While energy around social impact bonds continues to build in places like Canada, the U.S. and the U.K., Enterprising Non-profits Canada team manager David LePage is calling for clarity and more expansive thinking.

Social impact bonds have gone from concept to execution possibly faster than any other social innovation seen in years. Proponents cite them as an example of a “disruptive innovation” that has great potential to transform the social service sector. Peterborough, U.K., Massachusetts, and New York each recently launched social impact bonds. In spring, Canada’s Human Resources Minister Diane Finley announced 15 projects that could be part of a new federal social finance pilot that is to include social impact bonds as part of the experiment.

David is not alone in identifying a need for more clarity around what these bonds actually are and a shift in the language used to describe them.

“Social impact bonds are not really bonds. They’re payments for performance,” he says.

In Massachusetts, facilitators of the new funding mechanism are leaning away from the term social impact bonds, preferring instead social innovation financing.

“I think we’re putting a specific answer, which may be one answer, to a very big problem, which is that our current investments are not getting the results we need,” David adds.

“We’re spending a lot of money trying to address complex social problems; the current government investment isn’t getting the results and so we’re looking for new models.

“Should we examine the failures in the current system and make adjustments there at the same time we’re moving to pilots that bring in new financing models?

“And should we be doing new financing models without an entire ecosystem for social enterprise?”

For instance, if a social enterprise is showing significant results, is the answer to introduce what is being called a social impact bond – “or do we just need to build up social enterprise?”

David also notes this new approach, like other social service models, still doesn’t get to the root causes of the issues it aims to solve.

“Again, we’re looking at the end-result problem and trying to fix that, like recidivism or homelessness or the removal of Aboriginal children from their homes.

“We still have to look at what’s causing the problem – and some of these are historic social issues that need an entire revisit.

“New money at the same old problem doesn’t fix it.”

While David sees value in the social impact bond financing mechanism in that it entails a performance-based investment approach, he says he’s not sure why that same approach can’t be applied with existing programs.

He also sees value in engaging private-sector investors, but wonders if that’s the right role for them.

The expense of the model is also significant, he points out, especially with the cost of the intermediary, who has to set up and engage the organization that will be addressing the social issue, whether that’s a non-profit, social enterprise or for-profit. The intermediary is also needed to collect and allocate the pool of funds from private investors; and also engage and co-ordinate with the evaluation agency and government.

Other complicators in the model include government’s commitment to paying a return to investors. “Are they going to set those funds aside? Because otherwise they’re potentially committing a future government to make those allocations,” says David.

In sum, this new form of financing is a complex issue, he says, requiring more analysis. Imperative, from his perspective, is parallel full and robust support of the social enterprise sector, which has the promise of faster and just as effective results.

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