- purpose entity ONE Service. Direct service providers are St. Giles Trust, Ormiston Children and Families Trust, SOVA, YMCA, Through the Gate Training CIC, Peterborough and Fenland Mind (Mind) OUTCOME FUNDER U.K. Ministry of Justice and the Big Lottery Fund INTERMEDIARY (roles in parentheses) Social Finance UK TECHNICAL ASSISTANCE PROVIDER N/A UPFRONT CAPITAL COMMITMENT (USDM)* 7.61 NON- RECOVERABLE GRANTS N/A Senior Investors INVESTOR NAME Barrow Cadbury Charitable Trust, Esmée Fairbairn Foundation, Friends Provident Foundation, the Henry Smith Charity, the Johansson Family Foundation, the Lankelly Chase Foundation, the Monument Trust, Panahpur Charitable Trust, the Paul Hamlyn Foundation and the Tudor Trust INVESTMENT (USDM)* 7.61 (£5 million) (total investment raised) MAXIMUM POTENTIAL LOSS (% of principal) 100% OUTCOME METRIC Reduction in the re-offending rate compared to the average of a control group of matched offenders over the 12 months following release from the Peterborough Prison. OUTCOME EVALUATION METHOD [Evaluator in brackets] “Quasi-experimental (matched control group) [QinetiQ and the University of Leicester were selected by the Ministry of Justice to evaluate Cohort 1]” PAYMENT SCHEDULE There is a potential for payment from the outcome funder to the investors for each of the three cohorts. The timing of each payment is based on the length of each cohort and the evaluation process. THRESHOLD FOR PAYMENTS FROM THE OUTCOME FUNDER Reduction in re-offending by 10% for any of the three cohorts of 1,000 ex-prisoners, or 7.5% across all 3,000. The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 58 PAYMENTS BEYOND THRESHOLD Payment is made per re-conviction event reduced, up to a cap. MAXIMUM RETURN Payments are capped at £8 million. This is equivalent to an annual IRR of approximately 13%. *Using exchange rate from month of contract signing **See section 3.7 of the study for a discussion of the reduction in duration of this SIB The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 59 SIB FUND NAME Innovation Fund (Round 1) SIB NAME Triodos New Horizons LOCATION Greater Merseyside, North West England, England COUNTRY United Kingdom START DATE (date of contract signing) April 2012 CONTRACT DURATION** 36 months SOCIAL ISSUE Unemployment TARGET POPULATION 3,900 disadvantaged 14- to19-year-olds across Greater Merseyside INTERVENTION Triodos’ “New Horizons” program: coaches deliver structured “Mental Toughness” courses and specialized vocational support SERVICE PROVIDER Greater Merseyside Connexions Partnership OUTCOME FUNDER U.K. Department for Work and Pensions Innovation Fund INTERMEDIARY (roles in parentheses) Triodos Bank UK TECHNICAL ASSISTANCE PROVIDER N/A UPFRONT CAPITAL COMMITMENT (USDM)* Approximately 2.4 NON- RECOVERABLE GRANTS N/A Senior Investors INVESTOR NAME Bridges Ventures,** Big Society Capital, The Esmee Fairbairn Foundation, Charities Aid Foundation, Knowsley Housing Trust, Helena Partnerships, Liverpool Mutual Homes and Wirral Partnership Homes INVESTMENT (USDM)* Approximately 2.4 (Approximately £1.5 million) MAXIMUM POTENTIAL LOSS (% of principal) 100% OUTCOME METRIC See payments below OUTCOME EVALUATION METHOD [Evaluator in brackets] Validated administrative data [The Department for Work and Pensions is checking the outcomes data for payments.] The National Centre for Social Research and Insite Research and Consulting will conduct a qualitative evaluation of the program at the end of the contract. PAYMENT SCHEDULE Up to 42 monthly payments made by outcome funder. Repayments to investors as and when approved by project leadership. THRESHOLD FOR PAYMENTS FROM THE OUTCOME FUNDER Achievement of the metrics below The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 60 PAYMENTS BEYOND THRESHOLD The Department for Work and Pensions pays for one or more outcomes per participant (with a cap of £8,200 per participant) which can be linked to improved employability. Each type of outcome can be claimed only once. Amounts shown in £ are the maximum payments established by commissioner, but bidders to the Innovation Fund were invited to bid to deliver the project for less than these maximum payments. The level of bid discount was factored into the bid scoring mechanism to decide which bidders were awarded contracts. Improvements at school: • Improved behavior at school (£800): measured by a letter from a teacher with reference to the standards in Section 91 of the U.K. Education and Inspection Act 2006. • Stop persistent truancy (£1,300): confirmed by the school when persistent truancy stopped to the point where attendance levels have improved to that associated with the average student. Qualifications: • Achievement of First National Qualifications Framework (NQF) Level 1 qualification (£700): evidenced by letter of school or copy of certificate. • Achievement of NQF Level 2 qualification (£2,200): evidenced by letter of school or copy of certificate. • Achievement NQL Level 3 training/ vocational qualifications (£3,300): as previous • Entry into education at NQF level 4 [University] (£2,000): evidenced by letter from University. Employment: • Entry into first employment including a training element (£2,600): evidenced by letter from employer confirming the young person had worked 16 hours or more per week for a minimum 13 continuous or cumulative weeks. • Entry into sustained employment (£1,000): as previous, but minimum 26 continuous or cumulative weeks. Outcome payments are initially recycled to continue service delivery, before being repaid to investors. MAXIMUM RETURN Each type of outcome can only be claimed once, and the total value of outcome payments claimable for support provided to an individual participant is limited to £8,200 for participants in Round 1 of the Innovation Fund. The maximum value of the contract (the maximum that the Department for Work and Pensions is willing to pay in outcome payments) is £4.5 million. The service provider may also receive a performance bonus, contingent on outcomes. *Using exchange rate from month of contract signing **Bridges Ventures’ Social Entrepreneurs Fund (participants not publicly available) ***The service delivery contract is for 36 months, the outcome payment contract is for 42 months The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 61 SIB FUND NAME Innovation Fund (Round 1) SIB NAME ThinkForward LOCATION Tower Hamlets, Islington, and Hackney, Greater London, England COUNTRY United Kingdom START DATE (date of contract signing) April 2012 CONTRACT DURATION** 36 months SOCIAL ISSUE Unemployment TARGET POPULATION 1,050 vulnerable 14- to 18-years-old identified by the 11 participating schools in East London as being the 20% most at risk of becoming not in education, employment or training (NEET). INTERVENTION ThinkForward program intervenes early to ensure that young people who are at risk of underperforming at school get the support they need to make a successful transition from school to higher education or sustained work. Think Forward placed ten coaches in ten schools, who coordinated a panel to identify at risk 14-year- olds (assessing referrals from the schools) and provide them with long-term, personalized support to build the employability skills and confidence so they can overcome challenges in and out school. SERVICE PROVIDER Tomorrow’s People OUTCOME FUNDER U.K. Department for Work and Pensions Innovation Fund INTERMEDIARY (roles in parentheses) ThinkForward, a non-profit organization created by Impetus-Private Equity Foundation (Impetus-PEF) (structuring the SIB, raising funds, performance management, contract arrangements, and relationship management of investors, outcome funder, and service provider) TECHNICAL ASSISTANCE PROVIDER N/A UPFRONT CAPITAL COMMITMENT (USDM)* 1.4 NON- RECOVERABLE GRANTS N/A Senior Investors INVESTOR NAME Big Society Capital and Impetus-PEF INVESTMENT (USDM)* 1.4 (£0.45 million each investor) MAXIMUM POTENTIAL LOSS (% of principal) 100% OUTCOME METRIC See payments below OUTCOME EVALUATION METHOD [Evaluator in brackets] Validated administrative data [The Department for Work and Pensions is checking the outcomes data for payments.] The National Centre for Social Research and Insite Research and Consulting will conduct a qualitative evaluation of the program at the end of the contract. PAYMENT SCHEDULE Up to 42 monthly payments made by outcome funder. Repayments to investors as and when approved by project leadership. THRESHOLD FOR PAYMENTS FROM THE OUTCOME FUNDER Achievement of the metrics below The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 62 PAYMENTS BEYOND THRESHOLD The Department for Work and Pensions pays for one or more outcomes per participant (with a cap of £8,200 per participant) which can be linked to improved employability. Each type of outcome can be claimed only once. Amounts shown in £ are the maximum payments established by commissioner, but bidders to the Innovation Fund were invited to bid to deliver the project for less than these maximum payments. The level of bid discount was factored into the bid scoring mechanism to decide which bidders were awarded contracts. Improvements at school: • Improved behavior at school (£800): measured by a letter from a teacher with reference to the standards in Section 91 of the U.K. Education and Inspection Act 2006. • Stop persistent truancy (£1,300): confirmed by the school when persistent truancy stopped to the point where attendance levels have improved to that associated with the average student. Qualifications: • Achievement of First National Qualifications Framework (NQF) Level 1 qualification (£700): evidenced by letter of school or copy of certificate. • Achievement of NQF Level 2 qualification (£2,200): evidenced by letter of school or copy of certificate. • Achievement NQL Level 3 training/ vocational qualifications (£3,300): as previous • Entry into education at NQF level 4 [University] (£2000): evidenced by letter from University. Employment: • Entry into first employment including a training element (£2,600): evidenced by letter from employer confirming the young person had worked 16 hours or more per week for a minimum 13 continuous or cumulative weeks. • Entry into sustained employment (£1,000): as previous, but minimum 26 continuous or cumulative weeks. Outcome payments are initially recycled to continue service delivery, before being repaid to investors. MAXIMUM RETURN Each type of outcome can only be claimed once, and the total value of outcome payments claimable for support provided to an individual participant is limited to £8,200 for participants in Round 1 of the Innovation Fund. The maximum value of the contract (the maximum that the Department for Work and Pensions is willing to pay in outcome payments) is £3.17 million. *Using exchange rate from month of contract signing **The service delivery contract is for 36 months, the outcome payment contract is for 42 months The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 63 SIB FUND NAME Innovation Fund (Round 1) SIB NAME Links 4 Life Programme LOCATION Stratford, Canning Town, Royal Docks and Cathall, Greater London, England COUNTRY United Kingdom START DATE (date of contract signing) April 2012 CONTRACT DURATION*** 36 months SOCIAL ISSUE Unemployment TARGET POPULATION 740 disadvantaged 14- to 19-year-olds in east London identified by a range of referral organizations (e.g., schools, JCP, YOTs, Newham leaving care team, East Thames Foyer projects) as not in education, employment or training (NEET) or pre-NEET. INTERVENTION Links4Life program, which offers one-on-one mentoring in school work, mental health, substance abuse, family issues, housing, and legal offenses. Each young person will have a key relationship with one of 6 full time link workers, assigned to them on the basis of the most appropriate support identified. The link workers will be experienced youth workers with an individual specialism (drug/substance abuse, mental health, housing, family support, educational welfare and youth justice). Once a person is in EET, their link worker will provide an aftercare service for up to one year and on-going support to help sustain their successful transition. SERVICE PROVIDER Community Links OUTCOME FUNDER U.K. Department for Work and Pensions Innovation Fund INTERMEDIARY (roles in parentheses) Stratford Development Partnership TECHNICAL ASSISTANCE PROVIDER N/A UPFRONT CAPITAL COMMITMENT (USDM)* 0.444 NON- RECOVERABLE GRANTS N/A Senior Investors INVESTOR NAME Bridge Ventures**, Stratford Development Partnerships N/A INVESTMENT (USDM)* 0.444 (£0.37 million) MAXIMUM POTENTIAL LOSS (% of principal) 100% OUTCOME METRIC See payments below OUTCOME EVALUATION METHOD [Evaluator in brackets] Validated administrative data [The Department for Work and Pensions is checking the outcomes data for payments.] The National Centre for Social Research and Insite Research and Consulting will conduct a qualitative evaluation of the program at the end of the contract. PAYMENT SCHEDULE Up to 42 monthly payments made by outcome funder. Repayments to investors as and when approved by project leadership. THRESHOLD FOR PAYMENTS FROM THE OUTCOME FUNDER Achievement of the metrics below The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 64 PAYMENTS BEYOND THRESHOLD The Department for Work and Pensions pays for one or more outcomes per participant (with a cap of £8,200 per participant) which can be linked to improved employability. Each type of outcome can be claimed only once. Amounts shown in £ are the maximum payments established by commissioner, but bidders to the Innovation Fund were invited to bid to deliver the project for less than these maximum payments. The level of bid discount was factored into the bid scoring mechanism to decide which bidders were awarded contracts. Improvements at school: • Improved behavior at school (£800): measured by a letter from a teacher with reference to the standards in Section 91 of the U.K. Education and Inspection Act 2006. • Stop persistent truancy (£1,300): confirmed by the school when persistent truancy stopped to the point where attendance levels have improved to that associated with the average student. Qualifications: • Achievement of First National Qualifications Framework (NQF) Level 1 qualification (£700): evidenced by letter of school or copy of certificate. • Achievement of NQF Level 2 qualification (£2,200): evidenced by letter of school or copy of certificate. • Achievement NQL Level 3 training/ vocational qualifications (£3,300): as previous • Entry into education at NQF level 4 [University] (£2,000): evidenced by letter from University. Employment: • Entry into first employment including a training element (£2,600): evidenced by letter from employer confirming the young person had worked 16 hours or more per week for a minimum 13 continuous or cumulative weeks. • Entry into sustained employment (£1,000): as previous, but minimum 26 continuous or cumulative weeks. Outcome payments are initially recycled to continue service delivery, before being repaid to investors. MAXIMUM RETURN Each type of outcome can only be claimed once, and the total value of outcome payments claimable for support provided to an individual participant is limited to £8,200 for participants in Round 1 of the Innovation Fund. The maximum value of the contract (the maximum that the Department for Work and Pensions is willing to pay in outcome payments) is £1.3 million. The service provider may also receive a performance bonus, contingent on outcomes. *Using exchange rate from month of contract signing **Bridges Ventures’ Social Entrepreneurs Fund (participants not publicly available) ***The service delivery contract is for 36 months, the outcome payment contract is for 42 months The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 65 SIB FUND NAME Innovation Fund (Round 1) SIB NAME Advance Programme LOCATION Birmingham and Solihull, West Midlands, England COUNTRY United Kingdom START DATE (date of contract signing) April 2012 CONTRACT DURATION** 36 months SOCIAL ISSUE Unemployment TARGET POPULATION 2,897 beneficiaries aged 14- to 24 year-olds who are not in education, employment or training (NEET) or at risk of becoming NEET INTERVENTION An integrated support program that aims to improve school attendance and performance, in order to promote participation in apprenticeships and employment called the “Advance Programme.” Young people are referred by schools, Connexions, Youth Offending Services and a range of other services. The young person will be initially assessed to identify learning needs and establish goals. A project worker will then help develop an action plan, which will be used to communicate and monitor progress with delivery staff. SERVICE PROVIDER 11 non-profit organizations as part of the Birmingham Employment, Skills and Training Network (BEST Network) OUTCOME FUNDER U.K. Department for Work and Pensions Innovation Fund INTERMEDIARY (roles in parentheses) Advanced Personnel Management (APM) UK Ltd. (prime contractor of service providers) TECHNICAL ASSISTANCE PROVIDER N/A UPFRONT CAPITAL COMMITMENT (USDM)* 4.80 NON- RECOVERABLE GRANTS N/A Senior Investors INVESTOR NAME APM UK Ltd INVESTMENT (USDM)* 4.80 (£3 million) MAXIMUM POTENTIAL LOSS (% of principal) 100% OUTCOME METRIC See payments below OUTCOME EVALUATION METHOD [Evaluator in brackets] Validated administrative data [The Department for Work and Pensions is checking the outcomes data for payments.] The National Centre for Social Research and Insite Research and Consulting will conduct a qualitative evaluation of the program at the end of the contract. PAYMENT SCHEDULE Up to 42 monthly payments made by outcome funder. Repayments to investors as and when approved by project leadership. THRESHOLD FOR PAYMENTS FROM THE OUTCOME FUNDER Achievement of the metrics below The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 66 PAYMENTS BEYOND THRESHOLD The Department for Work and Pensions pays for one or more outcomes per participant (with a cap of £8,200 per participant) which can be linked to improved employability. Each type of outcome can be claimed only once. Amounts shown in £ are the maximum payments established by commissioner, but bidders to the Innovation Fund were invited to bid to deliver the project for less than these maximum payments. The level of bid discount was factored into the bid scoring mechanism to decide which bidders were awarded contracts. Improvements at school: • Improved behavior at school (£800): measured by a letter from a teacher with reference to the standards in Section 91 of the U.K. Education and Inspection Act 2006. • Stop persistent truancy (£1,300): confirmed by the school when persistent truancy stopped to the point where attendance levels have improved to that associated with the average student. Qualifications: • Achievement of First National Qualifications Framework (NQF) Level 1 qualification (£700): evidenced by letter of school or copy of certificate. • Achievement of NQF Level 2 qualification (£2,200): evidenced by letter of school or copy of certificate. • Achievement NQL Level 3 training/ vocational qualifications (£3,300): as previous • Entry into education at NQF level 4 [University] (£2,000): evidenced by letter from University. Employment: • Entry into first employment including a training element (£2600): evidenced by letter from employer confirming the young person had worked 16 hours or more per week for a minimum 13 continuous or cumulative weeks. • Entry into sustained employment (£1,000): as previous, but minimum 26 continuous or cumulative weeks. Outcome payments are initially recycled to continue service delivery, before being repaid to investors. MAXIMUM RETURN Each type of outcome can only be claimed once, and the total value of outcome payments claimable for support provided to an individual participant is limited to £8,200 for participants in Round 1 of the Innovation Fund. The maximum value of the contract (the maximum that the Department for Work and Pensions is willing to pay in outcome payments) is £3.3 million. *Using exchange rate from month of contract signing **The service delivery contract is for 36 months, the outcome payment contract is for 42 months The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 67 SIB FUND NAME Innovation Fund (Round 1) SIB NAME Nottingham Futures LOCATION Nottingham, East Midlands, England COUNTRY United Kingdom START DATE (date of contract signing) April 2012 CONTRACT DURATION** 36 months SOCIAL ISSUE Unemployment TARGET POPULATION Over 3,000 16- to 24-year-old Nottingham residents who are either not in employment, education or training (NEET) or whose status is not known INTERVENTION Jobs and skills advice, training , apprenticeships, and support for young people who need help preparing for work or training. SERVICE PROVIDER Nottingham Futures (a nonprofit owned by Nottingham City and County Councils). The Employer Hub delivers a coordinated, personalized training and recruitment service and works in partnership with Nottingham Futures. OUTCOME FUNDER U.K. Department for Work and Pensions Innovation Fund INTERMEDIARY (roles in parentheses) Nottingham City Council (making the bid, managing the deal, performance management of service providers) TECHNICAL ASSISTANCE PROVIDER N/A UPFRONT CAPITAL COMMITMENT (USDM)* Approximately 2.72 NON- RECOVERABLE GRANTS N/A Senior Investors INVESTOR NAME Nottingham City Council (The City Council is funding the service and receives payments) INVESTMENT (USDM)* Approximately 2.72 (Approximately £1.7m) MAXIMUM POTENTIAL LOSS (% of principal) 100% OUTCOME METRIC See payments below OUTCOME EVALUATION METHOD [Evaluator in brackets] Validated administrative data [The Department for Work and Pensions is checking the outcomes data for payments.] The National Centre for Social Research and Insite Research and Consulting will conduct a qualitative evaluation of the program at the end of the contract. PAYMENT SCHEDULE Up to 42 monthly payments made by outcome funder. Repayments to investors as and when approved by project