Fond of the social impact bond?

In an age of government austerity, there is particular focus on spending public money wisely to achieve desired social outcomes. New schemes will involve variants of payment by results and outcome based commissioning. Another similar tool is the Social Impact Bond (SIB). It involves targeted interventions to prevent social problems occurring and the consequent public spending, for example truancy resulting in NEETs and the cycle of re-offending resulting in greater criminal justice costs. Investors fund interventions up front and are paid by the national government in proportion to the spending cuts achieved. The model is likely to work best with the following conditions:

• Timing: reasonable gap between interventions and results, say seven years or less.
• Causation: there is a demonstrable strong causal link between interventions and outcomes.
• Savings: there is a potentially large cost saving for identifiable government departments.
  

An example is an SIB vehicle put in place for St Giles Trust, along with other organisations, to provide support to 3,000 short-term prisoners over a six year period. If successful, investors will receive a return from 7.5% up to a maximum of 13% in proportion to the government savings.

With great expectations of such projects come great risks that must be allayed. The Young Foundation's paper identifies 4 risks:

• Execution risk: there is the difficulty of the outstanding results of a local project run by passionate people that can not replicated on a larger scale. Selection of providers with the ability to scale is imperative.

• Measurement risk: even if a provider can show that the results are statistically significant because the sample size is large enough, and that there is no systematic bias judged by comparison to a control group, there is still the underlying danger of gaming the measure. For example, the apparently robust measure of reoffending is vulnerable because it is measurement of the criminal justice process and not fundamental change of an ex-offender. A pressurised manager could hit targets by persuading the police not to prosecute their users of relatively petty offences for exceptional reasons or by reducing the detection rate of criminal activity by their clients, for example, by moving to a different part of the country where they are less well known to police. Fundamentally, the contractor must be trusted or measurements must be changed to capture the change in an ex-offenders' maturity, social ties and personal identity.

• Basis risk: the reality may be that there are no great savings. For example, the local authority does not save money if a provider prevents young people from going to prison because young offender institutions are funded by the Ministry of Justice. Likewise, to save on prison costs a whole wing of a prison may have to close before government achieves any actual savings. Carefully agreed outcomes and sharing of rewards may make the difference here.

• Unintended consequences: where a current provider of services affecting the target group is not included in the SIB and withdraws support for what could be a host of reasons. For example, in the Peterborough prison example, prison staff not included in the SIB may obstruct its progress so that their lack-lustre performance is not highlighted by the new initiative's success.

I have high expectations that the Peterborough project will be a success and pave the way for greater uses of social impact bonds in the criminal justice system and beyond. The next challenge will be to introduce this at a micro level by overcoming high transaction fees through a simplified model.

Corporate Conundrum

During my placement at O2, I thought about how both Social Enterprises and more traditional businesses can benefit most from working together.

What do big organisations want?

Corporations work hard and spend a lot of money to find out what their customers are thinking. In addition to understanding what services their customers need now, corporates are trying to predict the needs their customers will have in the future to help them design and improve their products and services.

The UK government is starting to act and move resources to the idea that communities can be better agents for change than government acting on their behalf. Insight and knowledge of community is a valuable and expensively acquired resource for private and public business, but Social Enterprises have geographic, social or ideological communities at the heart of what they do. This understanding of their communities is a tremendous asset.

What is the opportunity?

Corporates are big, very big. They have huge reach and potential to unlock resources. However, corporates are feeling the financial crisis too. Investing in innovation and producing new products is expensive and large companies can often be restricted in what they can do without risking their share price. Even fierce competitors are using collaboration and partnership to provide what customers want without betting the farm.

Social Enterprises can add value to corporates because they have insight and practice that other businesses need to improve their services. Social Enterprises do the responsive, community focused thinking and doing that corporates find very difficult everyday.

In return, corporates can provide the exposure and reach that Social Enterprises need to grow and increase their impact.

What not to do?
Don't assume that, because it's a corporate, they will have a lot of money to spend. Much of their spending will be tied up in untouchable budgets promoting their current products/services.

Don't assume that the social benefits your organisation delivers alone will ensure a partnership. Your aims may align with their CSR policy and with their brand image, but they will receive lots of partnership offers that may do this and more.

