A social impact bond (SIB) is a contract with the public sector or governing authority, whereby it pays for better social outcomes in certain areas and passes on the part of the savings achieved to investors. A social impact bond is not a bond, per se, since repayment and return on investment are contingent upon the achievement of desired social outcomes. If the objectives are not achieved, investors receive neither a return nor repayment of principal. SIBs derive their name from the fact that their investors are typically those who are interested in not just the financial return on their investment, but also in its social impact.

The need

• Pratham Education Foundation’s annual comprehensive Annual Status of Education Report (ASER) consistently shows poor learning outcomes among early school-going children.Its 2019 report found that nearly 49% of children in class 3 across 26 rural districts in 24 states could not read a class 1-level textbook. Only 41% in class 1 could recognise two-digit numbers. Elementary and primary school enrolment in 2019-20, as per the government’s Unified District Information System for Education (UDISE+) report, however, stood at nearly 98% and 90%, respectively.
• Schemes and the public distribution system under the National Food Security Act have helped 950 million citizens access subsidised food grains. However, data from the first phase of the annual National Family Health Survey-5 for 22 states and Union Territories showed that the percentage of anaemia, wastage, stunting and underweight children either stagnated or increased in 2019-20 compared to 2015-16.
• To a large degree, the government’s ability to push the frontiers of social sector programmes — from availability to access, and from access to impact — is determined by the approach to how these programmes are financed.
• A specific OBF instrument that the government should consider is the social impact bond (SIB) in which the government is the outcome payer.

How it works

• The approach is not so much a question of the quantum of allocations, but how incentive structures are shaped.
• Over the last decade, results or outcomes-based financing (RBF/OBF) has gained traction in the social sector. It brings private participation: Where an investor provides up-front capital in response to a project commissioned by an “outcome payer” (typically, a government or philanthropic organisation). Service providers — usually non-profit organisations possessing a deep understanding of local contexts through an on-ground presence and domain expertise — implement the project. Then, evaluators measure the delivered impact independently.
• Investors are assured of a return of the principal with modest returns on project completion and independent evaluators validating contractually defined outcomes. Thus, every stakeholder — the investor(s), outcome payer, service providers, and evaluators — is strongly incentivised to ensure project success, since it is tied to a financial return.

How it helps

• This financing structure, operating on OBF principles, has been used successfully in many Western economies over the last decade. SIBs are particularly suited for new and innovative projects where outcomes can be attributed to the intervention, and target groups are easily identifiable
• Such “pay-for-success” models have significant transformational development potential. They ensure fiscal prudence since governments pay only on the delivery of pre-defined outcomes and facilitate risk-sharing with investors who seek a “double bottom line” (financial plus social return). SIBs also provide service providers with more scope to determine the necessary inputs and strategies required to achieve contracted outcomes.
• SDG 4- Quality Education: The Educate Girls DIB, supported by the UBS Optimus Foundation and Children’s Investment Fund Foundation in Rajasthan, achieved tremendous success after its launch in 2015. Over its three-year lifecycle, it clocked 160% of its learning target for the 7,000 children in programme schools. This was 79% more than its peers in non-programme schools. Traditional programmes tend to place a greater emphasis on inputs (for example, higher budgets) and activities (hiring more teachers) rather than outcomes (learning). While the former is imperative for growth, the need of the hour is to complement these efforts with an approach that shifts performance incentives to the delivery of outcomes.
• SDG 2- Zero Hunger and SDG 3—Good Health and wellbeing : When the SIB is running within the health and social care sector, it is referred to as an Health Impact Bond (HIB). It is a contract with the public sector, that drives resources toward effective social programs, and in which a commitment is made to pay for improved social outcomes that result in public sector savings. The outcomes are predefined and measurable.

Way forward

• Institutional mechanisms to promote impact bonds in India need to be prioritised. This is relevant both, from policy and regulatory standpoints, to help grow this market and protect investor commitments.
• A mechanism to build this ecosystem — such as the Centre for Social Impact Bonds located within the United Kingdom Cabinet office — will bring all stakeholders onto a common platform to build capacity, broaden learning, and identify potentially catalytic projects.

India is estimated to require up to $2.64 trillion in investments to meet its Sustainable Development Goal (SDG) targets by 2030. Thus, the case for governments to facilitate, support, and encourage private entry into the development sphere is clear. While SIBs are unlikely to plug all development gaps, they can help optimise social spending. More importantly, they could help mainstream a culture that privileges outcome delivery over a mere ticking of boxes in project status reports.

How to structure:

• Give the definition of social impact bond (SIB) and explain it
• Examine how It helps in achieving various SDG’s, by comparing them
• Mention any schemes if any
• Suggest way forward and conclude

Reference:

1. https://www.hindustantimes.com/opinion/paying-for-success-a-transformational-model-for-the-social-sector-101635841593978.html