leadership. THRESHOLD FOR PAYMENTS FROM THE OUTCOME FUNDER Achievement of the metrics below The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 68 PAYMENTS BEYOND THRESHOLD The Department for Work and Pensions pays for one or more outcomes per participant (with a cap of £8,200 per participant) which can be linked to improved employability. Each type of outcome can be claimed only once. Amounts shown in £ are the maximum payments established by commissioner, but bidders to the Innovation Fund were invited to bid to deliver the project for less than these maximum payments. The level of bid discount was factored into the bid scoring mechanism to decide which bidders were awarded contracts. Improvements at school: • Improved behavior at school (£800): measured by a letter from a teacher with reference to the standards in Section 91 of the U.K. Education and Inspection Act 2006. • Stop persistent truancy (£1,300): confirmed by the school when persistent truancy stopped to the point where attendance levels have improved to that associated with the average student. Qualifications: • Achievement of First National Qualifications Framework (NQF) Level 1 qualification (£700): evidenced by letter of school or copy of certificate. • Achievement of NQF Level 2 qualification (£2,200): evidenced by letter of school or copy of certificate. • Achievement NQL Level 3 training/ vocational qualifications (£3,300): as previous • Entry into education at NQF level 4 [University] (£2,000): evidenced by letter from University. Employment: • Entry into first employment including a training element (£2,600): evidenced by letter from employer confirming the young person had worked 16 hours or more per week for a minimum 13 continuous or cumulative weeks. • Entry into sustained employment (£1,000): as previous, but minimum 26 continuous or cumulative weeks. Outcome payments are initially recycled to continue service delivery, before being repaid to investors. MAXIMUM RETURN Each type of outcome can only be claimed once, and the total value of outcome payments claimable for support provided to an individual participant is limited to £8,200 for participants in Round 1 of the Innovation Fund. The maximum value of the contract (the maximum that the Department for Work and Pensions is willing to pay in outcome payments) is GBP £2,854,000. The total amount paid out since 2012 is £2,445,750. *Using exchange rate from month of contract signing **The service delivery contract is for 36 months, the outcome payment contract is for 42 months The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 69 SIB FUND NAME Innovation Fund (Round 1) SIB NAME Living Balance LOCATION Perth and Kinross, Mid Scotland and Fife, Scotland COUNTRY United Kingdom START DATE (date of contract signing) April 2012 CONTRACT DURATION** 36 months SOCIAL ISSUE Unemployment TARGET POPULATION 90 young disengaged school pupils ages 14 to 17 , 60 pupils ages 16 to 17 are currently not in education, training or employment (NEET), and 150 young people ages 18 to 24 who are NEET. INTERVENTION Living Balance program: up to 6 months of intensive personal and social development for up to 25 hours a week, including motivating and engaging projects that aim to lift aspiration and self-esteem SERVICE PROVIDER YMCA Perth OUTCOME FUNDER U.K. Department for Work and Pensions Innovation Fund INTERMEDIARY (roles in parentheses) Indigo Project Solutions (preparing all documentation for submission to make the case for the award of contract from Department for Works and Pensions (DWP), raising the capital and managing the investor relationship, providing performance management support to the delivery partner, marketing the SIB including organizing regular awareness raising events, responding to all DWP queries and meeting with them regularly, making all claims for outcomes delivered to DWP, undertaking security and data protection) TECHNICAL ASSISTANCE PROVIDER N/A UPFRONT CAPITAL COMMITMENT (USDM)* Not publicly available NON- RECOVERABLE GRANTS N/A Senior Investors INVESTOR NAME 12 businesses, individuals, a Church, and a funding body (investment raised by Indigo) INVESTMENT (USDM)* Not public information MAXIMUM POTENTIAL LOSS (% of principal) 100% OUTCOME METRIC See payments below OUTCOME EVALUATION METHOD [Evaluator in brackets] Validated administrative data [The Department for Work and Pensions is checking the outcomes data for payments.] The National Centre for Social Research and Insite Research and Consulting will conduct a qualitative evaluation of the program at the end of the contract. PAYMENT SCHEDULE Up to 42 monthly payments made by outcome funder. Repayments to investors as and when approved by project leadership. The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 70 THRESHOLD FOR PAYMENTS FROM THE OUTCOME FUNDER Achievement of the metrics below PAYMENTS BEYOND THRESHOLD The Department for Work and Pensions pays for one or more outcomes per participant (with a cap of £8,200 per participant) which can be linked to improved employability. Each type of outcome can be claimed only once. Amounts shown in £ are the maximum payments established by commissioner, but bidders to the Innovation Fund were invited to bid to deliver the project for less than these maximum payments. The level of bid discount was factored into the bid scoring mechanism to decide which bidders were awarded contracts. Improvements at school: • Improved behavior at school (£800): measured by a letter from a teacher with reference to the standards in Section 91 of the U.K. Education and Inspection Act 2006. • Stop persistent truancy (£1,300): confirmed by the school when persistent truancy stopped to the point where attendance levels have improved to that associated with the average student. Qualifications: • Achievement of First National Qualifications Framework (NQF) Level 1 qualification (£700): evidenced by letter of school or copy of certificate. • Achievement of NQF Level 2 qualification (£2,200): evidenced by letter of school or copy of certificate. • Achievement NQL Level 3 training/ vocational qualifications (£3,300): as previous • Entry into education at NQF level 4 [University] (£2000): evidenced by letter from University. Employment: • Entry into first employment including a training element (£2,600): evidenced by letter from employer confirming the young person had worked 16 hours or more per week for a minimum 13 continuous or cumulative weeks. • Entry into sustained employment (£1,000): as previous, but minimum 26 continuous or cumulative weeks. Outcome payments are initially recycled to continue service delivery, before being repaid to investors. MAXIMUM RETURN Each type of outcome can only be claimed once, and the total value of outcome payments claimable for support provided to an individual participant is limited to £8,200 for participants in Round 1 of the Innovation Fund. The maximum value of the contract (the maximum that the Department for Work and Pensions is willing to pay in outcome payments) is £1.2 million. *Using exchange rate from month of contract signing **The service delivery contract is for 36 months, the outcome payment contract is for 42 months The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 71 SIB FUND NAME Innovation Fund (Round 2) SIB NAME T&T Innovation LOCATION Greater Manchester, North West England, England COUNTRY United Kingdom START DATE (date of contract signing) November 2012 CONTRACT DURATION*** 36 months SOCIAL ISSUE Unemployment TARGET POPULATION A minimum of 1,152 disadvantaged 14- to 15-year-olds adolescents across Manchester INTERVENTION Teens and Toddlers Innovation program, which partners a 14- to 15-year-old with a toddler in a local nursery to encourage responsibility, empathy and self-confidence for an intensive 18 week period. This is followed by ongoing monthly support sessions until young people take their GCSE exams. SERVICE PROVIDER Teens and Toddlers OUTCOME FUNDER U.K. Department for Work and Pensions Innovation Fund INTERMEDIARY (roles in parentheses) Social Finance UK (including capital raising, mobilization, and ongoing contract and performance management) TECHNICAL ASSISTANCE PROVIDER N/A UPFRONT CAPITAL COMMITMENT (USDM)* 1.28 NON- RECOVERABLE GRANTS N/A Senior Investors INVESTOR NAME Bridges Ventures**, Impetus - PEF, The Esmee Fairbairn Foundation, CAF Venturesome, The Barrow-Cadbury Trust INVESTMENT (USDM)* 1.28 (£0.8 million) (total investment raised) MAXIMUM POTENTIAL LOSS (% of principal) 100% OUTCOME METRIC See payments below OUTCOME EVALUATION METHOD [Evaluator in brackets] Validated administrative data [The Department for Work and Pensions is checking the outcomes data for payments.] The National Centre for Social Research and Insite Research and Consulting will conduct a qualitative evaluation of the program at the end of the contract. PAYMENT SCHEDULE Up to 42 monthly payments made by outcome funder. Repayments to investors as and when approved by project leadership. THRESHOLD FOR PAYMENTS FROM THE OUTCOME FUNDER Achievement of the metrics below The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 72 PAYMENTS BEYOND THRESHOLD The Department for Work and Pensions pays for one or more outcomes per participant (with a cap of £11,700 per participant) which can be linked to improved employability. Each type of outcome can be claimed only once. Amounts shown in £ are the maximum payments established by commissioner, but bidders to the Innovation Fund were invited to bid to deliver the project for less than these maximum payments. The level of bid discount was factored into the bid scoring mechanism to decide which bidders were awarded contracts. Improvements at school: • Improved attitude towards school (£700): measured by a letter from the teacher • Improved behavior at school (£1,300): measured by a letter from a teacher with reference to the standards in Section 91 of the U.K. Education and Inspection Act 2006. • Stop persistent truancy (£1,400): confirmed by the school when persistent truancy stopped to the point where attendance levels have improved to that associated with the average student. Qualifications: • Entry Level Qualification (£900) • Achievement of First National Qualifications Framework (NQF) Level 1 qualification (£1,100): evidenced by letter of school or copy of certificate. • Achievement of NQF Level 2 qualification (£3,300): evidenced by letter of school or copy of certificate. • Achievement NQL Level 3 training/ vocational qualifications (£5,100): as previous Employment: • Entry into first employment including a training element (£3,500): evidenced by letter from employer confirming the young person had worked 16 hours or more per week for a minimum 13 continuous or cumulative weeks. • Entry into sustained employment (£2,000): as previous, but minimum 26 continuous or cumulative weeks. Outcome payments are initially recycled to continue service delivery, before being repaid to investors. MAXIMUM RETURN Each type of outcome can only be claimed once, and the total value of outcome payments claimable for support provided to an individual participant is limited to £11,700 for participants in Round 2 of the Innovation Fund. The maximum value of the contract (the maximum that the Department for Works and Pensions is willing to pay in outcome payments) is £3.3 million. The service provider may also receive a performance bonus, contingent on outcomes. *Using exchange rate from month of contract signing **Bridges Ventures’ Social Impact Bond Fund and Social Entrepreneurs Fund (contributors to both funds include Big Society Capital, the European Invest- ment Fund, Deutche Bank Social Investments, J.P. Morgan Social Finance, Bridges Charitable Trust, The Prince’s Charities, Omidyar Network, Panahpur, Esmee Fairbairn Foundation, Highwood Foundation, the U.K. Cabinet Office, Nesta, Trust for London, Greater Manchester Pension Fund, Merseyside Pension Fund) ***The service delivery contract is for 36 months, the outcome payment contract is for 42 months The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 73 SIB FUND NAME Innovation Fund (Round 2) SIB NAME 3SC Capitalise Programme LOCATION Cardiff and Newport, South Wales, Wales COUNTRY United Kingdom START DATE (date of contract signing) November 2012 CONTRACT DURATION** 36 months SOCIAL ISSUE Unemployment TARGET POPULATION 720 youth aged 14 to 16 who are on course to become NEET (not in education, employment or training) or have the potential to earn higher educational qualifications with cognitive behavior and/or learning support. INTERVENTION 3SC Capitalise program: a program of specialized individual cognitive behavior and additional learning support (Cognitive Behavior will be provided by Include and additional support by Dyslexia Action). SERVICE PROVIDER Dyslexia Action and Include (a subsidiary of Catch 22) OUTCOME FUNDER U.K. Department for Work and Pensions Innovation Fund INTERMEDIARY (roles in parentheses) 3SC (working with the service providers to develop the bid, raising capital, performance management) TECHNICAL ASSISTANCE PROVIDER N/A UPFRONT CAPITAL COMMITMENT (USDM)* 0.676 NON- RECOVERABLE GRANTS N/A Senior Investors INVESTOR NAME 3SC and Big Society Capital INVESTMENT (USDM)* 0.676 (£0.42 million approximately. Initial investment by 3SC was approximately £0.28 million and by Big Society Capital was approximately £0.1 million. Big Society Capital has since purchased approximately £0.1 million of 3SC’s share) MAXIMUM POTENTIAL LOSS (% of principal) 100% OUTCOME METRIC See payments below OUTCOME EVALUATION METHOD [Evaluator in brackets] Validated administrative data [The Department for Work and Pensions is checking the outcomes data for payments.] The National Centre for Social Research and Insite Research and Consulting will conduct a qualitative evaluation of the program at the end of the contract. PAYMENT SCHEDULE Up to 42 monthly payments made by outcome funder. Repayments to investors as and when approved by project leadership. THRESHOLD FOR PAYMENTS FROM THE OUTCOME FUNDER Achievement of the metrics below The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 74 PAYMENTS BEYOND THRESHOLD The Department for Work and Pensions pays for one or more outcomes per participant (with a cap of £11,700 per participant) which can be linked to improved employability. Each type of outcome can be claimed only once. Amounts shown in £ are the maximum payments established by commissioner, but bidders to the Innovation Fund were invited to bid to deliver the project for less than these maximum payments. The level of bid discount was factored into the bid scoring mechanism to decide which bidders were awarded contracts. Improvements at school: • Improved attitude towards school (£700): measured by a letter from the teacher • Improved behavior at school (£1,300): measured by a letter from a teacher with reference to the standards in Section 91 of the U.K. Education and Inspection Act 2006. • Stop persistent truancy (£1,400): confirmed by the school when persistent truancy stopped to the point where attendance levels have improved to that associated with the average student. Qualifications: • Entry Level Qualification (£900) • Achievement of First National Qualifications Framework (NQF) Level 1 qualification (£1,100): evidenced by letter of school or copy of certificate. • Achievement of NQF Level 2 qualification (£3,300): evidenced by letter of school or copy of certificate. • Achievement NQL Level 3 training/ vocational qualifications (£5,100): as previous Employment: • Entry into first employment including a training element (£3,500): evidenced by letter from employer confirming the young person had worked 16 hours or more per week for a minimum 13 continuous or cumulative weeks. • Entry into sustained employment (£2,000): as previous, but minimum 26 continuous or cumulative weeks. Outcome payments are initially recycled to continue service delivery, before being repaid to investors. MAXIMUM RETURN Each type of outcome can only be claimed once, and the total value of outcome payments claimable for support provided to an individual participant is limited to £11,700 for participants in Round 2 of the Innovation Fund. The maximum value of the contract (the maximum that the Department for Work and Pensions is willing to pay in outcome payments) is £1.9 million. *Using exchange rate from month of contract signing **The service delivery contract is for 36 months, the outcome payment contract is for 42 months The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 75 SIB FUND NAME Innovation Fund (Round 2) SIB NAME Energise Innovation LOCATION Thames Valley, South East England, England COUNTRY United Kingdom START DATE (date of contract signing) November 2012 CONTRACT DURATION** 36 months SOCIAL ISSUE Unemployment TARGET POPULATION 1,500-2000 14- to 15-year-olds who are disadvantaged or at-risk INTERVENTION Energise Innovation program - intensive Adviser-based support; a bespoke action plan is developed for each young person based on their individual support needs. Advisers can choose from a menu of support options, including one-on-one sessions, group work, residentials, activity days and mentoring. SERVICE PROVIDER Adviza OUTCOME FUNDER U.K. Department for Work and Pensions Innovation Fund INTERMEDIARY (roles in parentheses) Social Finance UK (including capital raising, mobilization, and ongoing contract and performance management) TECHNICAL ASSISTANCE PROVIDER N/A UPFRONT CAPITAL COMMITMENT (USDM)* 1.45 NON- RECOVERABLE GRANTS N/A Senior Investors INVESTOR NAME Big Society Capital, Barrow Cadbury Trust, Esmee Fairbairn Foundation, Bracknell Forest Homes, Berkshire Community Foundation, Buckinghamshire County Council. INVESTMENT (USDM)* 1.45 (£0.9 million) (total investment raised) MAXIMUM POTENTIAL LOSS (% of principal) 100% OUTCOME METRIC See payments below OUTCOME EVALUATION METHOD [Evaluator in brackets] Validated administrative data [The Department for Work and Pensions is checking the outcomes data for payments.] The National Centre for Social Research and Insite Research and Consulting will conduct a qualitative evaluation of the program at the end of the contract. PAYMENT SCHEDULE Up to 42 monthly payments made by outcome funder. Repayments to investors as and when approved by project leadership. THRESHOLD FOR PAYMENTS FROM THE OUTCOME FUNDER Achievement of the metrics below The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 76 PAYMENTS BEYOND THRESHOLD The Department for Work and Pensions pays for one or more outcomes per participant (with a cap of £11,700 per participant) which can be linked to improved employability. Each type of outcome can be claimed only once. Amounts shown in £ are the maximum payments established by commissioner, but bidders to the Innovation Fund were invited to bid to deliver the project for less than these maximum payments. The level of bid discount was factored into the bid scoring mechanism to decide which bidders were awarded contracts. Improvements at school: • Improved attitude towards school (£700): measured by a letter from the teacher • Improved behavior at school (£1,300): measured by a letter from a teacher with reference to the standards in Section 91 of the U.K. Education and Inspection Act 2006. • Stop persistent truancy (£1,400): confirmed by the school when persistent truancy stopped to the point where attendance levels have improved to that associated with the average student. Qualifications: • Entry Level Qualification (£900) • Achievement of First National Qualifications Framework (NQF) Level 1 qualification (£1,100): evidenced by letter of school or copy of certificate. • Achievement of NQF Level 2 qualification (£3,300): evidenced by letter of school or copy of certificate. • Achievement NQL Level 3 training/ vocational qualifications (£5,100): as previous Employment: • Entry into first employment including a training element (£3,500): evidenced by letter from employer confirming the young person had worked 16 hours or more per week for a minimum 13 continuous or cumulative weeks. • Entry into sustained employment (£2,000): as previous, but minimum 26 continuous or cumulative weeks. Outcome payments are initially recycled to continue service delivery, before being repaid to investors. MAXIMUM RETURN Each type of outcome can only be claimed once, and the total value of outcome payments claimable for support provided to an individual participant is limited to £11,700 for participants in Round 2 of the Innovation Fund. The maximum value of the contract (the maximum that the Department for Work and Pensions is willing to pay in outcome payments) is £3.7 million. The service provider may also receive a performance bonus, contingent on outcomes. *Using exchange rate from month of contract signing **The service delivery contract is for 36 months, the outcome payment contract is for 42 months The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 77 SIB FUND NAME Innovation Fund (Round 2) SIB NAME Prevista LOCATION West London, Greater London, England COUNTRY United Kingdom START DATE (date of contract signing) November 2012 CONTRACT DURATION** 36 months SOCIAL ISSUE Unemployment TARGET POPULATION Young people aged 14 to 16, who have been identified as being at risk of being not in education, employment or training (NEET) INTERVENTION Not publicly available SERVICE PROVIDER Catalyst Gateway, Fit for Sport, Twist, Positive Arts, Arrival Education OUTCOME FUNDER U.K. Department for Work and Pensions Innovation Fund INTERMEDIARY (roles in parentheses) Prevista TECHNICAL ASSISTANCE PROVIDER N/A UPFRONT CAPITAL COMMITMENT (USDM)* Not publicly available NON- RECOVERABLE GRANTS N/A Senior Investors INVESTOR NAME Not publicly available INVESTMENT (USDM)* Not publicly available MAXIMUM POTENTIAL LOSS (% of principal) 100% OUTCOME METRIC See payments below OUTCOME EVALUATION METHOD [Evaluator in brackets] Validated administrative data [The Department for Work and Pensions is checking the outcomes data for payments.] The National Centre for Social Research and Insite Research and Consulting will conduct