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This was the recurring burning question of a seminar organised by the Organisation for Economic Cooperation and Development (OECD) in which I participated last week. To understand what we are talking about, I will briefly explain what Social Impact Bonds (SIBs) are.

SIBs are an innovative financial tool used for financing social services or to support experimentation of social projects. They aim at achieving improved social outcomes, strengthening the effectiveness of social interventions and spurring innovation.They entail a complex process in which several actors collaborate. They differ from the classical public contract between a public authority and a service provider, as in SIBs there are at least one or two additional parties involved: an intermediary (or so-called “delivery agency”) and one or more investors from the private sector. The public administration makes a contract with the intermediary in which it specifies what should be achieved in terms of social outcome. The social intervention is carried out not directly by the intermediary, but by one or more service providers that are selected by the intermediary. The latter is also in charge of finding one or more investors that would bear the financial risk of the intervention; they get paid back by the public authority only if the intervention is successful, plus a return on the investment.

Two main elements mark the difference between a SIB and the classic public sector contract:

• the financial risk is shifted from the public administration to the private investor: the private investor supplies the money allowing the service provider to work; the investor is paid back by the public authority only if the intervention reaches the social outcomes agreed in the contract.
• the payment to the service provider is made according to the outcomes they achieve, as opposed to the activities they carry out.

On the question of whether SIBs will improve social policy, experts were divided. Some highlighted that SIBs bring innovation to social services, while others argued that most practices were already known. Innovation might be more prevalent not on the social field, but rather in the coordination and integration of different actors. I put forward the example of Focus Ireland (a member of FEANTSA and Housing Europe) that is involved in a SIB pilot project in Dublin to move 136 homeless families from privately owned emergency accommodation into sustainable homes with social services support. After two years it has not been possible to find a suitable investor. Therefore, I wonder if investors are really ready to take the risk when the innovative aspect is high? The answer seems to be no. It also seems that so far investors mainly consist of foundations, but banks are starting to become interested too.

Other participants highlighted that SIBs allow for saving public money because public authorities pay only if the intervention is effective. If this is true in theory, other participants – including myself – argued that SIBs are quite complex and the costs borne by the public sector to put in place such systems are quite high, in addition to paying returns.

Ariane Rodert from the European Economic and Social Committee and I pointed out that SIBs are just one of the financial tools of a broader financial toolbox for the social sector; they should not be used to replace public budgets to finance social services, but they can be used in some cases to test interventions and perhaps to promote innovations, where public funding is not available.

There are few reasons why at present we think it is unlikely that SIBs will change social policy for the better. So far SIBs have a limited geographical scope; in the European Union you can find 29 SIBs in the United Kingdom (and to be precise in England, as one participant pointed out), and one experiment each in the Netherlands, Germany, Belgium and Portugal. It is doubtful that they will be easily picked up in countries in which payment-by-results schemes are not in place. Finally, SIBs are clearly not suitable for small NGOs and it is difficult to put in place a SIB where there is not a pre-existing relationship of trust between the public authority, the provider and the investor.

By the end of the meeting a commonly shared view was that it is too early to draw conclusions whether SIBs work or not. We need more time for testing them. So, let’s continue engaging in a constructive dialogue!