‘Recycling’ investment

Social Impact Bonds provide for full repayment to private social investors if the project achieves the contracted outcomes.
04FazFW_1600 Faz-Te Forward focuses on building the skills of young people who are neither studying nor working.

For the private sector, this innovative financing instrument has attractive features, including ‘the possibility of making a positive impact on society on top of a return on investment’, according to Francisco Palmares, who adds that ‘both are dependent upon fully achieving the contracted outcomes’.

‘Of course there is the risk of not receiving a return on investment. However, I believe that the possibility of repayment increases the number of organisations willing to invest in third sector projects.’ So says Afonso Arnaldo, partner at Deloitte, the company that co-invested with the Gulbenkian Foundation in Faz-Te Forward, a project that promotes the employability of youth not in employment, education or training (NEET), by helping them develop soft skills and through coaching and mentoring. Afonso Arnaldo explains that ‘for those who already make non-repayable investments and who believe in a project in the form of a Social Impact Bond potential repayment is an added bonus. If the principal is repaid, it can be reinvested. If not, at least the project was implemented, even if it is unable to achieve all of the desired outcomes, and will undoubtedly have had an impact in the area in which it was implemented. Progress is made through trial and error’.

It is precisely the ability to reinvest the repaid principal, or to ‘recycle’ investment, that makes Social Impact Bonds so attractive to the private sector, as the Gulbenkian Foundation’s experience has shown. Francisco Palmares says that ‘after five years of monitoring these experiments, the Foundation has already been able to recycle the return on SIBs, reinvesting in other projects and systematising several lessons learned’.

Just as the Gulbenkian Foundation, Deloitte is expected to recover its initial investment in Faz-Te Forward which, on the one hand, expects to integrate into the job market 40% of the young people participating in the project (5 groups of 30 young people) within six months after they enter the programme and, on the other, ensure that at least six participants per group keep their jobs for a minimum of six months. And it has proven to be successful yet again: to date, 40% of participants have been successfully integrated into the job market, of which 53% have remained employed for at least six months.

The three currently funded projects are in the final stage of evidence gathering which will not only confirm whether private investors will be repaid, but above all will help demonstrate the benefits of using an alternative pay-by-results procurement model for public services. With this model, it’s win-win for everyone involved: the public, private and third sectors and, of course, all of us.

Social Impact Bonds: why invest in this financing model?

In recent years years, the Calouste Gulbenkian Foundation has financed three Social Impact Bonds (SIBs), the interim reports of which were recently presented by MAZE, an impact investment firm created by the Foundation.

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Updated on 30 july 2020

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