a qualitative evaluation of the program at the end of the contract. PAYMENT SCHEDULE Up to 42 monthly payments made by outcome funder. Repayments to investors as and when approved by project leadership. THRESHOLD FOR PAYMENTS FROM THE OUTCOME FUNDER Achievement of the metrics below The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 78 PAYMENTS BEYOND THRESHOLD The Department for Work and Pensions pays for one or more outcomes per participant (with a cap of £11,700 per participant) which can be linked to improved employability. Each type of outcome can be claimed only once. Amounts shown in £ are the maximum payments established by commissioner, but bidders to the Innovation Fund were invited to bid to deliver the project for less than these maximum payments. The level of bid discount was factored into the bid scoring mechanism to decide which bidders were awarded contracts. Improvements at school: • Improved attitude towards school (£700): measured by a letter from the teacher • Improved behavior at school (£1,300): measured by a letter from a teacher with reference to the standards in Section 91 of the U.K. Education and Inspection Act 2006. • Stop persistent truancy (£1,400): confirmed by the school when persistent truancy stopped to the point where attendance levels have improved to that associated with the average student. Qualifications: • Entry Level Qualification (£900) • Achievement of First National Qualifications Framework (NQF) Level 1 qualification (£1,100): evidenced by letter of school or copy of certificate. • Achievement of NQF Level 2 qualification (£3,300): evidenced by letter of school or copy of certificate. • Achievement NQL Level 3 training/ vocational qualifications (£5,100): as previous Employment: • Entry into first employment including a training element (£3,500): evidenced by letter from employer confirming the young person had worked 16 hours or more per week for a minimum 13 continuous or cumulative weeks. • Entry into sustained employment (£2,000): as previous, but minimum 26 continuous or cumulative weeks. Outcome payments are initially recycled to continue service delivery, before being repaid to investors. MAXIMUM RETURN Each type of outcome can only be claimed once, and the total value of outcome payments claimable for support provided to an individual participant is limited to £11,700 for participants in Round 2 of the Innovation Fund. *Using exchange rate from month of contract signing **The service delivery contract is for 36 months, the outcome payment contract is for 42 months The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 79 SIB NAME Street Impact LOCATION London, Greater London COUNTRY United Kingdom START DATE (date of contract signing) November 2012 CONTRACT DURATION** 36 months SOCIAL ISSUE Homelessness TARGET POPULATION 416 persistent rough sleepers (individuals sleeping without shelter) in London INTERVENTION A program that aims to get people off the streets and into stable accommodation, thereby increasing prospects of employment or training and stabilizing health. Participants have individual intervention plans, personalized budgets, and personal navigators responsible for connecting them with the most appropriate programs for their circumstances. In comparison to existing services, the approach is much more flexible and provides a more focused, longer-term relationship with a single advocate. SERVICE PROVIDER St. Mungo’s Broadway OUTCOME FUNDER U.K. Department for Communities and Local Government, commissioned by the Greater London Authority INTERMEDIARY (roles in parentheses) Triodos Bank UK (advise on structure, raise capital) There is an SPV which holds the risk of program underperformance. TECHNICAL ASSISTANCE PROVIDER N/A UPFRONT CAPITAL COMMITMENT (USDM)* 1.43 NON- RECOVERABLE GRANTS N/A Senior Investors Subordinate Investors INVESTOR NAME CAF Venturesome, the Orp Foundation, and other individuals St. Mungo’s Broadway INVESTMENT (USDM)* 1.05 (£0.65 million) 0.38 (£0.237 million) MAXIMUM POTENTIAL LOSS (% of principal) 100% OUTCOME METRIC Per person administrative data outcomes: • Move to accommodation/sustained over 12 months and 18 months • Move to another country of familial or local connections/sustained over 6 months • Volunteering/National Vocational Qualification (NVQ) level 2 qualification/part-time employment/full-time employment for 13/26 weeks. Comparison to set threshold by government (for the cohort as a whole): • Reduction in use of accident and emergency services • Reduction in rough sleeping (unsheltered sleeping) OUTCOME EVALUATION METHOD [Evaluator in brackets] Historical comparison and validated administrative data [CHAIN, National Health Service Hospital Episode Statistics, other outcomes evidenced by providers and audited by the Greater London Authority] PAYMENT SCHEDULE Outcome payments from the outcome funder are claimed quarterly in arrears; equity investors (St Mungo’s Broadway) are paid at completion whilst external investors (debt) are paid at program completion (before equity), although there is the right for debt holders to early repayment in certain circumstances per the investment agreements The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 80 THRESHOLD FOR PAYMENTS FROM THE OUTCOME FUNDER Any positive change in metric St. Mungo’s Broadway will be paid after the senior investors’ loan is paid back. PAYMENTS BEYOND THRESHOLD The Department for Communities and Local Government pays for one or more outcomes per participant. Each type of outcome can be claimed only once. Amounts shown in £ are the maximum payments established by commissioner, but bidders were invited to bid to deliver the project for less than these maximum payments. The level of bid discount was factored into the bid scoring mechanism to decide which bidders were awarded contracts. Per person administrative data outcomes: • 12 months accommodation (£7,000) • 18 months accommodation (£3,000) • Initial reconnection (move to another country) (£800) • 6 months reconnection (£6,100) • Achievement of NQF level 2 equivalent qualification (£400) • Volunteering/self-employment 13 weeks (£200), 26 weeks (£600) • Part-time employment 13 weeks (£500), 26 weeks (£1,500) • Full-time employment 13 weeks (£1,300), 26 weeks (£4,000) Comparison to set threshold by government (for the cohort as a whole): • Payment per individual above given baseline not seen rough sleeping in given quarter (£3,800 for first four quarters and £2,400 thereafter) • Payment per accident and emergency service use avoided beyond baseline per year (£100) Initial accommodation (£700)” MAXIMUM RETURN The investment from the senior investors is a debt investment with a set interest rate (not publicly available) St. Mungo’s Broadway made an equity investment and will be paid what is in the SPV after the senior investors have been repaid. Maximum payments from the Department for Communities and Local Government (total contract value) is £2.4 million. *Using exchange rate from month of contract signing **The service delivery contract is for 36 months The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 81 SIB NAME Thames Reach Ace LOCATION London, Greater London COUNTRY United Kingdom START DATE (date of contract signing) November 2012 CONTRACT DURATION** 36 months SOCIAL ISSUE Homelessness TARGET POPULATION 415 persistent rough sleepers (individuals sleeping without shelter) in London INTERVENTION A program that aims to get people off the streets and into stable accommodation, thereby increasing prospects of employment or training and stabilizing health. Participants have individual intervention plans, personalized budgets, and personal navigators responsible for connecting them with the most appropriate programs for their circumstances. In comparison to existing services, the approach is much more flexible and provides a more focused, longer-term relationship with a single advocate. SERVICE PROVIDER Thames Reach OUTCOME FUNDER U.K. Department for Communities and Local Government, commissioned by the Greater London Authority INTERMEDIARY (roles in parentheses) Social Finance UK (advised Greater London Authority on the feasibility and design of the SIBs) TECHNICAL ASSISTANCE PROVIDER N/A UPFRONT CAPITAL COMMITMENT (USDM)* Not publicly available NON- RECOVERABLE GRANTS N/A Senior Investors Subordinate Investors INVESTOR NAME Big Issue Invest, Department of Health Social Enterprise Investment Fund, and other individuals Thames Reach INVESTMENT (USDM)* Not publicly available Not publicly available MAXIMUM POTENTIAL LOSS (% of principal) 100% OUTCOME METRIC Per person administrative data outcomes: • Move to accommodation/sustained over 12 months and 18 months • Move to another country of familial or local connections/sustained over 6 months • Volunteering/National Vocational Qualification (NVQ) level 2 qualification/part-time employment/full-time employment for 13/26 weeks. Comparison to set threshold by government (for the cohort as a whole): • Reduction in use of accident and emergency services • Reduction in rough sleeping (unsheltered sleeping) OUTCOME EVALUATION METHOD [Evaluator in brackets] Historical comparison and validated administrative data [CHAIN, National Health Service Hospital Episode Statistics, other outcomes evidenced by providers and audited by the Greater London Authority] PAYMENT SCHEDULE Outcome payments from the outcome funder are claimed quarterly in arrears; equity investors (Thames Reach) are paid at completion whilst external investors (debt) are paid at program completion (before equity). THRESHOLD FOR PAYMENTS FROM THE OUTCOME FUNDER Any positive change in metric Thames Reach will be paid after senior investors have been paid principal and interest. The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 82 PAYMENTS BEYOND THRESHOLD The Department for Communities and Local Government pays for one or more outcomes per participant. Each type of outcome can be claimed only once. Amounts shown in £ are the maximum payments established by commissioner, but bidders were invited to bid to deliver the project for less than these maximum payments. The level of bid discount was factored into the bid scoring mechanism to decide which bidders were awarded contracts. Per person administrative data outcomes: • 12 months accommodation (£7,000) • 18 months accommodation (£3,000) • Initial reconnection (move to another country) (£800) • 6 months reconnection (£6,100) • Achievement of NQF level 2 equivalent qualification (£400) • Volunteering/self-employment 13 weeks (£200), 26 weeks (£600) • Part-time employment 13 weeks (£500), 26 weeks (£1,500) • Full-time employment 13 weeks (£1,300), 26 weeks (£4,000) Comparison to set threshold by government (for the cohort as a whole): • Payment per individual above given baseline not seen rough sleeping in given quarter (£3,800 for first four quarters and £2,400 thereafter) • Payment per accident and emergency service use avoided beyond baseline per year (£100) Initial accommodation (£700) MAXIMUM RETURN Not publicly available Thames Reach made an equity investment and will be paid what is in the SPV after the senior investors have been repaid. Maximum payments from the Department for Communities and Local Government (total contract value) is £2.4 million. *Using exchange rate from month of contract signing **The service delivery contract is for 36 months The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 83 SIB NAME Essex Family Therapy LOCATION Essex County, East of England COUNTRY United Kingdom START DATE (date of contract signing) November 2012 CONTRACT DURATION*** 36 months SOCIAL ISSUE Children at risk of requiring out-of-home care TARGET POPULATION 380 11- to 16-year-olds at the edge of out-of-home care or custody in Essex County and their families INTERVENTION Multi-Systemic Therapy (MST): evidence-based programmed that delivers family therapy in the home through highly qualified therapists over three to five months with the aim of keeping families together and avoiding out- of-home care. SERVICE PROVIDER Action for Children OUTCOME FUNDER Essex County Council INTERMEDIARY (roles in parentheses) Social Finance UK (feasibility study, supporting Action for Children’s bid for the contract, capital raise, performance management) TECHNICAL ASSISTANCE PROVIDER N/A UPFRONT CAPITAL COMMITMENT (USDM)* 4.99 NON- RECOVERABLE GRANTS N/A Senior Investors INVESTOR NAME Bridges Ventures,** Big Society Capital, Barrow Cadbury Trust, Tudor Trust, Esmee Fairbaim Foundation, King Baudouin Foundation, Charities Aid Foundation, Social Ventures Fund INVESTMENT (USDM)* 4.99 (£3.1 million) (total invetment raised) MAXIMUM POTENTIAL LOSS (% of principal) 100% OUTCOME METRIC Average care days saved (versus a historical comparison group) over a 30-month period for each child. OUTCOME EVALUATION METHOD [Evaluator in brackets] Historical comparison [The Essex Country Council will determine outcome payments based on data from the state care system.] There is also an evaluation being carried out outside of the SIB contract by OPM (an independent consultancy) evaluating the impact of funding through social investment rather than traditional means) PAYMENT SCHEDULE The outcome funder will pay for outcomes quarterly, and payments are divided between the service provider and investor as described below. THRESHOLD FOR PAYMENTS FROM THE OUTCOME FUNDER Positive change in metric PAYMENTS BEYOND THRESHOLD The outcome funder (commissioner) will pay for the outcomes through success payments only (amounts not public). The contract for the transaction specifies the percentages of cost savings realized by the commissioner which form each outcome payment. In SIB structures such as these, the commissioner often shares a higher percentage of their cost savings realized in the early years, with this percentage dropping as the investor approaches their capital repayment, such that if the project is very successful, the commissioner retains a larger proportion of the savings achieved. This profile reduces the overall project cost, by reducing the overall amount of capital which needs to be raised, and repaying this capital earlier whilst retaining the ability of the commissioner to keep the majority of cost savings achieved in the later years. The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 84 MAXIMUM RETURN Outcome payments are recycled into the running of the service. If the interventions deliver successful outcomes, the investors might expect returns in the range of 8 to 12% per annum. *Using exchange rate from month of contract signing **Bridges Ventures’ Social Entrepreneurs Fund (participants not publicly available) ***Service delivery will last 60 months but the total contract duration is 96 months The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 85 SIB NAME It’s All About Me (IAAM) LOCATION Country-wide (United Kingdom) COUNTRY United Kingdom START DATE (date of contract signing) September 2013 CONTRACT DURATION 120 months SOCIAL ISSUE Barriers to adoption TARGET POPULATION 650 or more children in state care (Looked After Children), particularly those who have been waiting for an adoptive family for over a year (likely ages 4 to 18) INTERVENTION Voluntary adoption agencies will actively seek families for harder to place children and offer training in therapeutic parenting and 24-hour support during the first two years after adoption placement. SERVICE PROVIDER Any number of service providers could join the SIB contract, the first were Action for Children; Adoption Matters NW; After Adoption; Caritas Care; Family Futures and PACT OUTCOME FUNDER Local Authorities. Local Authorities are invited to join the SIB contract at any time. As of April 2015, 11 Local Authorities were involved in the program. The Cabinet Office’s Social Outcomes Fund will contribute £10,000 in outcomes payment, for the first 100 children registered under the SIB, in order to reduce investor and provider risk INTERMEDIARY (roles in parentheses) IAAM Scheme (contractor of service providers) TECHNICAL ASSISTANCE PROVIDER N/A UPFRONT CAPITAL COMMITMENT (USDM)* 3.10 NON- RECOVERABLE GRANTS N/A Senior Investors INVESTOR NAME Bridge Ventures**, Big Society Capital INVESTMENT (USDM)* 3.10 (£2 million) MAXIMUM POTENTIAL LOSS (% of principal) 100% OUTCOME METRIC There are four milestones that payments are based upon: 1. Child enters program (registration) 2. Child placed with family 3. 1st anniversary of a placement 4. 2nd anniversary of placement OUTCOME EVALUATION METHOD [Evaluator in brackets] Validated administrative data [The outcomes are determined by the judiciary system.] There is a separate, concurrent longitudinal study on other outcomes for the children, but it is not a part of the SIB contract. PAYMENT SCHEDULE The outcome funder pays investors as outcomes occur THRESHOLD FOR PAYMENTS FROM THE OUTCOME FUNDER N/A The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 86 PAYMENTS BEYOND THRESHOLD 1. Child enters program (registration): £8,000 2. Child placed with family: £23,000 3. 1st anniversary of a placement: £6,800 4. 2nd anniversary of placement: £15,800 MAXIMUM RETURN The investors have made an equity investment and there is a high degree of capital recycling in this program, therefore the returns to investors could vary enormously. *Using exchange rate from month of contract signing **Bridges Ventures’ Social Impact Bond Fund and Social Entrepreneurs Fund (contributors to both funds include Big Society Capital, the European Investment Fund, Deutche Bank Social Investments, J.P. Morgan Social Finance, Bridges Charitable Trust, The Prince’s Charities, Omidyar Network, Panahpur, Esmee Fairbairn Foundation, Highwood Foundation, the U.K. Cabinet Office, Nesta, Trust for London, Greater Manchester Pension Fund, Merseyside Pension Fund) The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 87 SIB FUND NAME Fair Chance Fund SIB NAME Local Solutions LOCATION Liverpool and Knowsley, North West England, England COUNTRY United Kingdom START DATE (date of contract signing) December 2014 CONTRACT DURATION** 36 months SOCIAL ISSUE Youth homelessness TARGET POPULATION In order to be eligible for the program, individuals must meet all of the following criteria: • Age 18 to 24 (21 to 24 if the individual spent time in state out-of-home care while under age 18) • Not in education, employment or training (NEET) • Homeless as defined in homelessness legislation, but not in homeless priority need. Young people who are deemed intentionally homeless may also be supported at the discretion of the Local Authority. • A priority for Local Authority support but unable to be accommodated in a supported housing scheme Approximately 130 young people are expected to participate in the program. INTERVENTION The intervention is based around intensive one-on-one support provided by support workers, helping clients to progress in accommodation, education/training and employment/volunteering. The project will also be delivered in close collaboration with a local educational college. SERVICE PROVIDER Local Solutions OUTCOME FUNDER U.K. Department for Communities and Local Government and the Cabinet Office INTERMEDIARY (roles in parentheses) Social Finance UK (supported Local Solutions to develop its bid for the project, and raised capital for the program) TECHNICAL ASSISTANCE PROVIDER N/A UPFRONT CAPITAL COMMITMENT (USDM)* 0.86 NON- RECOVERABLE GRANTS N/A Senior Investors INVESTOR NAME Not publicly available INVESTMENT (USDM)* 0.86 (£0.55 million) (total investment raised) MAXIMUM POTENTIAL LOSS (% of principal) 100% OUTCOME METRIC See payments below OUTCOME EVALUATION METHOD [Evaluator in brackets] Validated administrative data [The Department for Communities and Local Government will validate data submitted by the service providers] PAYMENT SCHEDULE Quarterly payments made by the outcome funder. Repayments to investors as and when approved by project leadership. THRESHOLD FOR PAYMENTS FROM THE OUTCOME FUNDER Achievement of the metrics below The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 88 PAYMENTS BEYOND THRESHOLD Department for Communities and Local Government pays for one or more outcomes per participant (with a cap of £17,000 per participant). Each type of outcome can be claimed only once. Amounts shown in £ are the maximum payment established by commissioner, but bidders to the Fair Chance Fund were invited to bid to deliver the project for less than these maximum payments. The level of bid discount was factored into the bid scoring mechanism to decide which bidders were awarded contracts. Assessment fees: • Initial assessment fee: (£500) • Second assessment fee: (£500) • Third assessment fee: (£200) Accommodation: • Move into accommodation: (£500) • Accommodation sustained for 3 months: (£1,500), 6 months: (£1,500), 12 months: (£1,500), 18 months: (£1,500) Education / Training: • Entry into education / training: (£500) • First entry level qualification: (£1,500) • Achievement of National Qualifications Framework (NQF) Level 1 qualification: (£2,500) • Achievement of first NQF Level 2 qualification: (£3,500) Employment / volunteering: • 6 Weeks volunteering: (£500), 13 weeks: (£500), 20 weeks: (£250), 26 weeks: (£250) • Entry into employment: (£500) • 13 Weeks part-time employment: (£3,000), 26 weeks: (£2,000) • 13 Weeks full-time employment: (£4,500), 26 weeks: (£3,500) Outcome payments are initially recycled to continue service delivery, before being repaid to investors. MAXIMUM RETURN Each type of outcome can only be claimed once, and the total value of outcome payments claimable for support provided to an individual participant is limited to £17,000. There is also a cap on total outcome payments from the Department for Communities and Local Government for each project. *Using exchange rate from month of contract signing **The service delivery contract is for 36 months The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 89 SIB FUND NAME Fair Chance Fund SIB NAME Your Chance LOCATION Manchester, Oldham and Rochdale, North West England and Greenwich, Greater