Social Impact bonds

Increasing number of public sector offices, policymakers and philanthropics have come to realise that the social sector is transforming. Increasing budget gaps and pressure on government spending is shrinking the traditional sources of government grants to the public institutions. The gap has created a new market for funding, which is filled in by private banks and other financial services institutions investing in social ventures that scale.

The way social ventures have been structured making it difficult to evaluate their impact and reach more people. This is primarily because of the way government grant programs have been structured earlier. Such inefficiencies in the model hinder their ability to successfully get a commitment from private sector for more than a year – primarily because of strict KPI’s and preferences of such donors.

In order to create transparency in the entire social funding structure, we saw the rise of social impact bonds in the market. Such bonds channel government funding to institutions that show tangible progress in the market. The funding is made after the social commitments have been achieved. Similarly this also provides the private investors to pitch in the initial funding for the social venture. Private investor makes the initial commitment and gets paid later with modest returns if the venture realizes its goals. This kind of model has been of particular interest in terms of preventive diseases where tangible social impact could have been assessed.