A development perspective on Social Impact Bonds for non-profit service providers

Despite a series of public announcements made by governments across the country over the past few years, the provocative Social Impact Bond (SIB) model has remained relatively under the radar in Canada. However, the Canadian marketplace is awakening, quietly shifting from concept ideation to more rigorous analysis of the opportunities.

How these opportunities are being unearthed may surprise you.

Canadian non-profits have not had the benefit of an RFI/RFP process to respond to, as in the State of Massachusetts, nor have they received support from a social innovation fund. There is no centralized technical expertise in government, nor is there a Social Outcomes Fund to incentivize government implementation. And no, we don’t have a £600 million fund as a primary investor to fuel the market.

Despite not having this catalytic infrastructure, Canadian non-profits continue to innovate and are showing an interest in experimenting with new funding models.

Opening doors to new funding sources

In the past few years, the non-profit sector has led the advancement of two noteworthy movements that are opening up doors to new funding sources.

1. Demonstrating evidence. Trailblazing organizations are refocusing aspects of their operations from tracking and reporting on activities to better understanding and managing outcomes. This refocus comes out of the recognition that better performance management is key to achieving better outcomes within the populations these organizations serve.
2. Collaboration. Organizations are looking for strategic opportunities to complement their own services. Visionary leaders are finding ways to break down the traditional barriers that deter non-profits from working together where interests are inextricably aligned.

Independent of any thinking about SIBs, these non-profits view this shift as good housekeeping in an increasingly outcomes-driven environment. This focus on outcomes is expanding the options for new financial instruments, like SIBs, from the ground up. This can be contrasted with the experience of other countries, such as the United Kingdom and the United States, where a concerted government agenda—or a desire on the part of governments, service providers and investors to test a new high-profile tool—has been an initial driver of organizational change.

Regardless, a made-in-Canada solution will require equal parts leadership from government, investors and non-profit service organizations to catalyze a marketplace. To help stakeholders understand this changing landscape and to prepare for the opportunity of a Social Impact Bond, the MaRS Centre for Impact Investing has developed a series of technical guides dedicated to SIBs.

A technical guide to SIBs for service providers

Today we are launching the first guide for non-profits. The guide outlines the particulars of the model—including the risks, structure and development path—in an effort to help organizations understand whether or not this is an impact investment opportunity that might work for them. While the guide focuses on SIBs, the underpinning drivers ought to be helpful in spurring thinking about a range of social finance options.

This guide suggests that the SIB model, at least early on, will be best suited for organizations that have a focus on prevention and an ability to leverage a few noteworthy strengths:

• quantifiable measures of success;
• established track records within the community;
• an ability to adapt programming to meet client needs; and
• the capacity to scale up if the opportunity presents itself.

These are tall orders, but these organizations do exist. They just aren’t well known.

The reason they fly under the radar is simple. We aren’t looking for them.

Catalyzing intermediary supports in Canada

Evidenced-based practice is not commonplace in Canada. We don’t have clearinghouses like the Coalition for Evidence-Based Policy in the US (by the way, some of the “top-tier” evidence-based programs highlighted by this organization are found in Canada), and governments, while in some cases beginning to shift toward outcomes-based performance management, are often stuck in traditional spending patterns that focus on outputs rather than outcomes and that privilege established partners rather than seeking out evidence-based or innovative service providers.

Despite early leadership and a wealth of innovation in the non-profit sector, the shift to managing performance through an outcomes-based framework and the exploration of social finance models can be resource intensive. Our guide emphasizes the need for intermediary supports to help service providers build capacity to take these challenges on. Just as small businesses require business-planning supports to grow and scale, non-profit organizations require similar supports to make equally important growth steps.

I guess it’s not all that surprising that non-profit organizations are playing a lead role in the social innovation agenda. As suggested, these activities are positioning the sector for new social finance models that could help to build its resilience, but support from intermediaries and investment and leadership from government and investors will also be critical to catalyze this movement.

A special thank you to Ivy So (Harvard Business School candidate) for her contribution to this guide.