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Is Social Bridging Finance the next big thing?

With over 120 of them launched worldwide since 2010, Social Impact Bonds (SIBs) are becoming increasingly well-known as a social finance instrument. Since the first one was developed in Peterborough (England) by our sister organisation Social Finance UK, over 20 countries applied this instrument to tackle their social challenges. The UK is still in the lead, having launched nearly 50 SIBs. However, nearly all of them were launched in England and one in Wales. That doesn’t mean exciting things regarding social finance were not happening in Scotland, though. Quite the contrary! In the past years, a new innovative social finance model has been developed and piloted in Scotland: Social Bridging Finance.

What is Social Bridging Finance?
The model has been developed by The Robertson Trust. This is an independent Scottish funder that aims to improve the quality of life and realise the potential of people and communities in Scotland.

According to The Robertson Trust, Social Bridging Finance is a model of grant funding which supports third sector delivery of services. At the same time, it ensures the long-term sustainability of those which can evidence success through the development of a contract with the public sector.

It works as follows:

  1. Design and contracting
    A partnership is formed between a public sector agency, a private funder and a social service provider. The goal is to address a social challenge for which the public sector body is prepared to fund preventative services in the longer term. The partners need to agree on targets and shared short-term measurable outcomes in advance. A contract is signed between the partners to commit the public sector organisation to sustain support for the service for a specified period of time if the agreed success criteria are met.
  1. Demo
    After an allowance for an initial set-up phase, the service is delivered for an agreed period of time. Usually 2 to 3 years. This phase is funded through the charitable funder. During this trial stage, partners can adjust the way the interventions are delivered. This in order to ensure the best chance of meeting the agreed success criteria.
  2. Evaluation
    An outcome evaluation is commissioned by the partnership, which provides interim reports to enable the project to adapt during the trial period. It will also make an informed, binding judgement as to whether or not the agreed success criteria have been met at the end of the trial.
  3. Sustainability
    If the external evaluator determines that the agreed targets and outcomes have been met, the contract determines the length of time for which the public sector organisation will subsidise the service. If the trial period hasn’t led to the agreed targets, all partners take learning from the process and go their separate ways.

The two phases in which the service provider delivers the intervention

Figure 1: The two phases in which the service provider delivers the intervention

Schematic representation of Social Bridging Finance

Figure 2: Schematic representation of Social Bridging Finance

SBF versus SIBs
First of all, SBF and SIBs show a lot of similarities, among which:

  • both represent partnerships between public bodies, private funders and social service providers to tackle social issues
  • both require defined measurable outcomes for the social issue agreed upon by the partners
  • with both instruments, whether or not the government starts making payments depends on to what extent these outcomes are met.
  • Both are appropriate to support the move from reactive to preventative spending in addressing social issues.
  • Both can be used to scale up proven models for tackling social issues.

But there are some significant differences as well:

  • with SIBs, the private funder is an investor who can make a return depending on the results measured by the evaluator. Whereas with SBF the private funder doesn’t receive any financial return. I expect that it differs from private funders whether they view this as a pro or a con for SBF. A potential financial return can be required by some private funders. But there are also public funders for which making a financial return does not fit their current structure or desire.
  • Correspondingly, with SIBs, the public sector party pays for the actual results received during the SIB (paying the private investor). Whereas with SBF, the public sector party does not have to pay for the results that are received during the demo stage funded by the private funder. My expectation is that this might make SBF more appealing for the public sector than SIBs, since it entails a period of social service provision free of cost for the government. A risk might be the fact that this will weaken the desire for proper impact assessment (e.g. with benchmarking) to determine the true value of the intervention.
  • Within SIBs, the contract only determines the funding of the social service during the SIB phase, comparable to the demo phase of SBFs. Whereas with SBF the public sector party commits to funding the service for an agreed upon period following the demo phase. The main benefit I expect from this is that it allows for a period in which successful interventions are funded through the standard structure of the public body. This can make it easier to be continued even longer afterwards. Whereas with a SIB, the public body needs to look into if and how to continue funding a successful intervention separately from the SIB.
  • The setup and contracts can be simpler for SBF than for SIBs. One of the criticism SIBs tend to encounter is that the setup and underlying contract can be quite complex. With SBF, social outcomes don’t have to be financially quantified. For SIBs this is usually a crucial and challenging part of the process and contracts. Also, the fact that payment structures from the public sector party to the private funder depending on different measurable outcomes can be omitted makes the contract significantly less complicated.

In conclusion
Personally, I am very enthusiastic about SBF. My passion for SIBs is undiminished, but I definitely see benefits in the SBF approach that I would love to pilot in The Netherlands. Social Finance NL can support public sector parties in setting up an SBF partnership for the social challenges they wish to tackle. What I find particularly beneficial of SBF is the fact that if proven successful, the continuation of the social service is secured. But ultimately, it is not about picking favourites. Our main goal is to achieve positive social impact and both SBF and SIBs are instrumental to this purpose, each with their own benefits that work best in different scenarios.

One thing is certain: with England as the founding father of SIBs and Scotland as the motherland of SBFs, the UK once again has proven itself to be a frontrunner in the world of social finance.

With many thanks to Christine Walker, Head of Social Impact of The Robertson Trust, for sharing her enthusiasm for and knowledge and information about Social Bridging Finance.

I would love to hear from Dutch public bodies and private investors how they feel about Social Bridging Finance. Is this instrument appealing to you? And is there a social issue which you would want to address using this instrument? I would love to discuss! Please contact me via sabine.oudt@socfin.nl.