London, England COUNTRY United Kingdom START DATE (date of contract signing) December 2014 CONTRACT DURATION** 36 months SOCIAL ISSUE Youth homelessness TARGET POPULATION In order to be eligible for the program, individuals must meet all of the following criteria: • Age 18 to 24 (21 to 24 if the individual spent time in state out-of-home care while under age 18) • Not in education, employment or training (NEET) • Homeless as defined in homelessness legislation, but not in homeless priority need. Young people who are deemed intentionally homeless may also be supported at the discretion of the Local Authority. • A priority for Local Authority support but unable to be accommodated in a supported housing scheme Approximately 180 young people are expected to participate in the program. INTERVENTION The intervention is based around intensive one-on-one support provided by support workers, helping clients to progress in accommodation, education/training and employment/volunteering. SERVICE PROVIDER Depaul UK OUTCOME FUNDER U.K. Department for Communities and Local Government and the Cabinet Office INTERMEDIARY (roles in parentheses) Social Finance UK (supported Depaul UIK to develop its bid for the project, and raised capital for the program and supported Depaul UK to mobilize service delivery. Social Finance UK now plays an ongoing advisory role in the project) TECHNICAL ASSISTANCE PROVIDER N/A UPFRONT CAPITAL COMMITMENT (USDM)* 0.97 NON- RECOVERABLE GRANTS N/A Senior Investors INVESTOR NAME Not publicly available INVESTMENT (USDM)* 0.97 (£0.62 million) MAXIMUM POTENTIAL LOSS (% of principal) 100% OUTCOME METRIC See payments below OUTCOME EVALUATION METHOD [Evaluator in brackets] Validated administrative data [The Department for Communities and Local Government will validate data submitted by the service providers] PAYMENT SCHEDULE Quarterly payments made by the outcome funder. Repayments to investors as and when approved by project leadership. THRESHOLD FOR PAYMENTS FROM THE OUTCOME FUNDER Achievement of the metrics below The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 90 PAYMENTS BEYOND THRESHOLD Department for Communities and Local Government pays for one or more outcomes per participant (with a cap of £17,000 per participant). Each type of outcome can be claimed only once. Amounts shown in £ are the maximum payments established by commissioner, but bidders to the Fair Chance Fund were invited to bid to deliver the project for less than these maximum payments. The level of bid discount was factored into the bid scoring mechanism to decide which bidders were awarded contracts. Assessment fees: • Initial assessment fee: (£500) • Second assessment fee: (£500) • Third assessment fee: (£200) Accommodation: • Move into accommodation: (£500) • Accommodation sustained for 3 months: (£1,500), 6 months: (£1,500), 12 months: (£1,500), 18 months: (£1,500) Education / training: • Entry into education / training: (£500) • First entry level qualification: (£1,500) • Achievement of National Qualifications Framework (NQF) Level 1 qualification: (£2,500) • Achievement of first NQF Level 2 qualification: (£3,500) Employment / volunteering: • 6 Weeks volunteering: (£500), 13 weeks: (£500), 20 weeks: (£250), 26 weeks: (£250) • Entry into employment: (£500) • 13 Weeks part-time employment: (£3,000), 26 weeks: (£2,000) • 13 Weeks full-time employment: (£4,500), 26 weeks: (£3,500) Outcome payments are initially recycled to continue service delivery, before being repaid to investors. MAXIMUM RETURN Each type of outcome can only be claimed once, and the total value of outcome payments claimable for support provided to an individual participant is limited to £17,000. There is also a cap on total outcome payments from the Department for Communities and Local Government for each project. *Using exchange rate from month of contract signing **The service delivery contract is for 36 months The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 91 SIB FUND NAME Fair Chance Fund SIB NAME Home Group LOCATION Newcastle, Northumberland, South Tyneside, North Tyneside, Gateshead, Durham and Sunderland, North East England, England COUNTRY United Kingdom START DATE (date of contract signing) December 2014 CONTRACT DURATION** 36 months SOCIAL ISSUE Youth homelessness TARGET POPULATION In order to be eligible for the program, individuals must meet all of the following criteria: • Age 18 to 24 (21 to 24 if the individual spent time in state out-of-home care while under age 18) • Not in education, employment or training (NEET) • Homeless as defined in homelessness legislation, but not in homeless priority need. Young people who are deemed intentionally homeless may also be supported at the discretion of the Local Authority. • A priority for Local Authority support but unable to be accommodated in a supported housing scheme Approximately 230 young people are expected to participate in the program. INTERVENTION Providing accommodation, education, volunteering and employment SERVICE PROVIDER Home Group OUTCOME FUNDER U.K. Department for Communities and Local Government and the Cabinet Office INTERMEDIARY (roles in parentheses) Numbers4Good (advising the service provider to prepare bid, structuring the deal, raising funds) TECHNICAL ASSISTANCE PROVIDER N/A UPFRONT CAPITAL COMMITMENT (USDM)* 0.779 NON- RECOVERABLE GRANTS N/A Senior Investors INVESTOR NAME Northstar Ventures INVESTMENT (USDM)* 0.779 (£0.498 million) MAXIMUM POTENTIAL LOSS (% of principal) 90% OUTCOME METRIC See payments below OUTCOME EVALUATION METHOD [Evaluator in brackets] Validated administrative data [The Department for Communities and Local Government will validate data submitted by the service providers] PAYMENT SCHEDULE Quarterly payments made by the outcome funder. Repayments to investors as and when approved by project leadership. THRESHOLD FOR PAYMENTS FROM THE OUTCOME FUNDER Achievement of the metrics below The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 92 PAYMENTS BEYOND THRESHOLD Department for Communities and Local Government pays for one or more outcomes per participant (with a cap of £17,000 per participant). Each type of outcome can be claimed only once. Amounts shown in £ are the maximum payment established by commissioner, but bidders to the Fair Chance Fund were invited to bid to deliver the project for less than these maximum payments. The level of bid discount was factored into the bid scoring mechanism to decide which bidders were awarded contracts. Assessment fees: • Initial assessment fee: (£500) • Second assessment fee: (£500) • Third assessment fee: (£200) Accommodation: • Move into accommodation: (£500) • Accommodation sustained for 3 months: (£1,500), 6 months: (£1,500), 12 months: (£1,500), 18 months: (£1,500) Education / Training: • Entry into education / training: (£500) • First entry level qualification: (£1,500) • Achievement of National Qualifications Framework (NQF) Level 1 qualification: (£2,500) • Achievement of first NQF Level 2 qualification: (£3,500) Employment / volunteering: • 6 Weeks volunteering: (£500), 13 weeks: (£500), 20 weeks: (£250), 26 weeks: (£250) • Entry into employment: (£500) • 13 Weeks part-time employment: (£3,000), 26 weeks: (£2,000) • 13 Weeks full-time employment: (£4,500), 26 weeks: (£3,500) Outcome payments are initially recycled to continue service delivery, before being repaid to investors. MAXIMUM RETURN Each type of outcome can only be claimed once, and the total value of outcome payments claimable for support provided to an individual participant is limited to £17,000. There is also a cap on total outcome payments from the Department for Communities and Local Government for each contract. The investment is an equity investment, so the returns could range widely. *Using exchange rate from month of contract signing **The service delivery contract is for 36 months The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 93 SIB FUND NAME Fair Chance Fund SIB NAME Fusion Housing LOCATION Kirklees, Calderdale and Wakefield, Yorkshire and the Humber, England COUNTRY United Kingdom START DATE (date of contract signing) December 2014 CONTRACT DURATION** 36 months SOCIAL ISSUE Youth homelessness TARGET POPULATION In order to be eligible for the program, individuals must meet all of the following criteria: • Age 18 to 24 (21 to 24 if the individual spent time in state out-of-home care while under age 18) • Not in education, employment or training (NEET) • Homeless as defined in homelessness legislation, but not in homeless priority need. Young people who are deemed intentionally homeless may also be supported at the discretion of the Local Authority. • A priority for Local Authority support but unable to be accommodated in a supported housing scheme Approximately 261 young people are expected to participate in the program. INTERVENTION The intervention is based around intensive one-on-one support provided by support workers, helping clients to progress in accommodation, education/training and employment/volunteering. SERVICE PROVIDER Depaul UK OUTCOME FUNDER U.K. Department for Communities and Local Government and the Cabinet Office INTERMEDIARY (roles in parentheses) Social Finance UK (supported Depaul UIK to develop its bid for the project, and raised capital for the program and supported Depaul UK to mobilize service delivery. Social Finance UK now plays an ongoing advisory role in the project) TECHNICAL ASSISTANCE PROVIDER N/A UPFRONT CAPITAL COMMITMENT (USDM)* 0.97 NON- RECOVERABLE GRANTS N/A Senior Investors INVESTOR NAME Not publicly available INVESTMENT (USDM)* 0.97 (£0.62 million) MAXIMUM POTENTIAL LOSS (% of principal) 100% OUTCOME METRIC See payments below OUTCOME EVALUATION METHOD [Evaluator in brackets] Validated administrative data [The Department for Communities and Local Government will validate data submitted by the service providers] PAYMENT SCHEDULE Quarterly payments made by the outcome funder. Repayments to investors as and when approved by project leadership. THRESHOLD FOR PAYMENTS FROM THE OUTCOME FUNDER Achievement of the metrics below The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 94 PAYMENTS BEYOND THRESHOLD Department for Communities and Local Government pays for one or more outcomes per participant (with a cap of £17,000 per participant). Each type of outcome can be claimed only once. Amounts shown in £ are the maximum payments established by commissioner, but bidders to the Fair Chance Fund were invited to bid to deliver the project for less than these maximum payments. The level of bid discount was factored into the bid scoring mechanism to decide which bidders were awarded contracts. Assessment fees: • Initial assessment fee: (£500) • Second assessment fee: (£500) • Third assessment fee: (£200) Accommodation: • Move into accommodation: (£500) • Accommodation sustained for 3 months: (£1,500), 6 months: (£1,500), 12 months: (£1,500), 18 months: (£1,500) Education / training: • Entry into education / training: (£500) • First entry level qualification: (£1,500) • Achievement of National Qualifications Framework (NQF) Level 1 qualification: (£2,500) • Achievement of first NQF Level 2 qualification: (£3,500) Employment / volunteering: • 6 Weeks volunteering: (£500), 13 weeks: (£500), 20 weeks: (£250), 26 weeks: (£250) • Entry into employment: (£500) • 13 Weeks part-time employment: (£3,000), 26 weeks: (£2,000) • 13 Weeks full-time employment: (£4,500), 26 weeks: (£3,500) Outcome payments are initially recycled to continue service delivery, before being repaid to investors. MAXIMUM RETURN Each type of outcome can only be claimed once, and the total value of outcome payments claimable for support provided to an individual participant is limited to £17,000. There is also a cap on total outcome payments from the Department for Communities and Local Government for each project. *Using exchange rate from month of contract signing **The service delivery contract is for 36 months The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 95 SIB FUND NAME Fair Chance Fund SIB NAME Ambition East Midlands LOCATION Leicestershire and Derbyshire, East Midlands, England COUNTRY United Kingdom START DATE (date of contract signing) December 2014 CONTRACT DURATION** 36 months SOCIAL ISSUE Youth homelessness TARGET POPULATION In order to be eligible for the program, individuals must meet all of the following criteria: • Age 18 to 24 (21 to 24 if the individual spent time in state out-of-home care while under age 18) • Not in education, employment or training (NEET) • Homeless as defined in homelessness legislation, but not in homeless priority need. Young people who are deemed intentionally homeless may also be supported at the discretion of the Local Authority. • A priority for Local Authority support but unable to be accommodated in a supported housing scheme Approximately 340 young people are expected to participate in the program. INTERVENTION The intervention is based around intensive one-on-one support provided by support workers, helping clients to progress in accommodation, education/training and employment/volunteering. The project will also be delivered in close collaboration with a local educational college. SERVICE PROVIDER P3 (People Potential Possibilities), The Y in Leicester, YMCA Derbyshire OUTCOME FUNDER U.K. Department for Communities and Local Government and the Cabinet Office INTERMEDIARY (roles in parentheses) Triodos Bank UK (Raised capital and structured deal, will provide 6 months of project management to the SPV) TECHNICAL ASSISTANCE PROVIDER N/A UPFRONT CAPITAL COMMITMENT (USDM)* 0.938 NON- RECOVERABLE GRANTS N/A Senior Investors Subordinate Investors INVESTOR NAME Key Fund, Big Issue Invest and retail investors P3, The Y in Leicester, YMCA Derbyshire INVESTMENT (USDM)* 0.86 (£0.55 million) (total investment raised) 0.188 (£0.12 million) MAXIMUM POTENTIAL LOSS (% of principal) 100% OUTCOME METRIC See payments below OUTCOME EVALUATION METHOD [Evaluator in brackets] Validated administrative data [The Department for Communities and Local Government will validate data submitted by the service providers] PAYMENT SCHEDULE Outcome payments are claimed quarterly in arrears. External investors (debt) are repaid at program completion, although there is the right for debt holders to early repayment in certain circumstances per the investment agreements. Equity investors are ‘repaid’ at completion (after senior/debt investors) THRESHOLD FOR PAYMENTS FROM THE OUTCOME FUNDER Achievement of the metrics below P3, The Y in Leicester, YMCA Derbyshire will be paid after the senior investors’ loan is repaid. The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 96 PAYMENTS BEYOND THRESHOLD Department for Communities and Local Government pays for one or more outcomes per participant (with a cap of £17,000 per participant). Each type of outcome can be claimed only once. Amounts shown in £ are the maximum payment established by commissioner, but bidders to the Fair Chance Fund were invited to bid to deliver the project for less than these maximum payments. The level of bid discount was factored into the bid scoring mechanism to decide which bidders were awarded contracts. Assessment fees: • Initial assessment fee: (£500) • Second assessment fee: (£500) • Third assessment fee: (£200) Accommodation: • Move into accommodation: (£500) • Accommodation sustained for 3 months: (£1,500), 6 months: (£1,500), 12 months: (£1,500), 18 months: (£1,500) Education / Training: • Entry into education / training: (£500) • First entry level qualification: (£1,500) • Achievement of National Qualifications Framework (NQF) Level 1 qualification: (£2,500) • Achievement of first NQF Level 2 qualification: (£3,500) Employment / volunteering: • 6 Weeks volunteering: (£500), 13 weeks: (£500), 20 weeks: (£250), 26 weeks: (£250) • Entry into employment: (£500) • 13 Weeks part-time employment: (£3,000), 26 weeks: (£2,000) • 13 Weeks full-time employment: (£4,500), 26 weeks: (£3,500) Outcome payments are initially recycled to continue service delivery, before being repaid to investors. MAXIMUM RETURN Each type of outcome can only be claimed once, and the total value of outcome payments claimable for support provided to an individual participant is limited to £17,000. There is also a cap on total outcome payments from the Department for Communities and Local Government for each project. P3, The Y in Leicester, YMCA Derbyshire made an equity investment and will be paid what is in the SPV after the senior investors have been repaid, so returns could vary widely. *Using exchange rate from month of contract signing **The service delivery contract is for 36 months The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 97 SIB FUND NAME Fair Chance Fund SIB NAME Aspire Gloucestershire LOCATION Gloucestershire, South West England, England COUNTRY United Kingdom START DATE (date of contract signing) December 2014 CONTRACT DURATION** 36 months SOCIAL ISSUE Youth homelessness TARGET POPULATION In order to be eligible for the program, individuals must meet all of the following criteria: • Age 18 to 24 (21 to 24 if the individual spent time in state out-of-home care while under age 18) • Not in education, employment or training (NEET) • Homeless as defined in homelessness legislation, but not in homeless priority need. Young people who are deemed intentionally homeless may also be supported at the discretion of the Local Authority. • A priority for Local Authority support but unable to be accommodated in a supported housing scheme Approximately 150 young people are expected to participate in the program. INTERVENTION The service providers help place the young people with external housing providers and connect them with employment and education services. SERVICE PROVIDER P3 and CCP (People Potential Possibilities and County Community Projects) OUTCOME FUNDER U.K. Department for Communities and Local Government and the Cabinet Office INTERMEDIARY (roles in parentheses) Triodos Bank UK (Raised capital and structured deal, will provide 6 months of project management to the SPV) TECHNICAL ASSISTANCE PROVIDER N/A UPFRONT CAPITAL COMMITMENT (USDM)* 0.484 NON- RECOVERABLE GRANTS N/A Senior Investors Subordinate Investors INVESTOR NAME CAF Venturesome and retail investors P3 and CCP INVESTMENT (USDM)* 0.390 (£0.25 million) (This comprises £0.205 million from CAF and £0.045 million from retail investors (benefitting from Social Investment Tax Relief (SITR)). The SITR investment takes the form of a loan/debt instrument ranking behind the CAF loan but ahead of the P3 and CCP equity.) 0.094 (£0.060 million) MAXIMUM POTENTIAL LOSS (% of principal) 100% OUTCOME METRIC See payments below OUTCOME EVALUATION METHOD [Evaluator in brackets] Validated administrative data [The Department for Communities and Local Government will validate data submitted by the service providers] PAYMENT SCHEDULE Outcome payments are claimed quarterly in arrears. External investors (debt) are repaid at program completion, although there is the right for debt holders to early repayment in certain circumstances per the investment agreements. Equity investors are ‘repaid’ at completion (after senior/debt investors) The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 98 THRESHOLD FOR PAYMENTS FROM THE OUTCOME FUNDER Achievement of the metrics below PAYMENTS BEYOND THRESHOLD Department for Communities and Local Government pays for one or more outcomes per participant (with a cap of £17,000 per participant). Each type of outcome can be claimed only once. Amounts shown in £ are the maximum payment established by commissioner, but bidders to the Fair Chance Fund were invited to bid to deliver the project for less than these maximum payments. The level of bid discount was factored into the bid scoring mechanism to decide which bidders were awarded contracts. Assessment fees: • Initial assessment fee: (£500) • Second assessment fee: (£500) • Third assessment fee: (£200) Accommodation: • Move into accommodation: (£500) • Accommodation sustained for 3 months: (£1,500), 6 months: (£1,500), 12 months: (£1,500), 18 months: (£1,500) Education / Training: • Entry into education / training: (£500) • First entry level qualification: (£1,500) • Achievement of National Qualifications Framework (NQF) Level 1 qualification: (£2,500) • Achievement of first NQF Level 2 qualification: (£3,500) Employment / volunteering: • 6 Weeks volunteering: (£500), 13 weeks: (£500), 20 weeks: (£250), 26 weeks: (£250) • Entry into employment: (£500) • 13 Weeks part-time employment: (£3,000), 26 weeks: (£2,000) • 13 Weeks full-time employment: (£4,500), 26 weeks: (£3,500) Outcome payments are initially recycled to continue service delivery, before being repaid to investors. MAXIMUM RETURN Each type of outcome can only be claimed once, and the total value of outcome payments claimable for support provided to an individual participant is limited to £17,000. There is also a cap on total outcome payments from the Department for Communities and Local Government for each project. *Using exchange rate from month of contract signing **The service delivery contract is for 36 months The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 99 SIB FUND NAME Fair Chance Fund SIB NAME Rewriting Futures LOCATION Birmingham, Coventry, Solihull, Walsall, and Wyre Forest, West Midlands, England COUNTRY United Kingdom START DATE (date of contract signing) December 2014 CONTRACT DURATION** 36 months SOCIAL ISSUE Youth homelessness TARGET POPULATION In order to be eligible for the program, individuals must meet all of the following criteria: • Age 18 to 24 (21 to 24 if the individual spent time in state out-of-home care while under age 18) • Not in education, employment or training (NEET) • Homeless as defined in homelessness legislation, but not in homeless priority need. Young people who are deemed intentionally homeless may also be supported at the discretion of the Local Authority. • A priority for Local Authority support but unable to be accommodated in a supported housing scheme Approximately 300 young