NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Friday, April 17, 2015

The Ministry of Health is well down the track to pilot the country’s first social impact bond, originally mooted 18 months ago, which would pay out on measurably improved social outcomes such as reductions in alcohol and drug use or recidivism.

The government gave approval in October 2013 for the ministry pilot to test the appetite of healthcare providers and investors for the bonds, which are already going mainstream in the US and in the UK where they started five years ago. With social impact bonds, typically a central or local government pays investors a return based on achieving agreed social outcomes.

The Ministry of Health didn’t respond to BusinessDesk’s request for comment but is understood to be at the stage of matching potential intermediaries and service providers, with a short-list due out later this month.

The New Zealand Initiative conservative think-tank is about to release a report on social bonds later this month which reviews overseas experiences and the potential application of the bonds in New Zealand.

Report co-author Jenesa Jeram said overseas experience shows these bonds can markedly improve social outcomes and accountability in the social service sector. However, there are a number of challenges. “These include: the relative immaturity of the social finance and investment market; the complexity of initiating social bonds; and political risks such as a change of government or policy, and overly bureaucratic processes.”

Australia has so far launched two A$10 million social impact bonds, both involving the New South Wales state government and programmes working with at risk families to prevent child abuse and neglect. The first, with UnitingCare Burnside, funded the expansion of the NewPin programme, which restored 28 children in foster care to their families and prevented a further 10 families from entering the children protection system in the first year of the bond. Investors received a 7.5 percent return for the first year against a targeted 10 to 12 percent financial return over the bond’s seven-year term.