Social impact bonds (SIBs) are an innovative funding mechanism for nonprofits looking to solve complex social problems. SIBs allow nonprofits to raise initial funding from private investors, then repay the investors if and when the program achieves agreed-upon outcomes. For nonprofits, SIBs provide multi-year funding and the flexibility to focus on outcomes rather than fundraising.
But how can nonprofits implement an SIB?
First, nonprofits need a program that can drive measurable outcomes. The program should aim to solve a pressing social issue and have a track record of success. Programs like workforce training, affordable housing development, or prisoner recidivism reduction may be good options. With data showing the program’s impact, nonprofits can make a compelling case to investors.
Second, nonprofits must identify and attract investors interested in the program’s mission. This could include donors, foundations, corporations with social responsibility goals, or impact investors looking for financial and social returns. Pitch the program’s outcomes and potential for significant community impact. Investors become partners in creating change.
Third, nonprofits need to partner with a government agency or other third-party “outcome payer.” The outcome payer, like a housing authority or health department, agrees to repay investors if the nonprofit achieves the promised outcomes. Outcome payers benefit by funding a program likely to drive change.
Finally, nonprofits must evaluate outcomes and results to ensure agreed-upon targets are met.
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