people are expected to participate in the program. INTERVENTION The intervention is based around intensive one-on-one support provided by support workers, helping clients to progress in accommodation, education/training and employment/volunteering. SERVICE PROVIDER St Basils OUTCOME FUNDER U.K. Department for Communities and Local Government and the Cabinet Office INTERMEDIARY (roles in parentheses) Social Finance UK (supported St Basils to develop its bid for the project, and raised capital for the program and supported St Basils to mobilize service delivery. Social Finance UK now plays an ongoing advisory role in the project.) TECHNICAL ASSISTANCE PROVIDER N/A UPFRONT CAPITAL COMMITMENT (USDM)* 1.61 NON- RECOVERABLE GRANTS N/A Senior Investors INVESTOR NAME Not publicly available INVESTMENT (USDM)* 0.86 (£0.55 million) (total investment raised) MAXIMUM POTENTIAL LOSS (% of principal) 100% OUTCOME METRIC See payments below OUTCOME EVALUATION METHOD [Evaluator in brackets] Validated administrative data [The Department for Communities and Local Government will validate data submitted by the service providers] PAYMENT SCHEDULE Outcome payments are claimed quarterly in arrears. External investors (debt) are repaid at program completion, although there is the right for debt holders to early repayment in certain circumstances per the investment agreements. THRESHOLD FOR PAYMENTS FROM THE OUTCOME FUNDER Achievement of the metrics below The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 100 PAYMENTS BEYOND THRESHOLD Department for Communities and Local Government pays for one or more outcomes per participant (with a cap of £17,000 per participant). Each type of outcome can be claimed only once. Amounts shown in £ are the maximum payment established by commissioner, but bidders to the Fair Chance Fund were invited to bid to deliver the project for less than these maximum payments. The level of bid discount was factored into the bid scoring mechanism to decide which bidders were awarded contracts. Assessment fees: • Initial assessment fee: (£500) • Second assessment fee: (£500) • Third assessment fee: (£200) Accommodation: • Move into accommodation: (£500) • Accommodation sustained for 3 months: (£1,500), 6 months: (£1,500), 12 months: (£1,500), 18 months: (£1,500) Education / Training: • Entry into education / training: (£500) • First entry level qualification: (£1,500) • Achievement of National Qualifications Framework (NQF) Level 1 qualification: (£2,500) • Achievement of first NQF Level 2 qualification: (£3,500) Employment / volunteering: • 6 Weeks volunteering: (£500), 13 weeks: (£500), 20 weeks: (£250), 26 weeks: (£250) • Entry into employment: (£500) • 13 Weeks part-time employment: (£3,000), 26 weeks: (£2,000) • 13 Weeks full-time employment: (£4,500), 26 weeks: (£3,500) Outcome payments are initially recycled to continue service delivery, before being repaid to investors. MAXIMUM RETURN Each type of outcome can only be claimed once, and the total value of outcome payments claimable for support provided to an individual participant is limited to £17,000. There is also a cap on total outcome payments from the Department for Communities and Local Government for each project. *Using exchange rate from month of contract signing **The service delivery contract is for 36 months The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 101 SIB NAME Manchester City Council Vulnerable Children LOCATION Manchester, North West England COUNTRY United Kingdom START DATE (date of contract signing) June 2014 CONTRACT DURATION 60 months SOCIAL ISSUE Barriers to family reunification or long-term foster care placement TARGET POPULATION 95 or more young people ages 11 to 14 who are either in the government’s residential care and determined to be high need, or in foster placements and at risk of entering government residential care INTERVENTION Multi-Dimensional Treatment Foster Care – Adolescents (MTFC-A) program, which provides support for young people with severe behavioral and emotional issues. Children are placed in foster care for 6 to 12 months where the receive intensive therapy. At the end of the program, children are either reunited with their families or placed in long-term foster care placements. This is a tested program that was originally developed in the U.S. SERVICE PROVIDER Action for Children OUTCOME FUNDER Manchester City Council (additional funding from the Cabinet Office’s Social Outcomes Fund) INTERMEDIARY (roles in parentheses) Manchester City Council TECHNICAL ASSISTANCE PROVIDER The developers of the Multi-Dimensional Treatment Foster Care program have provided technical support related to the program UPFRONT CAPITAL COMMITMENT (USDM)* 2.01 NON- RECOVERABLE GRANTS N/A Senior Investors INVESTOR NAME Bridge Ventures** INVESTMENT (USDM)* 2.01 (£1.2 million) MAXIMUM POTENTIAL LOSS (% of principal) 100% OUTCOME METRIC 1. Participant engagement in MTFC program 2. Number of weeks participant stays out of residential placement 3. Participant achievement of all well-being outcomes (including school attendance and reductions in anti- social behavior) OUTCOME EVALUATION METHOD [Evaluator in brackets] Historical comparison (comparison to data on 11- to 14-year-olds in residential care in 2007 to 2008) [Manchester City Council and Action for Children compare program data to the historical baseline.] PAYMENT SCHEDULE The outcome funder will pay for outcomes quarterly, and payments are divided between the service provider and investor as described below. THRESHOLD FOR PAYMENTS FROM THE OUTCOME FUNDER Positive change in the metrics The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 102 PAYMENTS BEYOND THRESHOLD The outcome funder (commissioner) will pay for the outcomes outlined below. The contract for the transaction specifies the percentages of each outcome payment that go to the service provider and the investors. In SIB structures such as these, the service provider often receives a higher percentage of the attachment fee, relative to the success payments. This is because the service provider often prefers to take on volume or operational efficiency risk, rather than the ultimate outcomes risk, which is often taken primarily by the social investor. 1. Attachment fee: participant engagement in MTFC program (no longer in residential care): up to £1,800 per week during the first year of the program 2. Success payment: Number of weeks participant stays out of residential placement: up to £350 per week for 2.5 years post-graduation 3. Success payment: Participant achievement of all well-being outcomes (including school attendance and reductions in anti-social behavior): £9,500 on an annual basis post-completion of the program (partial payment at graduation + 1 year after graduation) MAXIMUM RETURN Maximum outcome payment of £148,000 per individual. The investors have made an equity investment and there is capital recycling in this program, therefore the returns to investors could vary enormously. *Using exchange rate from month of contract signing **Bridges Ventures’ Social Impact Bond Fund and Social Entrepreneurs Fund (contributors to both funds include Big Society Capital, the European Investment Fund, Deutche Bank Social Investments, J.P. Morgan Social Finance, Bridges Charitable Trust, The Prince’s Charities, Omidyar Network, Panahpur, Esmee Fairbairn Foundation, Highwood Foundation, the U.K. Cabinet Office, Nesta, Trust for London, Greater Manchester Pension Fund, Merseyside Pension Fund) The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 103 SIB NAME Outcomes for Children Birmingham LOCATION Birmingham, West Midlands COUNTRY United Kingdom START DATE (date of contract signing) August 2014 CONTRACT DURATION 48 months SOCIAL ISSUE Barriers to adoption TARGET POPULATION Approximately 115 looked after young people ages 11 to 15 who are in residential units (Birmingham City Council has approximately 1,800 looked after young people and 180 of them are in residential care) INTERVENTION Core Assets Residential Migration model - structured intensive foster placement approach specifically designed for young people transitioning from residential care to a family placement. This delivery model builds on Core Assets’ successful and proven “Team Parenting” approach by supporting a skilled and experienced foster carer with a wrap-around team of professionals SERVICE PROVIDER Outcomes for Children (a social enterprise within Core Assets Group) OUTCOME FUNDER Birmingham City Council (additional funding from the Cabinet Office Social Outcomes Fund and Big Lottery Fund’s Commissioning Better Outcomes Fund) INTERMEDIARY (roles in parentheses) N/A TECHNICAL ASSISTANCE PROVIDER N/A UPFRONT CAPITAL COMMITMENT (USDM)* 1.69 NON- RECOVERABLE GRANTS N/A Senior Investors INVESTOR NAME Bridge Ventures** INVESTMENT (USDM)* 1.69 (£1 million) MAXIMUM POTENTIAL LOSS (% of principal) 100% OUTCOME METRIC 1. Successful placement in the Residential Migration Program - for “Milestone Payments” 2. Successful completion of 52 weeks in the Residential Migration Program - for “Graduate Payment” OUTCOME EVALUATION METHOD [Evaluator in brackets] Validated administrative data (residential care status) [The Birmingham City Council will use data from the judiciary system on placement of children.] The REES Centre at the University of Oxford will conduct a parallel evaluation aiming to capture and evaluate what contributes to successful placements (defined as 52 weeks stability) and what contributes to failure (e.g. disrupted placement, return to residential care, etc.). PAYMENT SCHEDULE Payments from the outcome funder are made weekly for Milestone Payments and at the end of 52 weeks of placement for Graduate Payments. These payments are divided between the service provider and investor (see below). THRESHOLD FOR PAYMENTS FROM THE OUTCOME FUNDER Occurrence of either outcome The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 104 PAYMENTS BEYOND THRESHOLD The outcome funder (commissioner) will pay for the outcomes outlined below. The contract for the transaction specifies the percentages of each outcome payment that go to the service provider and the investors. In SIB structures such as these, the service provider often receives a higher percentage of the attachment fee, relative to the success payments. This is because the service provider often prefers to take on volume or operational efficiency risk, rather than the ultimate outcomes risk, which is often taken primarily by the social investor. 1. Attachment fee/Milestone Payments: weekly payments after successful placement in the Residential Migration Program (amount not publicly available) 2. Success payment/Graduate Payment: Payment at the end of 52 weeks for successful completion of 52 weeks in the Residential Migration Program (amount not publicly available MAXIMUM RETURN Total cap for payments not publicly available *Using exchange rate from month of contract signing **Bridges Ventures’ Social Impact Bond Fund and Social Entrepreneurs Fund (contributors to both funds include Big Society Capital, the European Investment Fund, Deutche Bank Social Investments, J.P. Morgan Social Finance, Bridges Charitable Trust, The Prince’s Charities, Omidyar Network, Panahpur, Esmee Fairbairn Foundation, Highwood Foundation, the U.K. Cabinet Office, Nesta, Trust for London, Greater Manchester Pension Fund, Merseyside Pension Fund) The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 105 United States SIB Fact Sheets SIB NAME NYC ABLE Project for Incarcerated Youth LOCATION New York City, New York COUNTRY United States START DATE (date of contract signing) September 2012 CONTRACT DURATION Not publicly available SOCIAL ISSUE Prison recidivism TARGET POPULATION Approximately 10,000 detained and sentenced adolescents in the custody of the Department of Correction at Rikers Island Prison INTERVENTION Adolescent Behavioral Learning Experience (ABLE): Cognitive Behavioral Therapy services provided during the regular school day on Rikers and as a one-hour class approximately every week and during school breaks SERVICE PROVIDER Osborne Association and Friends of Island Academy OUTCOME FUNDER New York City Department of Correction INTERMEDIARY (roles in parentheses) MDRC (formerly the Manpower Demonstration Research Corporation) TECHNICAL ASSISTANCE PROVIDER N/A UPFRONT CAPITAL COMMITMENT (USDM)* 9.32 NON- RECOVERABLE GRANTS N/A Senior Investors Recoverable Grants and Investment Guarantees INVESTOR NAME Goldman Sachs’ Urban Investment Group Bloomberg Philanthropies investment guarantee INVESTMENT (USDM)* 9.6 7.2 MAXIMUM POTENTIAL LOSS (% of principal) 25% N/A OUTCOME METRIC Decrease in readmission rate (number of days incarcerated following release from Rikers) N/A OUTCOME EVALUATION METHOD [Evaluator in brackets] Not publicly available [Vera Institute of Justice] N/A PAYMENT SCHEDULE Not publicly available N/A THRESHOLD FOR PAYMENTS FROM THE OUTCOME FUNDER Reduction in readmission rate by 8.5% or more. N/A The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 106 PAYMENTS BEYOND THRESHOLD Stepped relationship between payments and re-incarceration as demonstrated in the following table: Project Partners have the opportunity to terminate the deal early after three years Reduction in Re-incarcenation Rate City Payment to MDRC ($) >20.0% $11,712,000 >16.0% $10,944,000 >13.0% $10,368,000 >12.5% $10,272,000 >12.0% $10,176,000 >11.0% $10,080,000 >10.0% (breakeven) $ 9,600,000 >8.5% $ 4,800,000 N/A MAXIMUM RETURN Not publicly available N/A The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 107 SIB NAME Utah High Quality Preschool Program* LOCATION State of Utah (Salt Lake City and surrounding areas) COUNTRY United States START DATE (date of contract signing) August 2013 CONTRACT DURATION 60 months SOCIAL ISSUE Limited access to Early Childhood Education TARGET POPULATION Up to 3,500 low income 3- and 4-year-olds across up to five cohorts of around 600 per year. The first cohort included 600 children in the 2013-2014 school year and the second cohort will include 750 children in the 2014-2015 school year. INTERVENTION Utah High Quality Preschool Program, a high impact and targeted curriculum to increase school readiness and academic performance among 3- and 4-year-olds SERVICE PROVIDER Granite School District, Park City School District, Guadalupe School, YMCA of Northern Utah, Children’s Express, and Lit’l Scholars. OUTCOME FUNDER State of Utah INTERMEDIARY (roles in parentheses) United Way of Salt Lake (oversees the implementation of the project, contracts with and manages payments to and reports from the providers) TECHNICAL ASSISTANCE PROVIDER Voices for Utah Children (financial structuring, research and analytic support) Granite School District (training and professional development for service providers) UPFRONT CAPITAL COMMITMENT (USDM)* 7.0 NON- RECOVERABLE GRANTS N/A Senior Investors Subordinate Investors INVESTOR NAME Goldman Sachs’ Urban Investment Group J.B. Pritzker (individual) INVESTMENT (USDM)* 4.6 2.4 MAXIMUM POTENTIAL LOSS (% of principal) 100% OUTCOME METRIC Years of special education (remedial education) avoided Kindergarten through 6th grade for students “likely to use special education services” (as defined by testing at least two standard deviations below mean on the Peabody Picture Vocabulary test (PPVT) before entering the Pre-Kindergarten program). These students form the “payment cohort. OUTCOME EVALUATION METHOD [Evaluator in brackets] Validated administrative data (special education use by those likely to use special education given historical data) [Utah State University] PAYMENT SCHEDULE Seven annual payments from the outcome funder to the investors for each cohort THRESHOLD FOR PAYMENTS FROM THE OUTCOME FUNDER Any child in the payment cohort not using special education Subordinate investors are eligible for repayment once senior investors are repaid. The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 108 PAYMENTS BEYOND THRESHOLD Cohort I: $2,470 per child in the payment cohort (defined above) for every year, Kindergarten through 6th grade, that the child does not use special education, up to when payments are equal to $4.6 million plus 5% annual interest. After this, $1,040 per child per year. Cohort II: $2,565 per child in the payment cohort (defined above) for every year, Kindergarten through 6th grade, that the child does not use special education, up to a cap. Payments for future cohorts will be determined as funding is appropriated by government. MAXIMUM RETURN The maximum return across cohorts I and II combined is capped at 7.26% *This fact sheet provides information on the second SIB contract for preschool in Utah. In the first contract, the Salt Lake County and other private funders were the outcome funders. The second contract was signed after the Utah State Legislature passed House Bill 96, appropriating funding for outcome payments. The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 109 SIB NAME Increasing Employment and Improving Public Safety LOCATION Rochester and New York City, New York COUNTRY United States START DATE (date of contract signing) September 2013 CONTRACT DURATION 66 months SOCIAL ISSUE Prison recidivism TARGET POPULATION 2,000 formerly incarcerated individuals in Rochester and New York City aged 18 and older, who are at high risk of reoffending, soon after they are released from prison. The program will be divided into two phases, the second starting two years after the first. INTERVENTION CEO’s program model helps people coming home from prison enter the workforce. Specifically, CEO provides life skill education, short-term paid transitional employment, full-time job placement and post-placement services SERVICE PROVIDER Center for Employment Opportunities (CEO) OUTCOME FUNDER “Phase I: United States Department of Labor Phase II: New York State Department of Labor” INTERMEDIARY (roles in parentheses) Social Finance US TECHNICAL ASSISTANCE PROVIDER Harvard Kennedy School Social Impact Bond Technical Assistance Lab; Legal services for the contract provided by Jones Day UPFRONT CAPITAL COMMITMENT (USDM)* 14.7 NON- RECOVERABLE GRANTS N/A Senior Investors Recoverable Grants and Investment Guarantees INVESTOR NAME 44 impact investors via a private placement offering; Bank of America Merrill Lynch served as the placement agent Rockefeller Foundation (First loss Guarantee) INVESTMENT (USDM)* 13.50 1.32 MAXIMUM POTENTIAL LOSS (% of principal) 12.18 (90%) N/A OUTCOME METRIC 1. Employment: Percentage point difference between treatment and control group members with positive earnings in the fourth quarter following release from prison. 2. Recidivism: difference between treatment and control group in average number of days incarcerated per person during the observation period. 3. Transitional Jobs: number of treatment group members who start a CEO Transitional job during the observation period. N/A OUTCOME EVALUATION METHOD [Evaluator in brackets] Randomized Control Trial (RCT) (random assignment of referrals to CEO) (metrics 1 and 2) and Validated administrative data (metric 3) [New York State Department of Corrections and Community Supervision Research and New York State Department of Labor Research (Independently validated by Chesapeake Research Associates)] N/A PAYMENT SCHEDULE Payments at year 4 and year 5.5 from outcome funders to inves- tors N/A The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 110 THRESHOLD FOR PAYMENTS FROM THE OUTCOME FUNDER 1. For employment payments: 5 percentage point increase in employment 2. and 3. For recidivism and transitional job payments: 36.8 day reduction in recidivism N/A PAYMENTS BEYOND THRESHOLD 1. Employment: Phase I- $6,000 per person; Phase II-$6,360 per person 2. Recidivism: Phase I- $85 per day; Phase II- $90.1 per day 3. Transitional jobs: Phase I- $3,120 per person; Phase II- $3,307 per person N/A MAXIMUM RETURN Investors can receive up to $21.54m for payments, which is equivalent to approximately 12.5% annual implied IRR. N/A The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 111 SIB NAME Juvenile Justice Pay for Success Initiative LOCATION Commonwealth of Massachusetts (Chelsea, Boston and Springfield areas) COUNTRY United States START DATE (date of contract signing) January 2014 CONTRACT DURATION 84 months SOCIAL ISSUE Prison recidivism TARGET POPULATION 929 at-risk young men aged 17 to 24 who are in the probation system, in the juvenile justice systems, are leaving the custody of the Suffolk, Essex, Hampden, and Middlesex Houses of Correction, or are leaving the custody of Massachusetts Department of Correction. INTERVENTION Two years per participant of active education, life skills and job training, and two years of rigorous follow-up SERVICE PROVIDER Roca Inc. OUTCOME FUNDER Commonwealth of Massachusetts (Social Innovation Financing Trust Fund) and the United States Department of Labor INTERMEDIARY (roles in parentheses) Third Sector Capital Partners TECHNICAL ASSISTANCE PROVIDER Harvard Kennedy School Social Impact Bond Technical Assistance Lab (assistance to government) UPFRONT CAPITAL COMMITMENT (USDM)* 16.1 NON- RECOVERABLE GRANTS N/A Senior Investors Subordinate Investors Recoverable Grants and Investment Guarantees INVESTOR NAME Goldman Sachs’ Social Impact Fund Kresge Foundation and Living Cities (In addition, Roca Inc. and Third Sector Capital could be considered subordinate investors as they have deferred their fees and stand to earn success fees) Anonymous Foundation, New Profit, and The Boston Foundation INVESTMENT (USDM)* 8.0 2.66 (from Kresge Foundation and Living Cities) 5.45 MAXIMUM POTENTIAL LOSS (% of principal) 100% OUTCOME METRIC 1. Decreases in incarceration (treatment vs control groups) 2. Increases in job readiness (number of quarters that a Roca participant engages with a Roca youth worker nine or more times) 3. Increases in employment (number of quarters that a Roca participant is employed as compared to similar young men who are not in the program) OUTCOME EVALUATION METHOD [Evaluator in brackets] Randomized Control Trial (RCT) (metric 1) and Validated administrative data (metrics 2 and 3) [Urban Institute] PAYMENT SCHEDULE Payments from outcome funders to investors in years 2 to 7 Potential for grant recycle at the end of the program THRESHOLD FOR PAYMENTS FROM THE OUTCOME FUNDER 1. 