Social Impact Bonds

There are fresh new ways for charities to fundraise besides the conventional formula of searching for donors. They are called Social Impact Bonds (SIB) and seem to be gaining ground.

While there have always been altruistic donors contributing towards relieving other people's grief, it looks like there are also investors who would consider putting their money into a similar scheme, should the likelihood of alluring profits come about.

SIBs work as a financial vehicle managed by investment banks, collecting money from investors and putting it into charities' hands with the agreement of a gain provided a set of goals is achieved. Money is driven back to its owners by the Government once an independent commission has checked that the objectives have been met; otherwise the investors would not receive their capital, nor any interest at all.

Apparently, this system works properly for every party involved, and indeed, has managed to coax an increasing number of investors into stepping in. As governments are prone to paying the bill anyway because of the negative public impact that social problems eventually have, coming up with someone who brings forward the necessary money, looks like an efficient option.

For charities it also seems to work fine, as they obtain the funds much more quickly through SIBs than making an official request to governments.

Investors have another way to distribute their capital and, subsequently, subside the risk of considerable losses. Anyway, prospects of failure are still significant, and investment banks drain their minds into ways to at least guarantee a portion of their capital back, regardless of the final outcome of the venture.

On the other hand, SIBs have their detractors as well, branding the fact of governments paying a benefit to social investors as sheer nonsense.

SIBs might look like a sophisticated version of Robin Hood -helping finance social care while conveying part of the risk to affluent private wallets- except for them leaving a gain in the investment banks’ pockets.