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Finance

Chair « Finance for innovation » NL #3 - Publications

01 août 2019
Social Impact Bonds : 2 general audience articles

Vincenzo Buffa, PhD candidate of the Chair has recently written two non-academic articles about Social Impact Bonds (SIBs). The works concern a reading note on a scientific article and a general presentation of the application of SIBs in the development social field, called Development Impact Bonds (DIBs).

The reading note concerns the article published by Arena et al. on 2016, which provides a review of the different SIB configurations.

Based at the Polytechnic University of Milan, the authors explore the different configurations that SIBs have taken around the world since his first’s application on 2010.

First, Arena et al. identified some of the typological characteristics of the SIB model, with a literature review of practitioner publications. The SIB is arranged to finance a prevention programme with a strong collaboration between the private and public actors engaged with. The transfer of the financial risk from the public agency to the private investors represent also a central objective of the idealistic SIB model. 

Second, Arena et al. classified all the SIB contracts signed before 2015 according to these prototypical characteristics. This analysis highlight a spread of different SIB configurations’ that diverge in different ways from the first theoretical structure. 

Trees typologies are identified: the fully compliant SIBs; the partially compliant SIBs diverges from the reference model because they typically finances the expansion of already existing and proved social programs, and they often involve some risk mitigation arrangements for private investors. The third typology marginally compliant SIBs are still more far from the ideal SIB model. Indeed, we could find some projects strongly designed from public agency with the objective to extend already existing social programme, and all of these SIBs present vary strong strategies to mitigate the risk transfer to the investors.

In the conclusion, the authors stress the necessity to take in account with caution those different configurations, in fact, the second and the third configuration could be not aligned with the objectives and justifications that have characterized the SIB model’s emergence.

More information here

The second is an original article centred on the presentation of the functioning of Development Impact Bonds.

The article starts with an overview of four DIBs continent developed in Nigeria, India, Colombia and Mali. The projects are different regarding their social objectives, but all of them share the payment by result financing structure. Most of the characteristics of the DIB projects presented in the article are close to the general functioning of the SIB model, and several of those main features are briefly presented. 

Nevertheless, the author highlight as well some different between the DIBs and the standard SIB model. Primarily, the commissioners and outcomes payers are public and philanthropic institutions from the occidental countries that implement policies on a third on development country. This is unusual for a SIB in which the commissioners are always public or philanthropic institutions from the same country of the project. This first important different lead to a consideration concerning the viability of the cost-saving objective that characterize the SIBs. Other distinctions concern the size of the contracts and the number of service clients.

Indeed, the DIBs presented in the articles aim to help several thousand people with a capital contribution of more than 10 million dollars. Most of time, SIBs are smaller and less financed that the firsts DIBs.

More information here


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Finance Innovation Excellence