5.2% reduction in incarceration 2. and 3. Any positive increase in job readiness and employment. Potential for grant recycle at the end of the program if outcome payments exceed repayment to senior and subordinate investors The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 112 PAYMENTS BEYOND THRESHOLD 1. Decreases in incarceration: a continuous relationship between 2. decreases in incarceration and payments (see example levels in chart 3. of total success payments) 4. Increases in job readiness: $1,000 per participant per quarter 5. Increases in employment: $750 per participant per quarter Decrease in Days of Incaceration Incarceration-Based Success Payments 55.0% $26 million 40.0% $21 million 25.0% $10 million 10.0% $2 million 5.0% $0 MAXIMUM RETURN Senior lender will receive 5% annually plus approximately $1m in success fees Subordinate lenders will receive up to 2% annually + $500,000 in success fees Roca Inc. will receive up to approximately $750,000 in additional success fees in addition to their deferred service fees of $3.26 million. Third Sector will receive deferred service fees. Any remaining PFS payments after senior and subordinate investors, which could be up to $4.9 million depending on the level of impact achieved, will be used to recycle philanthropic funding. The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 113 SIB NAME Child-Parent Center Pay for Success Initiative LOCATION Chicago, Illinois COUNTRY United States START DATE (date of contract signing) October 2014 CONTRACT DURATION 48 months SOCIAL ISSUE Limited access to Early Childhood Education TARGET POPULATION 2,600 low-income 4-year-olds in eight sites. The first cohort for the 2014-2015 school year includes 374 slots. INTERVENTION Child-Parent Center (CPC) program that works with parents and children to improve educational outcomes through a half-day of pre-Kindergarten class. SERVICE PROVIDER Chicago Public Schools OUTCOME FUNDER City of Chicago Office of the Mayor and Chicago Public Schools INTERMEDIARY (roles in parentheses) IFF (formerly Illinois Facilities Fund) TECHNICAL ASSISTANCE PROVIDER Metropolitan Family Services (assistance with service model) and Harvard SIB Lab UPFRONT CAPITAL COMMITMENT (USDM)* 16.9 NON- RECOVERABLE GRANTS Finnegan Family Foundation covered the evaluation costs Senior Investors Subordinate Investors INVESTOR NAME Goldman Sachs’ Social Impact Fund and Northern Trust Corp. J.B. and M.K. Pritzker Family Foundation INVESTMENT (USDM)* Not publicly available Not publicly available MAXIMUM POTENTIAL LOSS (% of principal) 100% OUTCOME METRIC 1. Decrease in need for special education (remedial education) services Kindergarten through 12th Grade 2. Increase in Kindergarten readiness as measured using a standard assessment tool 3. Increase in 3rd grade reading scores OUTCOME EVALUATION METHOD [Evaluator in brackets] Not publicly available [Not publicly available] PAYMENT SCHEDULE 1. Payments for decreases in special education: annual payments Kindergarten through 12th Grade, from Chicago Public Schools to investors 2. and 3. Payments for Kindergarten and 3rd grade outcomes: once over the four-year project, from the City of Chicago to investors THRESHOLD FOR PAYMENTS FROM THE OUTCOME FUNDER Any positive change in metric Subordinate investors are eligible for repayment once senior investors are repaid. PAYMENTS BEYOND THRESHOLD 1. Payments for decreases in special education are $9,100 annually compounding at a rate of 1.0% for each student that avoids special education after attending the CPC Program, paid by Chicago Public Schools 2. Payments for increases in Kindergarten readiness are $2,900 for each student that is prepared for Kin- dergarten after attending the CPC Program, paid by the City of Chicago 3. Payments for increases in 3rd grade reading scores are $750 for each student that scores above the national average on the nationally administered 3rd grade reading test, paid by City of Chicago” MAXIMUM RETURN Maximum 6% average annual return across all funders The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 114 SIB NAME Partnering for Family Success Program LOCATION Cuyahoga County, Ohio COUNTRY United States START DATE (date of contract signing) December 2014 CONTRACT DURATION 60 months SOCIAL ISSUE Family homelessness and child welfare TARGET POPULATION The intervention will reach 135 families who were recently homeless and their children (approximately 270 children). Children are between the ages of 0 and 18, though historical data suggests that 60% will be between the ages of 0 and 5. Because the project’s impact is being evaluated by a randomized control trial, an addition 135 families will form the control group. There are three cohorts of 90 families, split into a treatment subset of 45 families and a control subset of 45 families. INTERVENTION FrontLine’s Critical Time Intervention, which will help mothers find appropriate housing, apply for government benefits and employment opportunities and learn other life skills with the aim of reuniting children and mothers and reducing children’s length of stay in out-of-home care. SERVICE PROVIDER FrontLine Service (and three housing providers: Cuyahoga Metropolitan Housing Authority, Emerald Development & Economic Network, Famicos Foundation) OUTCOME FUNDER Cuyahoga County INTERMEDIARY (roles in parentheses) Third Sector Capital Partners (transaction coordinator and advisor to the SPV) Enterprise Community Partners Inc. (Project Manager, owner of the SPV--a single member LLC, conduit of financial information between the parties) TECHNICAL ASSISTANCE PROVIDER Third Sector Capital Partners (government advisor) UPFRONT CAPITAL COMMITMENT (USDM)* 4.00 NON- RECOVERABLE GRANTS N/A Senior Investors Subordinate Investors Recoverable Grants and Investment Guarantees INVESTOR NAME The Reinvestment Fund The George Gund Foundation, Nonprofit Finance Fund, The Cleveland Foundation, Sisters of Charity Foundation of Cleveland Sisters of Charity Foundation of Cleveland INVESTMENT (USDM)* 1.575 2.275 0.150 MAXIMUM POTENTIAL LOSS (% of principal) 25% OUTCOME METRIC Reduction in out-of-home placement days over the five years of the program versus control group OUTCOME EVALUATION METHOD [Evaluator in brackets] “Randomized Control Trial (RCT) [Case Western Reserve University]” PAYMENT SCHEDULE There will be one payment from the outcome funder to investors at the end (Quarter 21) of the project. The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 115 THRESHOLD FOR PAYMENTS FROM THE OUTCOME FUNDER Reduction of out-of-home days (versus control group) Subordinate investors are paid if senior investors have been paid principal and interest Grants are recovered if both senior and subordinate investors have been paid principal and interest PAYMENTS BEYOND THRESHOLD $75 per reduced out-of-home placement day MAXIMUM RETURN 5% annual base interest 2% annual base interest + equal participation in 1m of success fees Recovery of grants (0% return on investment) The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 116 SIB NAME Chronic Individual Homelessness Pay for Success Initiative LOCATION Commonwealth of Massachusetts (state-wide) COUNTRY United States START DATE (date of contract signing) December 2014 CONTRACT DURATION 72 months SOCIAL ISSUE Homelessness TARGET POPULATION Up to 800 chronically homeless adults INTERVENTION The intervention will provide up to 550 units of supportive housing to participants. The supportive housing is affordable for low-income individuals and provides residents with case management services and other community support. The program is modelled on the Home & Healthy for Good program, which is run by the Massachusetts Housing and Shelter Alliance (MHSA) and operating within approximately 20 housing/shelter organizations across Massachusetts. The intervention will expand this model within existing locations and introduce it in new locations . SERVICE PROVIDER MHSA is the lead partner that coordinates providers. Community support is provided by the state’s Medicaid program MassHealth. MassHealth Coordinating Entities (MCEs) fund Medicaid programs at the shelters. OUTCOME FUNDER Commonwealth of Massachusetts (Social Innovation Financing Trust Fund) INTERMEDIARY (roles in parentheses) The Massachusetts Alliance for Supportive Housing, LLC (MASH) is the special purpose subsidiary of MHSA created to serve as the legal intermediary body for this SIB. United Way of Massachusetts Bay and Merrimack Valley (United Way), MHSA, and the Corporation for Supportive Housing (CSH) sit on its board. MHSA led program development, oversight and service coordination. United Way raised the capital and serves as financial manager. CSH provides technical assistance for the initiative on national best practices.” TECHNICAL ASSISTANCE PROVIDER Harvard Kennedy School SIB Lab (assistance for state government during deal development) MHSA, United Way, and CSH all provide technical assistance as described in the intermediary section. UPFRONT CAPITAL COMMITMENT (USDM)* 24.5 NON- RECOVERABLE GRANTS $1 million: Grants from UnitedWay and Santander Bank Service providers have been given access to housing and health services for the program participants, estimat- ed to have the following values: $14 million: The Commonwealth of Massachusetts’s Department of Housing and Community Development’s (DHCD) is investing shelter resources and housing vouchers for 145 units of supportive housing, worth a total of $14 million. $7 million: The MassHealth program committed $7 million for healthcare of program participants. Service providers may also use other resources at their disposal to support participants, which may include resources from the federal Department for Housing and Urban Development (HUD)” Senior Investors INVESTOR NAME Santander Bank, CSH and United Way The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 117 INVESTMENT (USDM)* 2.5 MAXIMUM POTENTIAL LOSS (% of principal) 100% OUTCOME METRIC Participant stays in permanent supported housing or other permanent housing for at least one year OUTCOME EVALUATION METHOD [Evaluator in brackets] Validated administrative data [Root Cause validates service provider data] The Massachusetts government will evaluate the impact of the program on use of its other services, but this is not part of the contract. PAYMENT SCHEDULE First payment at the end of the first year, quarterly payments thereafter from the outcome funder to investors THRESHOLD FOR PAYMENTS FROM THE OUTCOME FUNDER Any participants housed for at least one year. PAYMENTS BEYOND THRESHOLD $3,000 per year per participant housed for at least one year. The payment will be prorated by day after the first year each participant stays in housing. This corresponds to a loss of principal if less than 80% of the participants stay the year, a 3.33% return if 85% stay the year, and a 5.33% return if all the tenants stay the year. MAXIMUM RETURN 5.33% average annualized return. The payments from the Massachusetts Social Innovation Financing Trust Fund are capped at $6 million. The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 118 Australia SIB Fact Sheets SIB NAME Newpin Social Benefit Bond (SBB) LOCATION State of New South Wales COUNTRY Australia START DATE (date of contract signing) June 2013 CONTRACT DURATION 87 months SOCIAL ISSUE Unhealthy family environments for children TARGET POPULATION Over 700 families (over 1,400 children) divided as follows: 350 families with at least one child age 5 or under who has been in government out of home care for at least 3 months 175 families with at least one child age 5 or under who has been assessed as at risk of serious harm 175 families with at least one child age 5 or under who has been assessed as needing support There will be annual cohorts of families, where each cohort includes a mix of families across the three categories above. INTERVENTION A long-term, intensive support program to improve parenting so that children can safely live at home. Families attend therapy, parenting courses and parent/child relationship building at centers two to four times a week for approximately 18 months. SERVICE PROVIDER UnitingCare Burnside** OUTCOME FUNDER State of New South Wales Department of Family and Community Services (FACS) INTERMEDIARY (roles in parentheses) Social Ventures Australia (assisting with modelling and analysis of structure, marketing bond and securing investors, manage trust between investors and UnitingCare Burnside, sit on formal Working Group with government and UnitingCare Burnside) TECHNICAL ASSISTANCE PROVIDER N/A UPFRONT CAPITAL COMMITMENT (USDM)* 6.73 NON- RECOVERABLE GRANTS N/A Senior Investors INVESTOR NAME Funds were raised through the SBB. Social Ventures Australia engaged to market the SBB. The 59 investors include UnitingCare Burnside, high net worth individuals, family foundations and superannuation funds. INVESTMENT (USDM)* 6.73 (AU$ 7 million) MAXIMUM POTENTIAL LOSS (% of principal) 25% of principal if the SBB is terminated in years 1 to 4; 50% of principal in years 5 to 7 OUTCOME METRIC Outcome Payments made by the Outcome Funder to the Service Provider are based upon the number of participating children who are successfully restored to the care of their family (restoration is determined by the judiciary system), net of the counterfactual. Financing payments (principal and interest) made by the Service Provider to Investors are based on the cumulative restoration rate: the proportion of children attending a Newpin Mothers’ Centre who are successfully restored to the care of their family. The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 119 OUTCOME EVALUATION METHOD [Evaluator in brackets] Historical comparison/Quasi-experiemental and Validated administrative data (from FACS system) [Deloitte] For the purpose of determining Outcome Payments made by the Outcome Funder to the Service Provider, the counterfactual number of restorations in the first 3 years is 25% of the number of children completing the program (based on historical experience). Thereafter the counterfactual restoration rate will be determined by the outcomes of a matched control group. For the purpose of determining Financing payments from the Service Provider to the Investors, FACS data is used to determine the restoration rate. In addition, a formal evaluation (outside the SIB contract) of the overall program will assess qualitative outcomes and other metrics (e.g. impacts on the lives of the parents in areas of health, justice, employment). PAYMENT SCHEDULE 7 yearly interest payments from the outcome funder to investors and 50% to 100% of principal repaid at maturity (at the end of the 7 years) THRESHOLD FOR PAYMENTS FROM THE OUTCOME FUNDER Outcome based payments from the Outcome Funder to the Service Provider are based upon the net (of counterfactual) number of restorations, and thus have a threshold equivalent to the counterfactual. Interest payments to investors commence above a threshold Restoration Rate of 55% (although a minimum interest rate applies in the first 3 years and 50 to 75% of principal is protected). PAYMENTS BEYOND THRESHOLD Interest payments annually based on cumulative restoration rate achieved: • Restoration rate <55% - Interest rate 0% (subject to minimum 5% in first 3 years) • Restoration rate 55% - Interest rate 3% (subject to minimum 5% in first 3 years) • Restoration rate 60%-Interest rate 7.5% • Restoration rate 65% - Interest rate 12% • Restoration rate 70%- Interest rate 15% Principal repaid on maturity - between 50% and 100% depending on restoration rate (100% if restoration rate >55%) Investors have the opportunity to terminate the deal early from the end of year 3 if the restoration rate is below 45%. MAXIMUM RETURN Maximum annual return of 15% *Using exchange rate from month of contract signing **UnitingCare Burnside played a significant role in the development of this SIB, including work on the development of the financial model and SBB structure. The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 120 SIB NAME Benevolent Society Social Benefit Bond (SBB) LOCATION State of New South Wales COUNTRY Australia START DATE (date of contract signing) October 2013 CONTRACT DURATION 60 months SOCIAL ISSUE Unhealthy family environments for children TARGET POPULATION Up to 400 families who are expecting a child or have at least one child under six years of age (approximately 636 children), and who have been reported to Department of Family and Community Services as being at risk of significant harm. There will be four annual cohorts, which will be used to calculate payments. INTERVENTION Intensive family support program of 9 to 12 months duration designed to keep children with their families (where safe) and to avoid their entry into out-of-home care. SERVICE PROVIDER The Benevolent Society OUTCOME FUNDER State of New South Wales Treasury and New South Wales Department of Family and Community Services INTERMEDIARY (roles in parentheses) Westpac Institutional Bank (helped structure the deal, raise the investment, manage the deal and help the service provider develop a more mathematical understanding of success) Commonwealth Bank of Australia (helped structure the deal and raise the investment) A Special Purpose Vehicle was the legal intermediate body for funding TECHNICAL ASSISTANCE PROVIDER N/A UPFRONT CAPITAL COMMITMENT (USDM)* 9.32 NON- RECOVERABLE GRANTS N/A Senior Investors Subordinate Investors INVESTOR NAME 44 total investors in the Senior (“Class P”) and Subordinate (“Class E”) investment groups. Many investors have invested in both tranches. Senior Investors include Benevolent Society, Westpac Foundation, and the Commonwealth Bank of Australia. The Westpac Institutional Bank and Commonwealth Bank of Australia raised funds from their investors, including high net worth individuals, self-managed super funds, trusts, small foundations, and institutions Subordinate Investors include the Benevolent Society, Westpac Foundation, the Commonwealth Bank of Australia INVESTMENT (USDM)* 6.99 (AU$ 7.5 million) 2.33 (AU$ 2.5 million) MAXIMUM POTENTIAL LOSS (% of principal) 0% 100% OUTCOME METRIC The weighted average of three measures of the youngest child in each family, relative to a matched control group: 1. Number of entries into out-of-home care (weight of 66%) 2. Number of Child Protection Helpline reports (Department for Family and Community Services call-in line for suspected risk of significant harm to children) (weight of 17%) 3. Number of safety and risk assessments (weight of 17%) The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 121 THRESHOLD FOR PAYMENTS FROM THE OUTCOME FUNDER No threshold for principal repayment, >5% change in the performance metric needed for interest Principal and returns paid after senior lender has been repaid principal and interest. PAYMENTS BEYOND THRESHOLD Performance Improvement 0% to 5% - Interest 0% Performance Improvement 5% to 15% - Interest 5% Performance Improvement 15% to 20% - Interest 6% Performance Improvement 20% to 25% - Interest 7% Performance Improvement 25% to 35% - Interest 8% Performance Improvement 35% to 40% - Interest 9% Performance Improvement >40% - Interest 10% Year one results indicate Class P investors will earn 5% in the payment The bonds are readily saleable at any time. Improve 0% to 5% - Interest 0% Improve 5% to 15% - Interest 8% Improve 15% to 20%- Interest 10.5% Improve 20% to 25%-Interest 15% Improve 25% to 35%-Interest 20% Improve 35% to 40%-Interest 25% Improve >40% - Interest 30% Year one results indicate Class E investors will earn 8% in the payment The bonds are readily saleable at any time.” MAXIMUM RETURN 10% average annual return 30% average annual return *Using exchange rate from month of contract signing **UnitingCare Burnside played a significant role in the development of this SIB, including work on the development of the financial model and SBB structure. The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 122 The Netherlands SIB Fact Sheets SIB NAME Social Impact Bond Rotterdam LOCATION Rotterdam, South Holland COUNTRY The Netherlands START DATE (date of contract signing) December 2013 CONTRACT DURATION 50 months SOCIAL ISSUE Unemployment TARGET POPULATION 160 unemployed young people ages 17 to 27 who receive municipal unemployment welfare INTERVENTION The intervention will consist of workshops, personal coaching, internships and access to a network of entrepreneurs and professionals for young people so that they can start their own companies, find paid employment or enroll in a training program. SERVICE PROVIDER Buzinezzclub OUTCOME FUNDER Municipality of Rotterdam INTERMEDIARY (roles in parentheses) In the proces of building the SIB construction, there was no intermediary involved. During the SIB, Deloitte is measuring the results as an objective evaluator. The flows of funds run through a shell foundation, called SIB Rotterdam Foundation. TECHNICAL ASSISTANCE PROVIDER N/A UPFRONT CAPITAL COMMITMENT (USDM)* 0.924 NON- RECOVERABLE GRANTS N/A Senior Investors Subordinate Investors INVESTOR NAME ABN AMRO and the Start Foundation N/A INVESTMENT (USDM)* 0.924 (EUR 0.68 million) MAXIMUM POTENTIAL LOSS (% of principal) 66% OUTCOME METRIC Days of unemployment welfare for youth OUTCOME EVALUATION METHOD [Evaluator in brackets] Historical comparison. Oracle devoloped a comparison model. [Deloitte] PAYMENT SCHEDULE Not publicly available THRESHOLD FOR PAYMENTS FROM THE OUTCOME FUNDER Positive impact on months of unemployment welfare for youth PAYMENTS BEYOND THRESHOLD Yield is variable and based on savings to the government. No further information is public. MAXIMUM RETURN Maximum annual return of 12% *Using exchange rate from month of contract signing The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 123 SIB NAME Eleven Augsburg