What to do?
Corporations are always looking for new ways to add value to their traditional offers. A few ideas are to:

• Design a new product just for them. Elvis and Kresse are experts at this, as evidenced by their work with Apple and Brompton Cycles
• Offer to work in partnership with them; don’t ask for sponsorship. Corporates have spent a long time building their business, and they didn’t do that by giving money away. Work out a way to help them to make money while contributing to your aims.
• Help make their staff happy. Replacing staff is a costly business. Lots of people in big companies wish that they could be doing more. Find opportunities to give these intrapreneurs access to the great stories and results you create.
  

If it doesn’t work out this time?
Don’t despair, keep trying and remember to help the people that have helped you! If you have got a meeting in a corporate, it’s most likely because of someone working within that organisation who believes in what you are trying to achieve. The chances are they will be taking a risk/doing a lot of work to get your voice heard.

There are many reasons why large organisations don’t do things. It may be nothing to do with your offer or the work you and your advocate have done.

Stay positive and stay in touch; you may get another chance at a different time.

The Big Society Bank - how did we get here, and where are we going now?

A lack of capital looking to invest in the sector has long been the complaint of many working in and around Social Enterprise. The Coalition Government’s ‘Big Society Bank’ proposals are designed to address this issue, and the recently created Big Society Investment Fund is the first step in these proposals becoming a reality.

It would be fair to say that the Bank has had a long gestation period. It's now approaching five years since these proposals first saw the light of day, and whilst their final emergence into the world has been widely welcomed, there remains a significant amount of uncertainty around what the Bank will actually deliver and when. This post explores the long and winding road that got the Big Society Bank to where it is today and outlines where the project stands at present.

The bank is the brainchild of Sir Ronald Cohen, private equity trailblazer turned social finance evangelist. The current proposals build on the conclusions of the 2005-2007 Commission for Unclaimed Assets that he chaired. The Commission recommended the establishment of a Social Investment Wholesale Bank in order to address the undersupply of finance to the social enterprise and third sectors. The proposals received support both from the then Labour government and from opposition parties. However in the years that followed, whilst the plumbing was put in place, including an Act of Parliament, changes to the banking code, and in 2009 a detailed Cabinet Office report, little progress was made on the wholesale bank’s establishment. The financial crisis and bank bailouts caused the issue to slip down the agenda of Gordon Brown’s administration.

In March 2010 the proposals were given new life when David Cameron announced his support for Cohen’s bank. In line with his wider ‘Big Society’ agenda, Cameron christened it the ‘Big Society Bank’. Since taking office in May 2010, the Coalition government has continued to push forward these proposals. Whilst other Big Society advisors have fallen by the wayside, Ronald Cohen has continued to be a driving force behind the Big Society Bank proposals. Despite his energy, progress has been slow. After a cabinet office report on the vision for social investment in February this year, a Cabinet Office briefing paper outlining how the Bank would work was eventually published in May.

The paper states that the Big Society Bank will:

• Expand the amount of capital available to the social investment market


• Improve social entrepreneurs' ability to access it


• Develop a market of investors who wish to support it


• Support financial innovations that allow organisations to be rewarded for delivering social outcomes [ref. Social Impact Bonds, another of Cohen’s progency]


• Support the development of community-led, social enterprise initiatives to improve opportunities for young people, and


• Act as a ‘social investment champion’ - promoting information sharing and networking, publishing research and investing in sector capacity building

All of these objectives (except the one around youth services, which presumably stems from this 2007 idea) can be found in the 2009 Cabinet Office paper - which actually explored them in far greater depth - and leave Cohen’s vision pretty much completely intact, seeing off proposals for the bank itself to become a direct investor in social enterprises.

The May 2011 proposals were welcomed by the Minister for the Cabinet Office, Sir Francis Maude, and the Bank retains the government's support. Work is ongoing with a small team in the Cabinet Office assigned to deliver the policy. The current hope is that the bank will fully open for business in Spring 2012 - half a decade after the initial proposals were published.

However, even now, large questions remain unanswered - how much money will the bank have to invest? Who will it focus on and what will be the cost of the capital it offers? And, most obviously, why has it all taken so long? A future post will explore these and other key questions that are yet to be addressed about an institution that will undoubtedly have a transformational effect on social enterprise in the UK.

Great News - Cameron puts Social Enterprise at the heart of the solution -

All at On Purpose would like to congratulate Nat Wei on his appointment to the House of Lords - and celebrate the great messages that the new coalition government are sending out about the importance of social enterprise.

Read the full article here.