'Social impact bond' could lower risk of providing services

Smaller charities would benefit, says enterprise consultancy Social Finance

Enterprise consultancy Social Finance has proposed a financial product that would allow charities to raise private investment cash in advance of carrying out payment-by-results work.

The product, called the social impact bond, could be used by charities that won contracts to fund payment-by-results services for groups such as ex-offenders or unemployed young people.

The proposal, which is being discussed with the Treasury, would allow charities to raise cash in advance from private investors with the offer of a guaranteed payment if the contracts are carried out successfully.

Toby Eccles, development director at Social Finance, said the company hoped to run a pilot project to test the product next year.

"You would sell bonds based on a contract with the Government to help a particular section of the population - for example, you might ensure that a group of people coming out of prison do not reoffend within three years," he said.

"You would receive a guaranteed payment from the Government based on your success rate. If you make money, the extra cash goes to the investor. If you're less successful, the investor is the one who loses out."

Eccles said that the transfer of risk would make it easier for smaller charities to get involved in payment-by- results contracting.

The advantages would be that charities could raise money in advance rather than waiting on payment by results, and that much of the risk would be taken by an investor, he said.

"It will appeal to social investors who want a return on their cash, but perhaps not at market rates," he added.

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