Guest Post: Social Impact Bonds Offer an Innovative Approach to Addressing Social Challenges

Thursday, September 26, 2013

RyanMaleywebOn April 9, 2013, Governor Pat Quinn announced a social impact bond initiative in the State of Illinois. Social impact bonds (SIBs) are an innovative approach to funding social services through the collaboration of nonprofits, funders, and government.

At the core of SIBs are pay-for-success contracts that permit programs with measurable, successful outcomes to grow and deliver services to more people while at the same time saving the government money. SIBs are not bonds in the traditional sense; rather, they are contractual obligations by the government to pay based on successful results from a program. How do they work?

Let’s say there is a social program that has been proven successful. It has been operating for some time, it has collected data about outcomes, and demonstrated real, positive results. This is the type of program that most philanthropists and governments would like to see continue operating and even grow. However, this is a difficult time for nonprofits to attract new sources of funding from philanthropy, and certainly governments face many fiscal challenges. One way to address this is with funding from investors interested in social good.

Social impact investors use more than traditional financial returns to guide their investment decisions. They are also concerned with social returns and use both types of returns to determine where to invest their capital. SIBs provide a structure for social impact investors to support successful programs doing a social good and get a return from the government if those programs meet their goals.

SIBs have huge potential to help governments deliver services needed by citizens. Rather than the government paying for programs whether they are successful or not, the government agrees to pay if and only if a program delvers the desired results.  Many programs offer the potential for longer-term savings (preventative medical care, early childhood education, etc.) but short-term budget pressures often lead to cuts in these types of programs. Those longer-term savings can never be realized without investing.  With SIBs, the initial investment can come from social impact investors, and governments pays only when the agreed-upon outcomes are delivered.

In order to help accelerate the SIB initiative in Illinois, the Dunham Fund is supporting the Social Impact Bond Technical Assistance Lab at Harvard’s Kennedy School of Government (read their recent report here). Our grant of $275,000 allows an Innovation Fellow from the Lab to work directly in the state and help with the implementation of the first SIBs in Illinois. The state has already issued a successful request for information about potential SIB projects which garnered more than 40 responses. It will soon release a request for proposals in order to move forward and Illinois will becomes the third state in the country using SIBs.

The Dunham Fund usually limits its grant making to the Aurora, Illinois area where we are the largest private foundation. Aurora is the second largest city in Illinois and a city second to none, but our community faces nearly all the same challenges as much larger cities, including funding for education, access to healthcare, etc. There is a lot to do in Aurora and we realize the limits of what we can do with our funding alone. We are continually looking for ways to leverage our grants in order to bring more benefits to our service area.

We see two major potential benefits of SIBs for our local community. First, local nonprofits could have more access to funding in order to expand successful social service programs. Second, nonprofits outside our community may find the resources they need to expand their programs into Aurora. Either case will help bring positive change to our community and help our fellow Aurorans. 

In order to help develop the SIB initiative, Dunham Fund is working with Donors Forum to help promote SIB concepts such as pay-for-success and social impact investing. As foundations change their investment policies to include social impact investing principles, there is a real opportunity to get a double bottom line return of both financial gain and positive social impact.

Dunham Fund is participating in “Social Impact Bonds: Scaling Impact in Illinois Communities,” a breakfast roundtable at which the philanthropic community can learn more about SIBs and the Illinois initiative. Donors Forum's grantmaking Members, Associate Members, and clients of Associate Members are welcome to join us on Friday, November 1 for a roundtable breakfast to learn about SIBs and how to become a part of this innovative initiative which can bring positive change to our state. 

~ Ryan Maley, Board of Directors, the Dunham Fund

Ryan Maley serves on the Board of the Dunham Fund, the largest private foundation in Aurora, Ilinois; it supports education, enterprise, and community development programs. He is a Vice President at Global Inventures, a management services firm, where he advises global technology associations on strategy and standards development. He also serves on the Human Relations Commission for the City of Aurora. Ryan holds B.Sc. degrees in business and psychology.