NSW Govt Pledges $25 Million Social Impact Bond Pilot

A re-elected Labor Government in NSW would invest $25 million in a Social Impact Bond Pilot, NSW Premier Kristina Keneally has announced.

Keneally told reporters in Newcastle that the government would provide $25 million for the pilot in a bid to inspire investor confidence in the scheme and provide seed funding, after a Centre for Social Impact report last week recommended the pilot go ahead.

Keneally says $10 million would go to early-intervention programs that help keep young people out of juvenile detention, a further $10 million would go to help families at risk, and $5milion has been marked for disability services bonds, to be developed by the Department of Ageing, Disability and Home Care.

Social Impact Bonds are similar to those in traditional bond markets, however the are desinged to allow private investment in non-government community service programs.

Investors receive a return on their investment when services achieve targets and deliver public sector savings.

A CSI report released last week found the concept is feasible and NSW has the necessary ingredients to successfully implement the pilot.

The NSW Government commissioned the Centre for Social Impact to undertake the study into the Social Impact Bond Pilot (SIB) last year.

In developing the report, CSI says it examined a number of potential policy and program areas, developed selection criteria for assessing the capacity and programs of potential host NFPs, and designed a proposed structure for the Bond.

The report concludes that the SIB concept is feasible for NSW, and that NSW has the necessary market conditions for this new approach to funding to be piloted.

However CSI says further work is needed, and has provided the NSW Government with a set of recommendations for the development and implementation of a SIB pilot.

In the report, CSI recommends that the NSW Government:

• Proceed to the next stage and invite expressions of interest from Not for Profit organisations that meet the key criteria for the development of a SIB.
• Signal that they wish to encourage the development of a pipeline of NFPs and programs that are suitable for a SIB by raising awareness and developing NFP capacity and capability to use this new method of funding.
• Undertake initiatives to raise awareness across all NSW Government agencies and develop guidelines on how to assess the suitability of policy areas, program interventions and host NFPs.
• Explore the potential for the application of SIBs in policy areas where there is a shared responsibility and shared funding arrangements with the Australian Government.

The CSI Report says that despite record high levels of funding for NFPs, there is still a significant level of unmet need and new approaches to funding NFPs are needed.

According to CSI, a Social Impact Bond (SIB) is a financial instrument that has the potential to re-engineer relationships between government, Not for Profit organisations and social investors.

Under a SIB, a bond-issuing organisation raises capital from investors based on a contract with government to deliver improved social outcomes through programs delivered by a Not for Profit organisation. These improved outcomes generate future costs savings for government, which are used to pay investors a reward in addition to the repayment of the principal.

CSI says Social Impact Bonds reward success and provide a mechanism for social investors to fund programs based on early intervention, prevention or breaking the cycle of dependence. SIBs can be used to address problems where complexity makes it difficult or impossible for existing mainstream programs to be effective

NSW will be the second jurisdiction to examine Social Impact Bonds – after the United Kingdom implented a SIB program in 2010.

The Centre for Social Impact is based at the University of NSW and operates in collaboration with the University of Melbourne and Swinburne University of Technology.

Announcing the pilot last year, Premier Kristina Keneally said if the services meet agreed targets and make a tangible social difference, then investors receive a return on their payments.

The NSW Premier said the pilot is about unlocking funds to tackle social issues in NSW through community, financial and government sectors to search for new solutions.

She said that as a former Not for Profit sector worker, she was particularly conscious that NSW does not have the right structures in place to take advantage of the tremendous goodwill and serious investment potential that sits outside of government.

Click here to read CSI’s Report on the NSW Government Social Impact Bond Pilot