The world’s first social impact bond cut reoffending rates and repaid its investors, according to the social investment not-for-profit Social Finance.
But social finance experts have warned that the success of the One Service in Peterborough did not mean that similar projects could be replicated elsewhere, and the 3 per cent return received by investors could be achieved through less risky methods.
SIBs work by attracting investment to fund projects, often run by charities and social enterprises, and reimbursing and rewarding the investors if the project is successful.
The Peterborough SIB, which was set up in 2010 with £5m from trusts and foundations, helped to fund the One Service in the city, an organisation that works to prevent prisoners from reoffending.
Seven years on, the service has cut reoffending rates by 9 per cent, 1.5 percentage points above the target set by the Ministry of Justice.
The 17 investors in the bond have also been repaid their initial capital plus a 3 per cent return.
David Robinson, chair of the Peterborough SIB Advisory Board, said he was "delighted with the results, both social and financial", and added that the success showed "the transformative power of sustained, personal support for determined people in difficult circumstances".
David Hutchison, chief executive of Social Finance, said: "I am immensely grateful to all our partners for their commitment over the past seven years. We have learnt that impact investment can drive real change and harness communities and action to rethink how we resolve the challenges our societies face."
But social finance experts said the success of the Peterborough SIB should not be interpreted as proof that the SIB model could be replicated elsewhere, especially given the £6.3m funding it received from the Big Lottery Fund.
David Floyd, managing director of the community interest company Social Spider, which provides research and training, said that there were less risky ways of delivering a 3 per cent return on investment, and he would be surprised if the returns were enough to attract institutional investors to similar projects in the future.
He added: "The success of the Peterborough SIB needs to be understood in the context of the £6.3m grant provided by the Big Lottery Fund to support the project, alongside the £5m of social investment. This huge subsidy doesn’t detract from the positive outcomes achieved by providers, but it should lead us to be cautious about regarding One Service as a widely replicable model.
"One Service seems to offer some positive evidence about the value of charities working together in a coordinated way to achieve agreed outcomes. What it doesn’t tell us – one way or another – is whether the SIB will have a future as a funding mechanism when subsidies are no longer available."
Dan Gregory, an independent adviser, said: "It’s good news to hear of the project’s success in Peterborough. What we need to understand now, I think, is whether the SIB model works just because one SIB did. If a grant-funded programme proves successful, for example, it doesn’t tell us if grants, contracts or payment by results is the best model.
"Even the fiercest of SIB advocates agree they can be complex and expensive, and they have attracted lots of financial support from the government. I hope we can now get a better understanding of when they might make sense and when they don’t."