With over 120 of them launched worldwide since 2010, Social Impact Bonds (SIBs) are becoming increasingly well-known as a social finance instrument. Since the first one was developed in Peterborough (England) by our sister organisation Social Finance UK, over 20 countries applied this instrument to tackle their social challenges. The UK is still in the lead, having launched nearly 50 SIBs. However, nearly all of them were launched in England and one in Wales. That doesn’t mean exciting things regarding social finance were not happening in Scotland, though. Quite the contrary! In the past years, a new innovative social finance model has been developed and piloted in Scotland: Social Bridging Finance.

What is Social Bridging Finance?
The model has been developed by The Robertson Trust. This is an independent Scottish funder that aims to improve the quality of life and realise the potential of people and communities in Scotland.

According to The Robertson Trust, Social Bridging Finance is a model of grant funding which supports third sector delivery of services. At the same time, it ensures the long-term sustainability of those which can evidence success through the development of a contract with the public sector.

It works as follows:

  1. Design and contracting
    A partnership is formed between a public sector agency, a private funder and a social service provider. The goal is to address a social challenge for which the public sector body is prepared to fund preventative services in the longer term. The partners need to agree on targets and shared short-term measurable outcomes in advance. A contract is signed between the partners to commit the public sector organisation to sustain support for the service for a specified period of time if the agreed success criteria are met.
  1. Demo
    After an allowance for an initial set-up phase, the service is delivered for an agreed period of time. Usually 2 to 3 years. This phase is funded through the charitable funder. During this trial stage, partners can adjust the way the interventions are delivered. This in order to ensure the best chance of meeting the agreed success criteria.
  2. Evaluation
    An outcome evaluation is commissioned by the partnership, which provides interim reports to enable the project to adapt during the trial period. It will also make an informed, binding judgement as to whether or not the agreed success criteria have been met at the end of the trial.
  3. Sustainability
    If the external evaluator determines that the agreed targets and outcomes have been met, the contract determines the length of time for which the public sector organisation will subsidise the service. If the trial period hasn’t led to the agreed targets, all partners take learning from the process and go their separate ways.

The two phases in which the service provider delivers the intervention

Figure 1: The two phases in which the service provider delivers the intervention

Schematic representation of Social Bridging Finance

Figure 2: Schematic representation of Social Bridging Finance

SBF versus SIBs
First of all, SBF and SIBs show a lot of similarities, among which:

  • both represent partnerships between public bodies, private funders and social service providers to tackle social issues
  • both require defined measurable outcomes for the social issue agreed upon by the partners
  • with both instruments, whether or not the government starts making payments depends on to what extent these outcomes are met.
  • Both are appropriate to support the move from reactive to preventative spending in addressing social issues.
  • Both can be used to scale up proven models for tackling social issues.

But there are some significant differences as well:

  • with SIBs, the private funder is an investor who can make a return depending on the results measured by the evaluator. Whereas with SBF the private funder doesn’t receive any financial return. I expect that it differs from private funders whether they view this as a pro or a con for SBF. A potential financial return can be required by some private funders. But there are also public funders for which making a financial return does not fit their current structure or desire.
  • Correspondingly, with SIBs, the public sector party pays for the actual results received during the SIB (paying the private investor). Whereas with SBF, the public sector party does not have to pay for the results that are received during the demo stage funded by the private funder. My expectation is that this might make SBF more appealing for the public sector than SIBs, since it entails a period of social service provision free of cost for the government. A risk might be the fact that this will weaken the desire for proper impact assessment (e.g. with benchmarking) to determine the true value of the intervention.
  • Within SIBs, the contract only determines the funding of the social service during the SIB phase, comparable to the demo phase of SBFs. Whereas with SBF the public sector party commits to funding the service for an agreed upon period following the demo phase. The main benefit I expect from this is that it allows for a period in which successful interventions are funded through the standard structure of the public body. This can make it easier to be continued even longer afterwards. Whereas with a SIB, the public body needs to look into if and how to continue funding a successful intervention separately from the SIB.
  • The setup and contracts can be simpler for SBF than for SIBs. One of the criticism SIBs tend to encounter is that the setup and underlying contract can be quite complex. With SBF, social outcomes don’t have to be financially quantified. For SIBs this is usually a crucial and challenging part of the process and contracts. Also, the fact that payment structures from the public sector party to the private funder depending on different measurable outcomes can be omitted makes the contract significantly less complicated.

In conclusion
Personally, I am very enthusiastic about SBF. My passion for SIBs is undiminished, but I definitely see benefits in the SBF approach that I would love to pilot in The Netherlands. Social Finance NL can support public sector parties in setting up an SBF partnership for the social challenges they wish to tackle. What I find particularly beneficial of SBF is the fact that if proven successful, the continuation of the social service is secured. But ultimately, it is not about picking favourites. Our main goal is to achieve positive social impact and both SBF and SIBs are instrumental to this purpose, each with their own benefits that work best in different scenarios.

One thing is certain: with England as the founding father of SIBs and Scotland as the motherland of SBFs, the UK once again has proven itself to be a frontrunner in the world of social finance.

With many thanks to Christine Walker, Head of Social Impact of The Robertson Trust, for sharing her enthusiasm for and knowledge and information about Social Bridging Finance.

I would love to hear from Dutch public bodies and private investors how they feel about Social Bridging Finance. Is this instrument appealing to you? And is there a social issue which you would want to address using this instrument? I would love to discuss! Please contact me via sabine.oudt@socfin.nl.

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