SIB service providers should seek untapped sources of capital to grow - study

Social impact bond service providers have been urged to seek out new sources of capital to avoid cannibalisation of existing funding.

Bank of America Merrill Lynch and Bridges Ventures have published a report reviewing global activity around SIBs. It argues that the sources of revenue and capital on offer via SIBs should be from previously untapped sources, if service providers are to grow their services.

“Service providers may seek new sources of capital themselves, but in many SIBs, impact investing funds, investment banks and non-profits specialising in impact investing advisory and consultancy who have developed experience in SIBs are helping to raise funds,” the report said.

Service providers should embed accurate and timely data collection and reporting systems, the study found, and ensure governance structures are empowered to respond decisively and creatively throughout projects.

Choosing social impact bonds: A practitioner’s guide gathers insights from early movers and reflects on the lessons learned so far. It recommends service providers drive appropriate referrals by engaging and incentivising ‘gatekeepers’ to the target group.

“Service providers often have little direct control over referrals to the programme, yet accurate referrals are critical to delivering desired social outcomes,” the report said. “The more concentrated the sources of referral, the easier to engage with gatekeepers to ensure suitable referrals.”

Fully costing the required intervention and investment is also considered important to success of SIB projects.

Investors are urged to engage in the project from the start of their investment, and influence projects beyond contract signing to maximise the chances of success.

Where investors do not have the capacity or capability to engage closely, the study suggested engaging advisers or specialist fund managers to do this on their behalf.

“We see investors increasingly seeking opportunities that not only deliver a return on their investments but also help drive social change,” said Andy Sieg, head of global wealth and retirement solutions for Bank of America Merrill Lynch. “Social impact investing has the potential to tackle some of the world’s most challenging issues, the full potential of which can only be unlocked through close collaboration between organisations, investors and facilitators.”