It is proving to be an explosive year for social impact bonds. An estimated $300 to $500 million of these pay-for-success contracts are currently in development and expected to materialize over the next 24 months. Just in the last month, the state of New York and Massachusetts both announced new contracts to decrease recidivism and improve employment outcomes. Elsewhere, California is on the brink of implementing its own projects after a commitment of $2.5 million to create them.
A social impact bond or pay-for-success contract typically takes shape when private capital is raised to fund preventative programs on social problems. If, and only if, programs effectively achieve the desired result, private investors will receive repayments on their investment from government savings that stem from money not spent on remediation.
Besides the US, the majority of the action is happening in the UK, where the idea of a social impact bond contract was first conceptualized to likewise cut reoffending. Now, according to BD Live, the National Treasury of South Africa and the Flanders Development Agency have commissioned a feasibility study on social impact bonds to develop these contracts in South Africa.
The Bertha Centre for Social Innovation and Entrepreneurship at the University of Cape Town, Genesis Analytics, and Social Finance will be conducting the study.
Healthcare, education, and gender equality are some of the areas in emerging countries where organizations and governments are applying pay-for-success contracts, whereas in the US and UK, recidivism is currently the popular problem to tackle with pay-for-success contracts.
Aunnie Patton, Investing for Impact Fellow at the Bertha Centre, said there is potential to use the social impact bond model in the healthcare sector. In fact, Africa’s first social impact bond is expected to launch later this year and will tackle malaria in Mozambique.