LOCATION Augsburg, Bavaria COUNTRY Germany START DATE (date of contract signing) September 2013 CONTRACT DURATION 28 months SOCIAL ISSUE Unemployment TARGET POPULATION Unemployed people less than 25-years-old in the Augsburg region who are not currently attending school, have not completed compulsory education, do not have ongoing or successfully completed apprenticeship, do not have a current occupation, and have not had contact with the employment agency or participated in agency programs for at least two years (approximately 100 participants in the program) INTERVENTION Participants receive intensive support and guidance to find apprenticeships or gainful employment and continued support during the placement in that position. SERVICE PROVIDER Apeiros e.V., Ausbildungsmanagement Augsburg (Education Management Augsburg), Kinder-, Jugend- und Familienhilfe Hochzoll (Child and Youth Services Hochzoll), Joblinge gAG München OUTCOME FUNDER Bavarian State Ministry of Labour and Social Affairs, Family and Integration INTERMEDIARY (roles in parentheses) Juvat gemeinnützige GmbH, a non-profit subsidiary of Benckiser Foundation Future (negotiating the contractual agreement with the public sector, obtaining upfront financing from independent financiers, commissioning and providing support to the organizations responsible for implementation of the project, and coordinating the independent evaluation of the project’s success) TECHNICAL ASSISTANCE PROVIDER N/A UPFRONT CAPITAL COMMITMENT (USDM)* Not publicly available NON- RECOVERABLE GRANTS N/A Senior Investors INVESTOR NAME BHF-BANK Foundation, BonVenture gGmbH (a non-profit subsidiary of BonVenture social venture capital fund), BMW Foundation Herbert Quandt , Eberhard von Kuenheim Foundation of BMW AG INVESTMENT (USDM)* Not publicly available MAXIMUM POTENTIAL LOSS (% of principal) 100% OUTCOME METRIC Number of members of the target group placed into work or apprenticeship for more than 9 months OUTCOME EVALUATION METHOD [Evaluator in brackets] Validated administrative data (e.g. on employment) [Law firm Dr. Mohren & Partner] There is an additional qualitative process evaluation taking place, run by the Faculty of Economic and Social Sciences at the University of Hamburg” PAYMENT SCHEDULE Single repayment of principal plus interest from outcome funders to investors in case of positive success evaluation at the end of the project (estimated 03/2016) The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 124 SIB NAME Duo for a Job LOCATION Brussels-Capital Region COUNTRY Belgium START DATE (date of contract signing) January 2014 CONTRACT DURATION 24 months SOCIAL ISSUE Unemployment TARGET POPULATION 180 18- to 30-year-old migrants who are neither EU, US nor Canadian nationals, are legally residing in Brussels, and are registered at Actiris (the Brussels-Capital Region Employment Agency), thus permitted to work in Belgium INTERVENTION Participants will be matched with local retirees who worked in the field of the participant’s employment interest, who will give them advice for 6 months and put them in touch with suitable employers. The program will provide individualized and tailored follow-up of participants’ job-searching activities. SERVICE PROVIDER Duo for a Job OUTCOME FUNDER Actiris (Brussels-Capital Region Employment Office) INTERMEDIARY (roles in parentheses) Kois Invest TECHNICAL ASSISTANCE PROVIDER Kois Invest UPFRONT CAPITAL COMMITMENT (USDM)* 0.323 NON- RECOVERABLE GRANTS Pro bono legal services and external foundation grant for technical assistance from Kois Invest Senior Investors INVESTOR NAME Kois Invest gathered individual investors INVESTMENT (USDM)* 0.323 (EUR 0.234 million) MAXIMUM POTENTIAL LOSS (% of principal) 100% OUTCOME METRIC The one-year reemployment rate, defined as having accumulated more than 90 days of employment or obtained a permanent employment contract in the year following the program OUTCOME EVALUATION METHOD [Evaluator in brackets] Quasi-experimental (matched comparison group) [Brussels Observatory of Employment (verified by an independent validator)] PAYMENT SCHEDULE Payments from the outcome funder to the investors will take place once at the end of the two year deal THRESHOLD FOR PAYMENTS FROM THE OUTCOME FUNDER A higher reemployment rate among treatment than control PAYMENTS BEYOND THRESHOLD If improvement in reemployment rate (in comparison to control group) is between 0% and 10%, payment gradually increases from 0% to 100% of investment principal. If improvement is beyond 10%, investors earn incrementally higher interest, up to 9%. MAXIMUM RETURN Up to 9% return at the end of the project. The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 125 SIB NAME Sweet Dreams Supported Living Project LOCATION Saskatoon, Saskatchewan COUNTRY Canada START DATE (date of contract signing) AMay 2104 CONTRACT DURATION 60 months SOCIAL ISSUE Unhealthy family environments for children TARGET POPULATION Single mothers of a total of 22 children ages 0-12 who are at risk of requiring services from Child and Family Services (part of the Ministry of Social Services). INTERVENTION Mothers and children will live in the provided Sweet Dreams House. The house provides classes and workshops aiming to improve parenting and increase the chances of mothers gaining employment. SERVICE PROVIDER Saskatoon Downtown Youth Center (known as EGADZ) OUTCOME FUNDER Province of Saskatchewan Ministry of Social Services INTERMEDIARY (roles in parentheses) Saskatchewan Executive Council (designed SIB outcome measures and contract, raised investor capital) Saskatchewan Ministry of Social Services (holds direct contracts with investors and the service provider) TECHNICAL ASSISTANCE PROVIDER N/A UPFRONT CAPITAL COMMITMENT (USDM)* 1.401 NON- RECOVERABLE GRANTS Additional grants worth 0.488 ($CA535,000) to Sweet Dreams outside the contract from Government of Canada’s Homelessness Partnering Strategy, the City of Saskatoon, and other private donors Senior Investors INVESTOR NAME Conexus Credit Union, Wally and Colleen Mah INVESTMENT (USDM)* 0.913 (CA$ 1 million) MAXIMUM POTENTIAL LOSS (% of principal) 100% OUTCOME METRIC Percentage of children that are residing with their mothers six months after leaving the Sweet Dreams Project OUTCOME EVALUATION METHOD [Evaluator in brackets] Validated administrative data [Deloitte] (Deloitte will review the child’s participation in Child and Family Services and will evaluate the added savings of the program) PAYMENT SCHEDULE One payment at the end of the project from the outcome funder to the investors THRESHOLD FOR PAYMENTS FROM THE OUTCOME FUNDER 17 of 22 children with their mothers six months after leaving the project PAYMENTS BEYOND THRESHOLD “Repayment is on a sliding scale from 17 to 22 of the total 22 children with their mothers. 17 children with mothers: Investors paid 75% of principal + 5% interest 22 children with mothers: Investors paid 100% of principal + 5% interest” MAXIMUM RETURN T5% average annual return *Using exchange rate from month of contract signing The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 126 THRESHOLD FOR PAYMENTS FROM THE OUTCOME FUNDER 20 target group individuals in work or apprenticeship for over 9 months. PAYMENTS BEYOND THRESHOLD Payment of principal plus 3% interest is made at the end of the project if 20 or more of the target group individuals are in work or apprenticeship for over 9 months. MAXIMUM RETURN 3% overall return at the end of the project The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 127 SIB NAME Junior Code Academy LOCATION Lisbon COUNTRY Portugal START DATE (date of contract signing) January 2015 CONTRACT DURATION 20 months SOCIAL ISSUE Primary school grade repetition and drop-out TARGET POPULATION 65 3rd and 4th year students (8- to 9-years-old) in three different schools, two of which are in traditionally disadvantaged areas. INTERVENTION Junior Code Academy is a 30-week computer programming intervention integrated in the school curriculum over three consecutive school terms (second term of 3rd grade, third term of 3rd grade and first term of 4th grade). Students will learn to use Scratch, a computer program developed by the Massachusetts Institute of Technology where students write code to control a physical robot. This particular school program was set up with the support of University of Aveiro in Portugal. These classes are delivered by two external trainers (recruited and trained by Junior Code Academy), with the supervision of the classroom teacher. The Code academy curriculum integrates other relevant subjects of the national curriculum into the Code Academy classes through activities such as animation of readings. SERVICE PROVIDER Code Academy (a recently created for-profit social enterprise) OUTCOME FUNDER Municipality of Lisbon (local level public sector entity, which is accountable for managing the primary education system in Lisbon) INTERMEDIARY (roles in parentheses) Social Investment Lab (social problem analysis, assisting in identifying the outcome metrics and evaluation method, developing the financial model and structuring the SIB, capital raise, assisting in the service provider management and operational due diligence, capital raising) TECHNICAL ASSISTANCE PROVIDER University of Aveiro, Portugal UPFRONT CAPITAL COMMITMENT (USDM)* 0.148 NON- RECOVERABLE GRANTS USDm 0.034: Calouste Gulbenkian Foun- dation has given a grant of EU 28,000 for robots and equipment. Though not included in this category by this study’s definition, it is worth noting that the Social Investment Lab and the Nova School of Business offered their intermediary and evaluation services pro bono, valued at a cost combined EU 25,000 , split roughly evenly between both entities Senior Investors INVESTOR NAME Calouste Gulbenkian Foundation INVESTMENT (USDM)* 0.114 (EUR 0.094 million) MAXIMUM POTENTIAL LOSS (% of principal) 100% OUTCOME METRIC 1. Logical thinking and problem solving skills- difference in score between control and treatment groups on a “Raven Matrices” type of test (weighting 90%) 2. National exams in Portuguese and Mathematics, compulsory for all 4th grade students, two terms after the intervention is finished—difference in score between control and treatment groups (weighting 10%). The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 128 OUTCOME EVALUATION METHOD [Evaluator in brackets] Randomized Control Trial (RCT) [Nova School of Business and Economics] PAYMENT SCHEDULE There are two payments from outcome funders to investors: payments for logical thinking and problem solving skill improvements will be paid after one year and payments for performance on national exams will be paid at the end of the 20 months. THRESHOLD FOR PAYMENTS FROM THE OUTCOME FUNDER Positive change in one of the metrics 19.800.00 € 2% PAYMENTS BEYOND THRESHOLD Outcomes achieved 3% Logical thinking 29.700.00 € -€ 0% 3% School performance Outcomes payment Outcomes achieved Outcomes payment 0% 3.300.00 € -€ 1% 9.900.00 € 1% 1.100.00 € 2% 2.200.00 € 4% 39.600.00 € 4% 4.400.00 € 5% 49.500.00 € 5% 5.500.00 € 6% 59.400.00 € 6% 6.600.00 € 7% 69.300.00 € 7% 7.700.00 € 8% 79.200.00 € 8% 8.800.00 € 9% 89.100.00 € 9% 9.900.00 € 10% 99.000.00 € 10% 11.000.00 € MAXIMUM RETURN The IRR of the investment is approximately 2% (excluding the grants) The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 129 US S 1089; Social Impact Partnership Act This bill would authorize the appropriation of $300 million for state and local social impact bonds over 10 years and is a companion to HR 1336. Authorization; Financing Introduced in Senate in April 2015 US HR 1336 Introduced by Todd Young (R-Ind.) and John Delaney (D-Md.), this bill would authorize $300 million through a one-time mandatory appropriation for states and/or local governments that launch pay-for-performance initiatives. This bill would also establish a federal interagency council on social impact partnerships to oversee the initiative and issue-related regulations. This bill would also authorize the Office of Management and Budget to spend up to $2 million each year for federal technical assistance in the development or support of social impact partnerships and $10 million to cover up to half of the cost of state/local feasibility studies. The bill reserves up to $45 million (15 percent of all funds) for evaluations. In addition, the bill would permit bank investments in social impact partnerships to be considered as part of a bank’s requirement under the Community Reinvestment Act (CRA) to help meet the credit needs in its community. Authorization; Financing Introduced in House in March 2015 US HR 5 Delaney amended the Elementary and Secondary Education Act to improve teacher training and retention programs by allowing state and local governments to use pay-for-success (PFS) initiatives to improve outcomes and save money. Authorization Successfully amended in 2015; bill remains in Committee of the Whole House on the State of the Union APPENDIX 3. LEGISLATION AND POLICY ACTION TO SUPPORT THE IMPACT BOND ECOSYSTEM NAME OF LOCATION LEGISLATION DETAILS TYPE OF SUPPORT STATUS SIB-Specific Legislation at the National Level Legislation Supporting SIBs The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 130  LOCATION NAME OF LEGISLATION DETAILS TYPE OF SUPPORT STATUS US HR 4885 Introduced by Young in June 2014, the Social Impact Bond Act would amend Title XX (Block Grants to States for Social Services and Elder Justice) of the Social Security Act to add a new Part C (Social Impact Bonds). This bill would require the secretary of the treasury to seek proposals from states or local governments for social impact bond projects that produce measurable, clearly defined outcomes that result in social benefit, such as employment for the unemployed, high school graduation, and reduction of teen and unplanned pregnancies as well as reduction of incidences of child abuse and neglect. The bill would require applications to include a feasibility study, funded under this act, which contains specified information. The bill makes appropriations for 10 years to carry out this act. The bill also would require independent eval- uation of a state or local government social impact bond project and would establish a federal interagency council on social impact bonds. In addition, the bill would amend the Community Reinvestment Act of 1977 to require the appropriate federal financial supervisory agency to consider, in assessing and taking into account the record of a financial institution in meeting the credit needs of its entire community, its investments in social impact bond projects. Authorization; Financing Referred to Committee on Ways and Means and House Financial Services Commit- tee in June 2014 US Workforce Innovation and Opportunity Act The reauthorization of the Workforce Innovation and Opportunity Act included a provision allowing local workforce investment boards to redirect up to 10 percent of their federal dollars to PFS contracts. Authorization Signed into law in 2014 SIB-specific legislation at the state level US – South Carolina Pay for Success Performance Accountability Act This bill supports the introduction of a trust fund for performance accountability for the purpose of funding PFS contracts to improve outcomes and lower costs for government services. Financing Financing Referred to South Carolina State Senate Finance Committee in 2013 US – California AB 1837 This bill enacts, until January 1, 2020, the Social Innovation Financing Program. The bill authorizes the Board of State and Community Corrections, upon appropriation of funds by the Legislature for deposit in the Recidivism Reduction Fund, to award grants of $500,000 to $2 million to three counties for the purpose of entering into a PFS or social innovation financing contract. The bill limits the total amount of the grants awarded to $5 million. Signed into law in September 2014 US – Connecticut SB 105 The bill would allow the Office of Policy and Management secretary to authorize any agency to enter into an outcome-based performance contract with a social innovation investment enterprise for the purpose of any type of preventive social program. Authorization; Financing Tabled for the calendar in 2014  LOCATION NAME OF LEGISLATION DETAILS TYPE OF SUPPORT STATUS US – Hawaii US – Maryland House Concurrent Resolution No. 119 This bill requested the Department of Budget and Finance conduct a study on the feasibility of using SIBs to fund early learning programs and services. The study was completed in December 2013. Scoping Authorization Passed in House and Senate in 2013 US – Nebraska Introduced by Rep. Brad Ashford (D-Neb.) in May 2013, this bill calls for an interim study on how SIBs might benefit juveniles and adults re-entering the community after involvement with the juvenile justice or criminal justice system. Scoping Referred to Judiciary Committee in 2013 US – New Jersey A-2771 New Jersey Social Innovation Act This bill would have created an initial PFS pilot focusing on the provision of nonprofit health care services to encourage private investment in preventive and early intervention health care. The bill also would have established a study commission to assess the effectiveness of the program. Pilot Pocket-vetoed by governor in 2014 US – Oklahoma SB 1278 S 2196 This bill established a PFS revolving fund to provide payment to social service providers for the delivery of predefined criminal justice outcomes. Financing Pilot; Scoping Signed into law in April 2014 US – Rhode Island This bill was introduced in January 2014 to establish a five-year SIB pilot program and study commission within the Rhode Island Department of Administration. Introduced and held on Senate desk in 2014 US – Texas US – Utah SB 1788 This bill would set up a committee to advise on the use of SIBs to finance child abuse prevention programs. Scoping Referred to Health and Human Services Committee in 2013 US – Vermont H 625 This legislation would establish a committee to study SIBs and recommend to the General Assembly opportunities for their use in Vermont. Scoping Referred to the Committee on Government Operations in 2012 HB 517 LR 279 This bill was introduced in the Maryland House of Delegates to enable the state to issue an RFP for SIBs in an effort to improve public education in grades pre-K to 12. Withdrawn in 2013 HB 96 - School Readiness Initiative The School Readiness Initiative created the School Readiness Board, which provides grants to certain early childhood education programs and allows entry into certain contracts with private entities to provide funding for early childhood education programs for at-risk students. Authorization; Financing Signed into law in April 2014  LOCATION NAME OF LEGISLATION DETAILS TYPE OF SUPPORT STATUS US – Washington HB 2337 This bill would establish the Washington Social Investment Steering Committee, which would develop an implementation plan for at least one pilot that uses social impact bonds or other public-private financing for social or health care services. It would require that the Office of Financial Management issue a request for proposals to implement the pilot or pilots by July 1, 2015, and that the pilot or pilots be implemented by January 1, 2016. Authorization; Scoping Introduced in 2014 but did not move beyond the Appropriations Committee US – Massachusetts H 4219 This bill established the Social Innovation Financing Trust Fund, which authorized the secretary of administration and finance to enter into PFS contracts, with up to $50 million in success payments backed by the state. Authorization; Financing Signed into law in 2012 US – Pennsylvania HB 1053; Pay for Success Authorization and Performance Accountability Act This bill would establish a PFS pilot program to expand access to high-quality early childhood education services by encouraging private investment in early childhood education. It would authorize counties to enter into PFS contracts for early childhood education services. The bill would also establish a PFS trust fund as a special fund in the state treasury. Authorization; Financing Referred to House Finance Committee in 2015 US – Colorado HB 15-1317; Pay for Success Contract Act The Pay for Success Contracts Act would authorize the Office of State Plan- ning and Budgeting (OPSB) to enter into state PFS contracts with one or more lead contractors for the provision of social services that would reduce the need for the state to provide other social services in the future. The bill would also allow local governments to be additional parties to a PFS contract if the OPSB and the local governing body approve. In addition, the bill would create a PFS contracts fund in the state treasury consisting of money transferred Authorization; Financing Assigned to House Business Affairs and Labor Committee in 2015 US – Colorado SB 14-185 The bill would authorize the OSPB to enter into state PFS contracts with one or more lead contractors for the provision of early childhood education services that would reduce the need for the state to provide subsequent ed- ucation support and other social services. The bill also allows school districts to be parties to a PFS contract with the approval of the OSPB and the lead contractor as well as the board of education of the district. In addition, the bill would create a PFS contracts fund of up to $25 million in the state treasury. Authorization; Financing Passed in Senate in 2014; postponed indefinitely by House Committee on Educa- tion in 2014 or appropriated by the General Assembly from direct or indirect reductions in state spending resulting from the provision of social services under a PFS contract or from any other source; any money received by the state from a local government that has joined a contract as an additional party for the pur- pose of making payments to a lead contractor; and fund investment earnings.  