Department for Work and Pensions backs six payment-by-results schemes with its Innovation Fund
The social impact bond model is to be used in at least two of six payment-by-results schemes being launched with the backing of the Department for Work and Pensions.
The DWP is supporting the schemes with its £30m Innovation Fund, set up to attract private investment to tackle the problems faced by disadvantaged young people.
Under the the social impact bond model, investors will fund charities to carry out work with young people, and will be paid according to the success of those charities.
If the charities help enough young people, the investors will make a profit. If the charities do not, the investors will lose cash.
Dan Hird, head of corporate finance at Triodos Bank, one of the organisations to receive preferred bidder status, said his bank had attracted funding from about six social investors, including £500,000 from the social wholesaler Big Society Capital.
This will be used to fund interventions over three years by the Greater Merseyside Connexions Partnership and several other charities.
Hird said the DWP would pay out if the partnership achieved any of several different results, including helping young people to remain in work for three months, or to successfully complete a course of education. The maximum it will pay out to Triodos investors is £4.5m.
"The scheme will offer investors a reasonable return, although maybe not really enough to attract private investors," Hird said. "For social investors who are already interested in helping young people, it’s quite attractive."
A spokeswoman for the Private Equity Foundation, another preferred bidder, said her organisation expected to use a social impact bond-type mechanism to fund a programme working with young people, but could not give more details.
Bidders will shortly be able to apply for another round of the Innovation Fund. The second round will focus on schemes working with disadvantaged people aged 14 or 15.