Setting realistic expectations: The narrow use-case for Social Impact Bonds

Sandra Hodzic’s (2018) article in the previous issue of JCSWB identified a range of social and financial pressures faced by provincial governments across Canada, to which Social Impact Bonds (SIBs) are being considered as a response. Primarily, focusing on the case of Manitoba, Hodzic identifies reductions in federal transfers, shrinking resources, expanding elderly and newcomer populations, and priorities to improve child welfare as pressures on government to do better in social service provision in a climate of fiscal constraint. Certainly, these are real pressures, and there are no simple solutions to alleviate them. Governments need a range of tools through which to develop and fund innovative social services, and in this context, SIBs have recently arisen as a possible solution to many service-provision and up-front capitalization challenges. However, research on SIBs has not borne out the wideranging benefits often expected from SIBs. What we have seen so far, especially in the UK—the jurisdiction that has done the most to promote the SIB model2 of financing for social innovation—is that SIBs are often cumbersome strategies that introduce substantial transaction costs relative to other commissioning approaches, while also introducing unexpected and sometimes negative effects into social service provision (Roy, McHugh, & Sinclar, 2018). While there are certain sectors and models where SIBs have financed successful interventions, even in these cases it is unclear what benefit the SIB financing model added relative to alternative strategies of financing or funding services. Adoption of SIBs in Canada has been slow and limited, and this is a good thing. There may be value in using SIBs under certain, rather narrow, conditions, but they ought not to be seen as solutions to a wide range of service provision problems. In the following, I will briefly outline the evidence around SIBs to date, and some of the key concerns that this evidence raises. I will then close by outlining what I believe to be the main use-case in which SIBs may make sense, recognizing that any use of SIBs needs to also address the normative concerns related to the marketization of social goods.