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“Social impact bonds” on the rise in Canada

social impact bonds

Social Impact Bonds (SIBs) are an interesting part of the larger trend of ‘impact investing’ that has been rising in Canada and around the world in recent years. An SIB is essentially an investment model that allows a government to fund innovative social programs without having to risk its own assets up-front.

The concept is fairly simple but rather ingenious. The government chooses a new social program, partners with an appropriate civil organization, and then structures the terms of a bond. However, the initial investment is made not by the government, but by private investors. The risk is therefore largely passed on to the private sector; if the program meets projected targets the private investors get a return on their investment from the government, but if it fails they lose their money.

SIBs are a fairly new phenomenon, with only about 120 worldwide to date and only about four of those in Canada. Nonetheless, the idea continues to grow slowly but surely.

In January 2019, the government of Manitoba announced that it has officially entered into the province’s first Social Impact Bond (“SIB”).  It has partnered with a Manitoba non-profit organization called the Southern First Nations Network of Care to launch a two-year pilot project called “Restoring the Sacred Bond” that aims to reduce the number of infants entering the child welfare system. Specifically, it will match doulas with 200 at-risk Indigenous mothers, the idea being that the doulas will support the mothers from pregnancy onward in a way that will reduce the risk of the mother losing custody of her infant.

The province has budgeted up to $3 Million in investor repayment funds in anticipation of the project succeeding. If the project meets expectations investors will receive a 4.1% return, and if it exceeds expectations they will receive a return of 5.5%.

The concept is not without its critics. It is essentially a way of privatizing what should (or at least, would) otherwise be social welfare programs. It also ends up costing the government more money in the long run if a project is successful, as it will be on the hook to repay investors both the project cost and the additional returns.

On the other hand, the concept will surely enable some pilot programs that otherwise would never come to fruition, in which the additional cost to the government must be thought of as part of the overall cost period, as there is no comparison situation where the program is launched without the use of an SIB. It also forces the government to focus on the success rate of a program, rather than allowing it to continue funding it without measuring its effectiveness. This, too, could represent an overall savings for the province as the amount of money that is wasted on ineffective programming is reduced.

As the concept of SIBs ages in Canada, we will get better data on just how effective they are and perhaps how to optimize them. For now, they certainly represent opportunities that non-profit organizations should keep an eye out for.

By Alexandra Tzannidakis

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Drache Aptowitzer LLP

Tax and Charity Lawyers at Drache Aptowitzer LLP
Drache Aptowitzer LLP is one of Canada’s foremost experts in the law related to charities and non-profit organizations. Their team of bloggers is led by Adam Aptowitzer LLB. He is a lawyer practicing in the areas of charity and tax law. He is a member of both the bars of Alberta and Ontario. He has been speaking and writing on the topic of charity law for several years and been published in numerous publications including the Canadian Taxpayer, the Canadian Fundraiser and the Not-for-Profit News and has been cited as an expert in many publications including the National Post.Read more here
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