Social Impact Bonds in Europe

This week's articles focused on different ways to fund social ventures, with an emphasis on Social Impact Bonds (SIB). Non-profits don't always have the resources available to pursue a project; hence, SIB is an innovative approach in mobilizing finance for social impact. The advantage of SIB is that it shifts the financial risk away from the government and that it is based on performance and outcome.

SIBs are increasingly popular in Europe. A couple of weeks ago, the Enschede local authority, in the eastern Netherlands, has established a SIB to decrease unemployment. The Councillor of economy and employment states that SIB is a "creative way" to resolve unemployment. More specifically, the bond will "aim to match job seekers in Enschede with German employers" focusing on 7000 households. (1) How does it work? The Start Foundation and ABN Amro teamed up to lend Enschede $1.2 million. If unemployment decreases, the investors (Start Foundation and ABN Amro) will be reimbursed with interest. Indeed, Enschede will have less unemployment benefits to give and will have the opportunity to re-orient that money into reimbursing the investors. In turn, the investors are expected to gain 4% to 8% in interest. (2) This example shows that there is an incentive for every "actor" in this "transaction" to improve the problem of high unemployment.

Back in August 2014, the European Commission states that it "promised to facilitate the exchange of experiences between Member States with social impact bonds. The European Parliament has called for greater use of innovative financing for social benefit and for more specific proposals from the European Commission". (3) It will be interesting to look at the impact of SIBs not only at the local or national level, but also at the European level.

(1) http://www.publicfinanceinternational.org/news/2016/09/worlds-first-cross-border-social-impact-bond-launched-netherlands
(2) http://qz.com/779861/social-impact-bonds-an-investment-fund-is-trying-an-experimental-market-solution-to-fill-jobs-in-germany/
(3)http://www.europarl.europa.eu/EPRS/538223-Social-impact-bonds-FINAL.pdf