Breakthrough of Social Impact Bonds?

On the 3rd of November 2013, the Financial Times published an article announcing that Goldman Sachs is going to launch a $250m Social Investment Bond (SIB). The return of this bond is linked to the success of different social projects (affordable housing, pre-school education, etc.) in the USA. This news did not get much attention in the social media. 

However, for all those looking at new ways of financing social improvement this is one of the most significant news of the year. Goldman Sachs had only invested very modest amounts in SIBs before. Also, they were investing their own cash into SIB projects before; but now for the first time its clients will have the opportunity to put money into the new structure. Such backing from one of the world's most well-known financial institutions could signal a shift in the general  perception of SIBs. From being a witty topic of conversation at Davos soirées, the SIB has become a real financial instrument.

So what might made Goldman Sachs open up its wallet to SIBs? One might have noticed that the news of this Goldman Sachs investment came after a series of other news on the subject. First, in September the state of Illinois became the third regional government in the US to announce the introduction of SIBs. Second, in the last week of October, the UK Ministry of Justice issued interim results claiming "success" on its Peterborough Social Impact Bond, which was the world first ever SIB. 

"Me and My Net" , RCS

Third, in same month, Sir Ronald Cohen from Big Society Capital, one the biggest advocates of SIBs, announced that Nandos, a UK based fast food company, in collaboration with African mining giant Anglo-America and Coca-Cola, will create a Mozambique Malaria Performance Bond, to fund malaria reduction efforts. Just a week ago, Nandos confirmed this news from its twitter account. So much buzz so close together regarding SIBs are uncommon outside of academic circles.

And to top it off, the New York Times have just published an article about the idea advocated by Lindsay Beck of creating a non-profit NASDAQ; a market place where NGOs performance can be traded through their related SIBs.

So what is going on? Is this just a temporary trend of social responsibility used by private corporations to create positive publicity? Or it is a real financial innovation that will make it possible practically to put the private profit interest in line with social improvement? Why are SIBs being spun only now when the idea has been circulating since the late 80s? One thing is certain: these developments are thought provoking. To be continued...