NAME OF LOCATION LEGISLATION DETAILS TYPE OF SUPPORT STATUS Non-SIB-Specific Legislation Supporting SIBs at the National Level US Community Rein- vestment Act The Community Reinvestment Act requires depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, with banking regulators eval- uating banks’ performance in meeting these goals. CRA banks often work through community development financial institutions, community develop- ment corporations, and other intermediaries. These intermediaries can play an important role in the development of the PFS financing market. Transac- tions that would qualify for CRA credit will most likely involve the provision of community services to low- and moderate-income individuals in the form of community facilities, such as youth programs, homeless centers, soup kitchens, health care facilities, battered women’s centers, and alcohol and drug recovery centers. Incentives for Financing Signed into law in 1977 US Tax Reform Act This act coined the “program-related investment,” or PRI, which is any investment by a foundation that meets three tests: its primary purpose is to further the tax-exempt purposes of the foundation; the production of income or property is not a significant purpose; and it is not used to lobby or support lobbying. PRIs are expected to be repaid, and the tax code counts the entire amount of a PRI as a qualifying distribution in the year in which it is made (essentially the same treatment afforded grants). Because grants can usually be made only to nonprofit organizations, a for-profit entity that conducts business that advances an exempt purpose, such as building affordable housing, could receive a PRI. Also, when nonprofits are involved in projects that require substantial financial resources, they are frequently able to raise greater sums through loans than otherwise available as grants. PRIs are most frequently loans, but they also include loan guarantees, linked deposits, and equity investments. Incentives for Financing Signed into law in 1969  LOCATION NAME OF LEGISLATION DETAILS TYPE OF SUPPORT STATUS US Riegle Communi- ty Development and Regulatory Improvement Act of 1994 The Community Development Financial Institutions (CDFI) Fund was estab- lished by the Riegle Community Development and Regulatory Improvement Act of 1994, whose purpose is to invest in CDFIs and to build their capacity to serve low-income people and communities that lack access to affordable financial products and services. The CDFI Fund provides two types of mon- etary awards to CDFIs: financial assistance and technical assistance. CDFIs may use the funds to pursue a variety of goals, including promoting economic development, developing affordable housing and promoting homeownership, and providing community development financial services, such as basic bank- ing services, financial literacy programs, and alternatives to predatory lending. CDFIs can be leveraged for developing the PFS market—in its inaugural funding round for social impact bond intermediaries, the Social Innovation Fund, which is housed at the Corporation for National and Community Service, granted more than 45 percent of its resources to certified CDFIs. Incentives for Financing Went into effect in 1994 UK Social Investment Tax Relief This measure makes available tax reliefs for qualifying individuals who make qualifying investments in qualifying social enterprises. Income tax relief will be available as a percentage of the amount invested, and capital gains tax on chargeable gains can be deferred in certain circumstances in which the person liable to tax invests money in a social enterprise. Incentives for Financing Went into effect in April 2014  LOCATION National Level NAME OF LEGISLATION DETAILS TYPE OF SUPPORT US (grants to 37 states and DC) Social Innovation Fund The Social Innovation Fund (SIF), a White House initiative and program of the Corporation for National and Community Service, combines public and private resources to grow the impact of innovative, community-based solutions that have compelling evidence of improving the lives of people in low-in- come communities throughout the United States. The SIF invests in three priority areas—economic opportunity, healthy futures, and youth development—by making grants of $1 million to $10 million annually for up to five years to experienced grant-making “intermediaries.” The intermediaries then match the federal funds dollar-for-dollar and hold open competitions to identify high-performing non- profit organizations working in low-income communities that have innovative solutions with evidence of compelling results. Once selected, these nonprofits must also match the funds they receive and participate in rigorous evaluations of the impact of their programs. In addition to funding, significant technical assistance is given to Social Innovation Fund grantees to support implementation of their innovative programs. Financing; Pilot; Technical Assistance US SIB Lab at Harvard Kennedy School Local and state governments have partnered with the Social Impact Bond Technical Assistance Lab (SIB Lab) at Harvard Kennedy School to receive technical assistance to help develop PFS projects. The technical assistance supports recipients in designing, implementing, and evaluating policy initiatives in areas ranging from early childhood education to prison recidivism and economic self-sufficiency to green infrastructure. During the past three years, the SIB Lab has helped Massachusetts, New York state, and Chicago launch PFS contracts using social impact bonds. Current SIB Lab partners include Colorado, Connecticut, Denver, Illinois, Massachusetts, Michigan, New York, and South Carolina. The winners of the 2014 SIB Lab competition for technical assistance are Arkansas, DC Water (District of Columbia), Nevada, Pennsylvania, and San Francisco. Pilot; Technical Assistance US Second Chance Act implementation by Justice Department Second Chance Act programs, administered through the Justice Department’s Office of Justice Pro- grams, are designed to help communities develop and implement comprehensive strategies to address the challenges faced by adults and youth when they return to their communities after incarceration. In 2012, the office’s Bureau of Justice Assistance announced that it would support jurisdictions that proposed to plan or implement a PFS model into their re-entry initiative. The agency is making two PFS awards: an implementation award to Cuyahoga County, Ohio, and a planning award to Lowell, Massachusetts, and is funding the Urban Institute’s efforts to develop a blueprint for municipal, state and federal governments to use to pay for evidence-based anti-crime programs. Financing Government Actions Supporting SIBs  LOCATION NAME OF LEGISLATION DETAILS TYPE OF SUPPORT US US White House Office of Science and Technology Policy In January 2014, the White House Office of Science and Technology Policy released a request for information (RFI) to understand how “pull mechanisms,” which encompass PFS financing, can advance learning technology. RFI Financing US US Department of Treasury In October 2013, the US Department of Treasury and an interagency PFS working group released an RFI, “Strategies to Accelerate the Testing and Adoption of Pay for Success (PFS) Financing Model.” The RFI asked respondents to identify the “best use of the authority ... on state, local and tribal perfor- mance-based funding mechanisms.” It also requested information about the current PFS marketplace, the potential impact of a PFS incentive fund, and possible advantages to taxpayers. RFI US US Department of Labor The Department of Labor awarded nearly $24 million in PFS grants in September 2013 to New York and Massachusetts to support SIBs that increase employment and reduce recidivism among formerly incarcerated individuals as part of the Workforce Innovation Fund. Financing; Pilot Canada UK Economic Action Plan 2012 The government of Canada is exploring the potential of social impact bonds. Scoping Incubating Province/State Level US – Colorado On September 3, 2013, the Governor’s Office and the Denver Office of Strategic Partnerships released an RFI regarding social impact bonds and PFS contracts. Both offices are seeking information from providers, intermediaries, and investors on this new way of financing social programs. RFI White House The president’s FY16 budget allows for $364 million for PFS efforts. Of that, $300 million would be allocated for an incentive fund at the Department of Treasury to help empower state, local, and tribal governments to adopt PFS initiatives (this was proposed in FY13 and FY14), and up to $64 million would be allocated to support PFS initiatives across four programs in the Department of Education, Department of Justice, and the Corporation for National and Community Service. Centre for Social Impact Bonds The Centre for Social Impact Bonds in the Cabinet Office supports the development of social impact bonds. Its objectives are related to: • Building a repository of expert information and guidance on how to develop SIBs • Making available practical tools so that SIBs can be developed easily and cost-effectively • Providing funding for a portion of outcome payments for new SIBs • Showcasing how SIBs are transforming public service delivery and building an evidence base of what works • Stimulating and sharing the latest thinking, research and media coverage on SIBs  LOCATION NAME OF LEGISLATION DETAILS TYPE OF SUPPORT US – Connecticut US – Illinois The Department of Children and Families released an RFI in 2013 and an RFP in 2014 for evaluating the feasibility of PFS contracts and social impact bonds to improve outcomes of children and families involved in the child welfare system who are also affected by substance abuse. RFI; RFP RFP US – District of Columbia In 2013, the District of Columbia Mayor’s Office of Budget and Finance released an RFP for a feasibility study to assist the District in determining the most appropriate content area to initiate a SIB or PFS project. RFP RFI US – South Carolina In September 2013, the South Carolina Department of Health and Human Services published an RFI concerning its Social Impact Bond Program. The agency was seeking information regarding the design and development of a social impact bond program focused on controlling costs and improving health and other outcomes of mothers and newborns in the state’s Medicaid program. US – Oregon US – Nevada The governor’s 2013-2015 budget proposal included $800,000 for the Early Learning Division to cover startup costs for a “Pilot Prevention Health and Wellness Demonstration Project for Social Impact Financing.” Financing RFI US – Michigan On September 9, 2013, Michigan’s Department of Technology, Management & Budget and its Procurement Division released an RFI to explore PFS models. The state identified criminal justice and human services as focus areas but is not limiting opportunities to those areas. RFI US – Massachusetts In 2014, Massachusetts released a Request for Response (RFR) related to adult basic education and English for speakers of other languages. RFR Financing US – New York In September 2013, New York state provided supplementary funding in addition to a $12 million grant from the U.S. Department of Labor for a social impact bond to increase employment and reduce recidivism among 2,000 individuals who had been incarcerated. Governor Pat Quinn announced in 2014 that the state would implement its first SIB for at-risk youth who are involved in both the child welfare and juvenile justice systems in Illinois. The first contract awarded will go to One Hope United, in partnership with the Conscience Community Network. This was preceded by the release of an RFP. In early 2014, Nevada released an RFI to identify early childhood education programs, organizations, or initiatives in southern Nevada that utilize an early childhood education strategy or structure that has demonstrated, or can demonstrate, the potential to result in quantifiable cost savings to a public or governmental entity.  LOCATION NAME OF LEGISLATION DETAILS TYPE OF SUPPORT Australia – New South Wales Social Impact Investment Policy This policy outlines 10 key actions that the government will take to support the growth of social impact investments. These key actions are around delivering more social impact investment transactions, growing the market and removing barriers, and building the capacity of market participants. To support these efforts, the government of New South Wales developed an Office of Social Impact Investment and a Social Impact Investment Expert Advisory Group. Technical Assistance; Commitment City/County Level US – Philadelphia, Pennsylvania, In July 2014, the city of Philadelphia released an RFP for a feasibility study to explore PFS programs to reduce recidivism and support at-risk youth. RFP US – Pima County, Arizona In 2014, Pima County authorized the receipt of two grants to explore PFS contracts. In 2013, Santa Clara County released an RFP for a mental health PFS project. In 2013, Santa Barbara County released an RFI for a recidivism project. Scoping; Technical Assistance US – Santa Clara County, California RFP RFI US – Santa Barbara County, California US – Cuyahoga County, Ohio Cuyahoga County issued a RFR on October 29, 2012 for a PFS pilot for human services programs that produce cashable savings for the county. RFR Financing US – Salt Lake County, Utah In June 2013, the Salt Lake County Council voted to allocate $300,000 to help pay for PFS outcomes.  Anderson, J and A . Phillips . 2015 . “What we learned from the Nation’s First Impact Bond” . Huff Post Impact What’s Working (blog), July 2 (huffingtonpost.com/james-anderson/what- we-learned-from-the-_1_b_7710272 .html [July 6, 2015]) . Barclay, L ., and T . Symons . 2013 . A Technical Guide to Developing So- cial Impact Bonds . Social Finance U .K . Bloomgarden, D ., M . Eddy, and Z . Levey . 2014 . Social Impact Bonds and Education in Latin America . GEMS Education Solutions . 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Aign- er-Treworgy . 2015 . “Identifying Educa- tion Outcomes for Social Impact Bonds for Early Childhood .” The Brookings Institu- tion (blog), February 13 (www .brookings . edu/blogs/education-plus-development/ posts/2015/02/13-education-outcomes-so- cial-impact-bonds-early-childhood-gustafs- son-wright-golden-aigner-treworgy [April 8, 2015]) . Hall, D . n .d . “LGA and Social Finance support for social impact bonds.” Cabinet Office. Centre for Social Impact Bonds (blogs.cabinetoffice. gov .uk/socialimpactbonds/ [May 11, 2015]) Harvard University . 2015 . “State and Local Gov- ernments Receive Assistance to Launch Pay for Success Projects Across the Country.” Harvard University Kennedy School of Gov- ernment, March 12 (www .hks .harvard .edu/ news-events/news/press-releases/sib-lab- winners-2015 [March 23, 2015]) . Hughes, J ., and J . Scherer . 2014 . Foundations for Social Impact Bonds. Social Finance U .S . Instiglio, Thomson Reuters Foundation, and Bak- er & McKenzie . 2014 . A Legal Roadmap for Social Impact Bonds in Developing Coun- tries. Thomson Reuters Foundation . Jones, N ., H . Jones, L . Steer, and A . Datta, 2009 . “Improving impact evaluation production and use,” Working Paper 300, Overseas Devel- opment Institute . Leventhal, R . 2013 . “Effecting Progress: Using Social Impact Bonds to Finance Social Ser- vices .” NYU Journal of Law and Business 9 . Liebman, J . 2011 . Social Impact Bonds . Center for American Progress, February . Liebman, J . and A . Sellman . 2013 . Social Impact Bonds: A Guide for State and Local Govern- ments . Harvard Kennedy School Social Im- pact Bond Technical Assistance Lab . Liersch, M . 2015 . “Millennials and Money .” Bank of America Merrill Lynch . Malaria No More . 2015 . “The Challenge .”(www . malarianomore .org/pages/the-challenge [May 11, 2015]) . Mulgan, G ., N . Reeder, M . Aylott, and L . Bo’sher . 2011 . Social Impact Investment: The Chal- lenge and Opportunity of Social Impact Bonds. 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Is- sue Brief no . 12 UNESCO Institute for Statis- The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 142 tics, June (www .uis .unesco .org/FactSheets/ Documents/FS12_2011_OOSC_EN .pdf [ac- cessed April 8, 2015]) . UNESCO . 2012 . At Least 250 Million Children of Primary School Age Are Failing to Learn the Basics . Technical report prepared for the Education for All Global Monitoring Report 2012 . UNESCO . UNESCO . 2015 . “Pricing the right to education: the cost of reaching new targets by 2030,” Education for All Global Monitoring Report, Policy Paper 18 . United States Department of Justice . 2012 . “Jus- tice Department Announces $58 Million to Improve Reentry Outcomes .” United States Department of Justice, October 1 (www.jus- tice.gov/opa/pr/justice-department-announc- es-58-million-improve-reentry-outcomes [March 23, 2015]) . 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Filmer & Pritchett (1999) . 9 . World Bank (2003) . 10 . For clarity, impact bonds, despite the name, are not bonds in the traditional definition of a bond . 11 . Burand (2013); Center for Global De- velopment and Social Finance (2013); Bloomgarden, Eddy, & Levey (2014) . 12 . Conversion rate as of June 1, 2015 . 13 . This includes only investors with assets under management of $10 million or above . 14 . Saltuk (2014) . 15 . Liersch (2015) . 16 . The term “social impact bond” has also been used for issuance of traditional, fixed-yield bonds to raise capital for social programs . This differs from the definition of “social im- pact bond” used in this study, in that this study defines “social impact bonds” to be ar- rangements where payments to investors are dependent on and positively correlated with positive outcomes . 17 . Center for Global Development and Social Fi- nance (2013) . 18 . Gustafsson-Wright, Golden, & Aigner-Trewor- gy (2015) . 19 . Instiglio, Thomson Reuters Foundation, and Baker & McKenzie (2014); Burand (2013) . 20 . Instiglio, “Overview,” Personal communica- tion (2013) . 21 . Tomkinson (2015) . 22 . Government of the UK (2014) . 23 . Goodall (2014) . 24 . A special purpose vehicle (SPV) is a legally independent body established for a specific exchange of assets or liabilities . SPVs are of- ten limited liability companies (LLCs) . 25 . There are no for-profit business service pro- viders to date; however, there are examples of all of the other types of entities including a for-profit social enterprise service provider 27 . Conversion rate as of June 1, 2015 . 28 . Not including the six impact bonds an- nounced in mid-March 2015 . 29 . Note that this pie chart could be divided up differently . We use the outcomes of focus as the differentiating factor . 30 . For an excellent portrayal of costs included in the deal, see Goodall (2014) . 31 . The contract for the NYC ABLE Project for In- carcerated Youth is not publicly available . 32 . Social Finance U .K . (2014b) . 33 . Tomkinson (2014a) . 34 . In the Massachusetts Juvenile Justice SIB, both senior and subordinate investors have the op- portunity to earn success fees, while in the SIB in Ohio only the subordinate investors do . 35 . Referring to the 8-12% expected annual inter- est for the Essex Family Therapy SIB 36 . Social Finance U .K . (2014a) . 37 . Thurlow (2015) . 38 . Anderson, J . & A . Phillips (2015) . 39 . Conversion rate as of June 1, 2015 40 . Tomkinson (2014b) . 41 . New Zealand Ministry of Health (2015) . 42 . Bertha Centre for Social Innovation, Universi- ty of Cape Town, South Africa, personal com- munication, 2015 . 43 . Simon Bell, Sector Manager, World Bank, in- terview, April 2015 . 44 . Goodall (2014); Bloomgarden, Eddy, & Levey (2014); Godeke & Resner (2012); Hughes & Scherer (2014); Callanan et al . (2012); Mul- gan, Reeder, Aylott, & Bo’sher (2011); Bar- clay & Symons (2013); Social Finance U .S . (2012); Center for Global Development & So- cial Finance (2013); Liebman (2011) . 45 . Social Finance U .S . (2012); Mulgan, Reeder, Aylott, & Bo’sher (2011); Barclay & Symons (2013); Godeke & Resner (2012) . 46 . Goodall (2014); Social Finance U .S . (2012); Mulgan, Reeder, Aylott, & Bo’sher (2011); Godeke & Resner (2012) . 47 . Hughes & Scherer (2014); Mulgan, Reeder, Aylott, & Bo’sher (2011) . 48 . Olson (2014) . 49 . See, for example, Chandy, Hosono, Kharas, & Linn (2013) . ENDNOTES 26 . Special purpose vehicle/limited liability com- 50 . Conversion rate as of June 1, 2015 51 . Conversion rate as of June 1, 2015 52 . Hall (n .d .) 53 . Corporation for National and Community Ser- vice (2015) . 54 . Nonprofit Finance Fund (2015); Congress- man Todd Young (2015) . 55 . Harvard University (2015) . 56 . United States Department of Justice (2012); Corporation for National and Community Ser- vice (2015) . 57 . Government of New South Wales (2015) . 58 . Government of Canada (2015) . 59 . Government of the UK (2013) . 60 . Interview with Liya Schuster, Third Sector Capital . May 14, 2015 . 61 . Schmidt (2012) . 62 . See Center for Global Development and So- cial Finance (2013), which introduces to the field the concept of the development impact bond . 63 . Burand (2013); Hughes & Scherer (2014) . 64 . Social Finance U .S . (2012); Godeke (2013); Ragin (2014) . 65 . Social Finance U .S . (2012); Godeke (2013) . 66 . Dickens & Baschnagel (2009) 67 . Gertler, Heckman, Pinto, Zanolini, Ver- meersch, Walker, Chang, & Grantham-Mc- Gregor (2014) 68 . Eames & Terranova (2014) . 69 . Anderson, J . & A . Phillips (2015) . 70 . Social Finance U .S . (2012) . 71 . Malaria No More (2015) . 72 . UNESCO (2015) . 73 . Chandy, Hosono, Kharas, & Linn (2013) . 74 . Interview with subject who requested ano- nymity, January 2015 . 75 . Social Finance U .S . (2012) . 76 . Burand (2013) . 77 . See discussion of Mexico’s Progresa/Opor- tunidades on page 27 of Jones (2009) . 78 . Four SIBs use two methods, one SIB uses three methods and two SIBs have not made their evaluation method publicly available . The Potential and Limitations of Impact Bonds: Lessons from the First Five Years of Experience Worldwide Global Economy and Development Program – BROOKINGS 145 1775 Massachusetts Ave ., NW Washington, D .C . 20036 brookings .edu